May 2017                                                                                                                                                        Volume 13 - Number 5

Monthly Market Update

In This Issue
(click on logo to link to website)






 CalTRUST Announcements
CalTRUST Preparing for Transition to New Service Providers

As announced in the April Newsletter, the CalTRUST Board of Trustees took action last month to select new service providers including: U.S. Bank to provide custody services (current provider is Wells Fargo); BlackRock to provide investment management services (current provider is Wells Fargo Asset Management); and NorthStar Financial Services Group, LLC to provide fund accounting services (current provider is Nottingham). These selections are all pending final contract review and approval. We understand that these are all critical functions of CalTRUST and want to ensure participants that they will all be transitioned in a thoughtful manner over the course of the summer. The tentative transition date for investment management and custody is July 3rd and the tentative transition date for fund accounting and record keeping services is August 1st. In June, all current CalTRUST participants will be contacted by either Laura Labanieh or Kyle Tanaka to discuss the transition and answer any questions. In the meantime, if you have any questions, please do not hesitate to contact CalTRUST Administrator Laura Labanieh at 916.650.8186 or

Governor's 'May Revision' Kicks Budget Season Into High Gear
Governor Jerry Brown released his updated 2017-18 budget proposal recently, showing modestly improved revenues - relative to January projections - but offering a sobering outlook for the near future.

In his initial budget release in January, the revenue forecast reflected a $5.8 billion reduction in General Fund revenues compared to the 2016-17 budget.  Based largely on the surging stock market since early-November of last year, the May Revise shows a $2.5 billion increase in General Fund revenues.

While acknowledging this modestly improved fiscal picture, the Governor, nonetheless, pointed out that the future budget outlook "is considerably more constrained than in any year since 2012".  To buttress his point, Governor Brown pointed to tougher budget times ahead, predicated on:
  1. Actions being considered at the federal level, which could seriously impair the budget, such as the "repeal and replace" of the Affordable Care Act, which could defund health care for up to 5 million Californians, and the elimination of the deductibility of state taxes which may be a part of federal tax reform; and
  2. The inevitability of a recession at some point in the future, as the economy is about to enter its ninth year of expansion following the Great Recession - just two years short of the longest recovery since World War II.
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
"Normalizing" The Fed's Balance Sheet: The New Monetary Policy Challenge

In their mid-April Special Commentary , the Wells Fargo Securities Economics Group (SEG), looks at the challenges facing the Fed as it begins the process of 'unwinding' its $4.5 trillion balance sheet, consisting of mostly Treasuries and mortgage-backed securities (MBS).

Based upon its guidance to-date, the Fed appears favor what the SEG terms a "passive approach".This entails reducing its holdings in a gradual and predictable manner - ceasing to reinvest proceeds of maturing securities. Since nearly half of its Treasury holdings mature between now and 2020, even a passive approach would significantly reduce the balance sheet in a reasonable time frame.  It's a bit more complicated, however, when it comes to MBS holdings; the SEG believes the Fed will likely choose to reinvest a share of MBS proceeds to excessive shock to the MBS market.

In the view of the SEG, a more "activist approach" - involving outright sales of Treasuries, MBS or a combination of the two - might be triggered by either:

  1. A sharp change in the economic outlook - for example, a large fiscal stimulus package that ramps up growth and fuels inflation; or
  2. A shift in the make-up of the FOMC - five FOMC seats will come open within the next 15 months.  A more hawkish Fed could take a more aggressive approach to reducing MBS holdings. 
The complete  blog post  can be accessed  here.
CalTRUST Portfolio Snapshot (as of April 30, 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  
May 26, 2017
Memorial Day Observed
Early Closure - 11:00 am PST

May 29, 2017
Memorial Day Observed
Closed for Trading

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

July 4, 2017
Independence Day Observed
Closed for Trading

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.