February 28, 2018                                                                                                                                              Volume 14 - Number 2
In This Issue
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 CalTRUST Update
CalTRUST Webinar Scheduled! 

The CalTRUST Board of Trustees has been discussing the possibility of offering an additional fund: a GASB 79 compliant, 2A7 look-alike fund with a stable net asset value. We previously polled participants to gauge interest and the majority of the Trustees have expressed interest in such a fund.  Please CLICK HERE and register to join us for an informational webinar with BlackRock on March 19, 2018 at 11:00amPST to learn more about this potential new offering.  During the webinar, BlackRock will share with participants additional information on this proposed fund in an effort to receive feedback from participants and gauge interest.  

CalTRUST Annual Meeting

The CalTRUST Board of Trustees will hold their Annual Meeting in Riverside County on April 17-18, 2018.  If there are any items you would like to request be added to the Board agenda for consideration, or if you would like to attend the meeting, please contact CalTRUST Administrator Laura Labanieh at laura@caltrust.org or 916.650.8186. 
Laura Labanieh
(916) 650-8186; laura@caltrust.org
Kyle Tanaka
Member Services Associate
(916) 650-8114; kyle@caltrust.org

Financial Markets Update
Market / Macro Update

Summary: 10-year treasury yields reached their highest point in almost four years, to close out the month at 2.72%, while 30-yr yields were up 21 bps to 2.72%. The yield on the policy-sensitive 2-year T-bills reached 2% for the first time since 2008. The sell-off was part of a wider trend across global sovereign debt markets as a resurgence of optimism regarding inflation - by month end the market was pricing a 99% chance for a March rate hike and a total of 2.64 hikes for the year. Looking at the economy, the picture remains strong overall with industrial production, consumer confidence and the purchasing managers' indexes (PMIs) up and unemployment rate remaining at a 17-year low. Core consumer price inflation (CPI) came in above expectations boosted by housing and medical costs. 

FOMC Meeting: In its policy statement, the Fed subtly upgraded its outlook for inflation and said conditions would warrant "further" interest rate increases, suggesting that a policy rate hike at the March meeting is all but a inevitable conclusion. Overall the committee intends to keep going with normalization and was explicit on that point, but retained its "gradual" guidance. Effective February 3rd, with the new Fed Chair Jeromy Powell will assuming his post, as well as a new Vice Chair to be appointed, along with other Board seats, the composition of the FOMC at the end of the year will be meaningfully different than today. 

Non-farm payrolls: December nonfarm payrolls gained 148K jobs, displaying an impressive string of positive employment numbers that has persisted for seven years now, as the U.S. economy continues to build momentum in employment that is virtually unprecedented over the past several decades. More positively, the unemployment rate remained 4.1% for a third consecutive month. Additionally, average hourly earnings increased by 2.5%.  

Preliminary 4Q17 GDP: The US economy expanded at a weaker-than-expected 2.6% in the fourth quarter. The report showed an uptick of 3.8% in consumer spending and 3% in government spending, but the increase in trade deficit (imports increased at double the rate of exports) reduced gains in GDP. 

December CPI: Headline CPI increased 0.1% (mom) in December, in line with expectations. Core CPI surprisingly rose 0.3% (mom), biggest gain since January 2017. This report brings headline inflation up to 2.1% (yoy) and core CPI inflation to 1.8% (yoy) and supports FOMC members' view that disinflation from 2017 will likely prove transitory.  

Short Duration Portfolio Positioning: Given our view that front-end rates will be pressured higher, both the short and medium term portfolios are positioned short duration versus the benchmark. From a sector perspective the short-term fund is underweight Treasuries, neutral agency debentures and overweight corporates. It holds out-of-benchmark allocations to commercial paper, bank CD's, asset backed securities (ABS) and supranational paper. The Medium term fund is underweight Treasuries and overweight taxable municipals. Corporates, agency debentures and sovereign plus names. It holds out-of- benchmark allocations to ABS.  

Performance (as of January 31, 2018)

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.
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.