Summary of Investments 30 April 2022 - NSW Government

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Penrith City Council
                                        Summary of Investments
                                            30 April 2022
Commentary
The Reserve Bank of Australia (RBA) met on 03 May 2022 and the Board decided to increase the current cash
rate to 0.35% – 25 basis points over the 0.10% of the former cash rate. The Board’s decision to raise the cash
rate was attributed to the higher inflation rate result for the first quarter of this year (2022); and there have
been signs of growth in wages. The resilience in Australia’s Economy has also been evident in the unemployment
rate, which is the lowest result in almost 50 years. In this position, Governor Philip Lowe of the RBA decided to
bring forward the cash rate increase in May 2022, a month earlier than what the Big4 banks initially predicted.
It is almost unanimously believed, by economists, that further increase in cash rate is expected.

The Australian Economy has continually shown signs of recovery as the impact of vaccination rate continues to
increase; therefore, allowing businesses to trade, people to move around and travel as borders between States
begin to open. Bank Bill Swap Rates (BBSW) has shown continued improvements in April 2022, resulting in higher
term deposit rates being offered in the market. Inherent with the increase in term deposit rates being offered
for reinvestments, the original budget estimated return of 0.45%, for 2021/22 Financial Year, has been
favourably surpassed – April 2022 result is detailed in this report. At the time the current year’s budget was
conceptualised, the average term deposit rate (between 1month to 1 year) being offered was 0.24%. Presently,
the average term deposit rate (between 1month to 1 year) being offered is 1.37%.

The 2022/23 Federal Budget delivered strategies that aim to drive resilience in the Australian Economy’s future.
The budget focuses on:
       • delivering more jobs and working towards unemployment below 4 per cent,
       • investing in stronger defence, borders, and security,
       • continuing record investments in health, education, women’s safety, and other essential services,
       • delivering cost of living relief for Australians and supporting small businesses; and
       • investing in the roads, rail, dams, and renewable energy technology, that will build our future.

Australia’s Long-term government bond yields have remained low, consistent with several countries. Bank
funding costs in Australia have also declined, with money-market spreads having fully reversed the increases
that took place last year. Borrowing rates for both businesses and households have started to rise, consistent
with the RBA cash rate increase outlook, since November 2010. The Australian dollar is at the low end of its
narrow range of recent times.

The inflation rate at the first quarter of 2022 (January 2022-March 2022), being the most recent quarterly result,
has increased to 5.1%, from 3.5% in the previous period - in both headline and underlying terms. The March
2022 unemployment rate is 4.0%, a consistent with the previous period. As at writing and completion of this
report, the unemployment rate for April 2022 has not been released.

The Council’s portfolio has continued to outperform the 90 Day Bank Bill Swap Rate (BBSW) benchmark during
reportable month of April 2022. Investments will continue to be monitored closely, to ensure returns are
maximised as opportunities become available.

The investment returns versus the benchmark and annual budget as a percentage for April 2022 are:
        Council portfolio current yield (including FRNs)                            0.66%
        90-day Bank Bill Swap Rate (Benchmark)                                      0.39%
        Enhanced 90-day Bank Bill Swap Rate (Benchmark – BBSW + 20bps)              0.59%
        Original budget estimated return (2021/22 Financial Year)                   0.45%
Penrith City Council
                                       Historical Investment Performance
Table 1
                                                       Actual Portfolio         Benchmark (BBSW)                 Enhanced
                                                                                                                Benchmark
                                                                                                              (BBSW+20bps)
   Current Portfolio Yield (including FRNs)                  0.66%                     0.39%                      0.59%
   Past 12 Month Portfolio Performance                       0.57%                     0.08%                      0.31%
   Portfolio Return for the Period                           0.06%                    0.032%                      0.05%

Portfolio Yield (Actual Versus Benchmark)
The annual weighted average income return on investments, to 30 April 2022, was 0.66%. This graph tracks
performance over time and shows that the yield was between 0.51% and 0.66% for the past year - still above
the BBSW and Enhanced Benchmark, over the same period and economic climate. As at 9 August 2021 Policy
Review Committee, the ‘Enhanced Benchmark’ has been reduced to 20 basis points (bps) from 45bps – post
review of the current market spread offerings. Weighted yield has continued to drop due to current term
deposits invested at lower rates - between 0.30% and 1.41%.
Graph 1
                                       Investment Portfolio as at 30 April 2022
                                           Monthly Net Return Annualised
 0.70%

 0.60%

 0.50%

 0.40%

 0.30%

 0.20%

 0.10%

 0.00%
          May-21 Jun-21      Jul-21   Aug-21 Sep-21      Oct-21          Nov-21 Dec-21     Jan-22    Feb-22 Mar-22        Apr-22
             PCC Monthly Net Return Annualised                                BBSW Monthly Net Return Annualised
             Enhanced BBSW Monthly Net Return Annualised
Annual Portfolio (Actual)
The graph below illustrates the annual trend of the Council’s monthly Investment Portfolio balances.
Graph 1.1
                         Historical Monthly Balance of Investment Portfolio as at 30 April 2022
 $200,000,000

 $190,000,000

 $180,000,000

 $170,000,000

 $160,000,000

 $150,000,000

 $140,000,000

 $130,000,000
                May-21    Jun-21   Jul-21     Aug-21   Sep-21   Oct-21    Nov-21   Dec-21   Jan-22   Feb-22    Mar-22   Apr-22
Penrith City Council
                  Investment Summary by Asset Group and Monthly Movement
Table 1.1

