City Gets Surprise Returns On Investments
A bull, bear and bull market had traders guessing where stocks were headed in 2020 but for the City of Moose Jaw and their investments the year could almost be described as golden.
At their February 1st meeting Council heard that despite a rough start that 2020 was a good year for the City’s investments and the annual returns had exceeded expectations.
The City saw larger than projected returns on both of their investment pools - Moderate and Long Term - with the final quarter of 2020 leading to the largest three months of returns.
In 2020 the Long Term Investment Pool earned the City an annual rate of return of 9.92 percent whereas the Moderate Term Pool earned the City an annual rate of return of 6.46 percent.
After an initial loss of $6.4 million in the first quarter due to markets battered by COVID - 19 pandemic fears the City’s Long Term Pool generated a profit by end of the third quarter with the bulk of the just over $7 million earned in 2020 ($5,535,074.93) coming in the final quarter of the year.
As of December 31, 2020 the value of the Long Term Pool was $77,029,067.67 or $9,113,671.75 earned since the pool was established on July 22, 2019.
Per Quarter Dollar Returns on the Long Term Pool for City Investments in 2020
After an initial loss of $1.4 million in the first quarter due to markets battered by COVID - 19 pandemic fears the City’s Moderate Term Pool generated a profit by end of the third quarter with the bulk of the $1.925 million earned in 2020 ($1,402,951.37) coming in the final quarter of the year.
As of December 31, 2020 the value of the Moderate Term Pool was $31,699,883.53 or $2,614,448.80 earned since the pool was established on July 22, 2019.
The City’s target annual return for the Moderate Pool is 4.25 percent while the Long Term Pool has a target annual return of 6 percent.
Per Quarter Dollar Returns on the Moderate Term Pool for City Investments in 2020
After the first quarter the dollar losses for both pools totaled $7,814,969.30 but three positive quarters led to a $8.925 million combined gain for both portfolios.
Reading from a prepared statement Investment Committee member Councillor Dawn Luhning stated the financial benefits the City has earned since moving from a blue chip bond to an active equity investment strategy.
“The total investment earnings in 2020 totaled just under $ 9 million or $8.967 million which is equivalent to 30.38 percentage points of taxation so the fourth quarter was certainly a nice surprise after, being in the industry myself, we felt the bottom was falling out in March, April and May and it turned out to be one of the best years the markets have had,” Councillor Dawn Luhning and member of the Investment Committee said.
Councillor Luhning, who initially opposed the new investment strategy because of the cost of hiring a money manager when it was debated at Executive Committee, said the City’s new policy for investing the City’s reserves combined with prudent moves had the City earning millions more than the blue chip bond strategy would have yielded.
“The introduction of these attributes have resulted in significant investment returns. We have achieved equity returns of 14.95 percent in the Moderate Pool equity returns since inception and the Long Term equity Pool 15.34 percent,” she said.
“So the City continues to meet its objectives as set out by the investment policy by slowly transitioning the City’s investments towards the City’s strategic asset allocation to minimize costs and volatility in the short term and the result has been improved returns on behalf of the taxpayers of the City in a very efficient and prudent manner.”
Graph showing the March drop in the Toronto Stock Exchange and the rebound that earned the City’s investments money - SOURCE TSX
Mayor Fraser Tolmie was pleased with the City’s investments rate of return in 2020 noting that the reserve funds and the interest they accrue are “a work horse for the citizens” of Moose Jaw.
“What that does is it allows us to find capital projects we can fund in the future without borrowing and without raising taxes,” Mayor Tolmie said.
At the present time the City of Moose Jaw is experiencing what has been called an infrastructure deficit which are needed infrastructure renewal projects that exceed the City’s ability to pay for them. The 2021 - 2025 Capital Budget lists insufficient funds available in the reserves for all of the City’s capital spending priorities and there is a $15,312,927 deficit.
“I know its a unique position we are in right now with interest rates being low but we want to pay attention, we want to make sure this money makes money and we may not always get this rate of return and part of that is to put a part of this away so we have a higher amount to make interest on,” he said about re-investing some of the returns.
The Mayor said he felt the City’s investment strategy was the correct one as “over the long term…when you are talking to a financial advisor you are always talking about the graph going up.”
“If we continue to have growth we might be able to find other projects where the citizens don’t need us to borrow money…or we have that money there for safe keeping for the times we don’t get that return and we can still withdraw and get us through difficult times.”
The City has borrowed heavily in the last few years to fund on-going infrastructure renewal demands taking advantage as what are described as historically low interest rate and the City’s ability to service the debt.
Additionally Council decided to take out a $15 million line of credit in April to fund operations instead of drawing down the reserves when their portfolio value had been majorly reduced.