June 2017                                                                                                                                                        Volume 13 - Number 6

Monthly Market Update

In This Issue
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 President's Message
CalTRUST Transition Update

As you are aware, CalTRUST issued Requests for Proposals (RFPs) for custody, investment management, and fund accounting services. CalTRUST received multiple responses to each RFP, and a thorough review process of all proposals was conducted by the CalTRUST Product Review Committee. The CalTRUST Board of Trustees selected new providers for all services; U.S. Bank to provide custody services, BlackRock Financial Management to provide investment management services, and NorthStar Financial Services Group, LLC/Gemini Fund Services to provide fund accounting and record keeping services. 

These new providers will assume their duties between July 3rd and August 1st. A timeline and overview of how the transitions will affect CalTRUST participants can be found here. Our CalTRUST staff has called all CalTRUST participants to answer any questions, and in July we will be holding webinars and offering in-depth user guides on the new online trading system that will be implemented on August 1st. We are confident in a smooth transition as the transition teams have been meeting regularly and working closely together. 

While we are in a trading blackout period beginning tomorrow, and through July 4th, as of July 5th CalTRUST participants can begin full trading again, including accessing our new money market and government fund offerings through BlackRock.  The current online participant access and trading platform will remain in place through July. 

We are grateful for the services provided to us over the years by Nottingham, Wells Fargo, and Wells Fargo Asset Management.  As CalTRUST continues to grow and evolve and we are excited to move forward with the new team of BlackRock, NorthStar/Gemini, and U.S. Bank.   

If you have any questions regarding the transition, please contact CalTRUST's Administrator Laura Labanieh (laura@caltrust.org or 916.650.8186) or Member Services Associate Kyle Tanaka (kyle@caltrust.org or 916.650.8114).  

Dan McAllister
San Diego County Treasurer
CalTRUST President

With Economic Data Trending Modestly Higher, Public Agency Investors Should Be Positioned For Challenge of Higher Rates

As expectations build for a June rate hike by the Fed, and modestly rising rates in the short end of the yield curve, fixed income investors face challenges -- whether they be individuals or institutional investors such as public agencies.  The stubbornly low yield environment since the 2008 financial crisis has presented investors with near zero yields for short-maturity securities and -- comparatively -- modestly higher yields for longer maturity investments.  Given the persistence of this low rate environment, it is understandable that many investors have been tempted to look to longer maturity securities to boost the yield on their portfolios.

This "reach for yield", however, exposes investors to interest rate risk.  Since bond prices move in inverse relationship to yield and the general direction of rates, as rates move higher the price of fixed income securities falls.  In a rising rate scenario, this inverse relationship can result in negative rates of total return on an individual security or a portfolio; even on "safe-haven" instruments such as US Treasuries.

Public agency investors tempted to "reach" for additional yield by extending the maturity of their holdings should do so only with a full understanding of the additional risk they are assuming.  For those unwilling to assume this additional risk, a more prudent approach may instead be to shorten their target duration.  This approach enables an investor to manage interest rate risk, while ensuring sufficient liquidity to meet anticipated cash needs, and provides the flexibility -- in the form of available cash -- to take advantage of higher rates when they do arrive.

For more information on the CalTRUST funds, please contact:
Laura Labanieh
CSAC Finance Corporation
(916) 650-8186
Norman Coppinger
League of CA Cities
(916) 658-8277
Neil McCormick
CA Special Districts Association
(916) 442-7887

Financial Markets Update
Wells Fargo Investment Institute Mid-Year Outlook Sees "Slow But Steady" Growth Continuing Into 2018

In its 2017 Midyear Outlook , the Wells Fargo Investment Institute finds confirmation -- so far -- of its beginning-of-the-year expectation of steady global economic growth in a low inflation environment, with political uncertainties presenting the most significant risk to the forecast.  The midyear update of that outlook essentially sees more of the same for the remainder of 2017 and into 2018. 

Overall, the Outlook sees improving global economic growth, with flat commodity prices and only modest gains in wages and consumer spending keeping global inflation in check.  This modest growth/low inflation environment should provide central banks with sufficient latitude to remove their fiscal stimulus.

For the US, the Outlook team sees:
  • Continued moderate job gains;
  • Rising wages, which could at some point pinch corporate earnings growth; and
  • Continued brisk home sales, with rising prices crimping affordability;
  • Consumer and business spending and borrowing consistent with measured growth, with no sign of the over-exuberance which typically foretells the next recession.
I n light of these factors and the restrained rate environment, the Outlook team does not see a recession coming in the next 12 months.

The complete  blog post  can be accessed  here.
CalTRUST Portfolio Snapshot (as of May 31, 2017)

1. CalTRUST Short-Term and Medium-Term and LAIF yields are net of fees.  Merrill 1-5 Year Indexes are unmanaged; and do not reflect any deduction for administrative fees or expenses.
2. CalTRUST and LAIF returns are net of all investment advisor, administrative and program fees.
3. Annualized.
4. The CalTRUST Short-Term and Medium-Term portfolios commenced operations on February 13, 2005.
CalTRUST Government & Heritage Money Market Funds

Treasury Yield Curve 
2017 Calendar  
June 28, 2017 - July 4, 2017
Investment Manager & Custody Transition
Trading Blackout Period

July 3, 2017
Independence Day Observed
Early Closure - 10:00 am PST

July 4, 2017
Independence Day Observed
Closed for Trading

July 5, 2017
Investment Manager & Custody Transition Complete
Trading Resumes

September 4, 2017
Labor Day Observed
Closed for Trading

October 9,  2017
Columbus Day Observed
Bond Market Closed for Trading

November 23, 2017
Thanksgiving Day Observed
Closed for Trading

November 24, 2017
Thanksgiving Day Observed
Early Closure - 10:00 am PST

December 22, 2017
Christmas  Observed
Bond Market Early Closure - 11:00 am PST
December 25, 2017
Christmas Observed
Closed for Trading

December 29, 2017
New Year's Eve Observed
Bond Market Early Closure - 11:00 am PST

2018 Calendar  
January 1, 2018
New Year's Day Observed
Closed for Trading
The CalTRUST Monthly Market Update  is prepared monthly by the Investment Trust of California (CalTRUST) for participants in the CalTRUST Joint Powers Authority pooled investment program.  The Newsletter is prepared solely for informational purposes and is not to be construed as the solicitation of an offer to sell or of an offer to buy any security, nor is it intended to constitute a recommendation for the purchase or sale of any security.  The information contained herein is based upon data obtained from sources believed to be reliable, but is not guaranteed by us as being accurate and does not purport to be a complete summary of the available data.  Additional data will be provided upon request. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance.  Information, opinions and estimates contained in the Monthly Market Update reflect a judgment at its preparation date by CalTRUST and are subject to change without notice.  The price, value of, and income from any securities or financial instruments issued by the entities mentioned in this Monthly Market Update may fall as well as rise.