 Asset Group                                                                Closing Value                      Closing Value
                                                                            (Face Value)                       (Face Value)
                                                                           31 March 2022                       30 April 2022
                                                                            $             %                    $              %
 Current Cash on Call Group (excl General Fund balance)                   14,162,450      7.61%              14,562,032      7.97%
 Term Deposit Group                                                     152,500,000        81.85%          146,000,000        79.91%
 Floating Rate Notes                                                      16,150,000         8.67%           16,150,000          8.84%
 Mortgage Backed Securities*                                               1,961,530         1.05%            1,961,530          1.08%
 Sub-Total                                                              184,773,980                        178,673,562
 General Fund Bank Balance                                                 1,535,193         0.82%            4,025,291          2.20%
 Total                                                                  186,309,173           100%         182,698,853           100%
* MBS Purchased in 2006/2007 prior to the current Ministerial Investment Order. This product is being ‘Grandfathered’ – i.e., the Council
will continue to actively manage these investments within the portfolio. However, the Council is not permitted to place further funds in
this bank, due to its credit rating.

                                   April 2022 Investments % Allocation by Asset Groups

   The graph below illustrates the dissection of the Council’s Portfolio per investment products or categories.

 Graph 1.2

                                                                                               Floating Rate Notes,
                                                                                                      8.84%

                                                                                                                Mortgage Backed
                                                                                                                Securities*, 1.08%

                                                                                                          General Fund Bank
                                                                                                           Balance, 2.20%

                                                                                                          Current Cash on Call
    Term Deposit Group,                                                                                    Group (excl bank
          79.91%                                                                                            balance), 7.97%
Penrith City Council
                     Reconciliation of Invested Funds and Monthly Movement
Table 1.2

                                                                                     Period Ending                Period Ending
                                                                                     31 March 2022                30 April 2022
                                                                                           $                            $
 Represented by:
 Externally Restricted Assets
 Section 7.11 Developer Contributions                                                         53,926,301                     53,884,260
 Restricted Contributions for Works                                                            3,623,101                      3,922,506
 Unexpended Grants*                                                                           12,813,505                     12,198,137
 Other Externally Restricted                                                                  36,286,289                     40,466,022
                                                                   Sub-Total                106,649,196                  110,470,925
 Internally Restricted Assets - Funding of Operations
 Internal Reserves                                                                            57,301,647                     55,389,682
 Security Bonds and Deposits                                                                  16,804,167                     16,829,799
                                                                   Sub-Total                  74,105,814                     72,219,481
 Restricted Assets Utilised in Operations
 Unrestricted Invested Funds                                                                   5,554,163                          8,448
 Total Cash and Investments                                                                 186,309,173                  182,698,853
*Balance may be in deficit when funds are spent in advance of grant payment date to the Council.

NOTE: The above figures have been prepared under cash basis accounting.

                                    April 2022 Investments % Allocation by Cash Reserve Type

                            This graph demonstrates the allocation of the Council’s cash reserves.

 Graph 1.3

                                                                                  Unrestricted Invested
                                 Security Bonds and
                                                                                     Funds, 0.005%
                               Deposits - Payable, 9.21%

                                                                                                    Section 7.11 Developer
                                                                                                    Contributions, 29.49%

       Internal Reserves,
            30.32%

                                                                                                      Restricted Contributions
                                                                                                         for Works, 2.15%

                                                                                                   Unexpended Grants*,
                                                                                                         6.68%

                                                                        Other Externally
                                                                       Restricted, 22.15%
Penrith City Council
                                                 Investment Summary
                                        (Graphed to reflect fund ratings as % of portfolio)
Table 1.3

                                                                                30 April 2022
 Credit Rating     Bank/Financial Institution -                            Utilised       Portfolio        Policy Maximum
 (per Moody’s)                                                                $               %                   %
 Short Term
 Prime 1           CBA, NAB, Bankwest, Westpac, TCorp                    107,587,323          58.88%   100% (40% per institution)
 Prime 1           Macquarie Bank                                          5,000,000           2.74%   100% (40% per institution)
 Prime 2           AMP Bank                                                5,000,000           2.74%   40% (20% per institution)
 Prime 1 & 2                                                             117,587,323          64.36%
 Long Term
 Aa3               Term Deposit - Long Term (CBA,WBC & NAB)               46,000,000          25.19%   100% (40% per institution)
 Aa3               Floating Rate Note (WBC)                                2,000,000           1.09%   100% (40% per institution)
 Aa3               Floating Rate Note (NAB)                                2,400,000           1.31%   100% (40% per institution
 Aa3               Floating Rate Note (ING)                                1,000,000           0.55%   100% (40% per institution
 A2                Floating Rate Note (Macquarie Bank)                     3,000,000           1.64%   40% (20% per institution)
 A2                Term Deposit - Long Term (Macquarie Bank)               1,000,000           0.55%   40% (20% per institution)
 A3                Floating Rate Note (Bendigo & Adelaide Bank)            3,000,000           1.64%   20% (10% per institution)
 A3                Floating Rate Note (Bank of Queensland)                 4,750,000           2.60%   20% (10% per institution)
 Baa2              Mortgage Backed Securities                              1,961,530           1.07%   Grandfathered
                   (Barclays Capital) *
 Total Portfolio                                                      182,698,853       100.00%
*Investments placed prior to current Ministerial Order. This product is being ‘Grandfathered’ – i.e., the Council will continue
to actively manage these investments within the portfolio. However, the Council is not permitted to place further funds in
this bank, due to its credit rating.
                               April 2022 Investments % Allocation by Moody’s Fund Rating
Reflects Moody’s fund ratings as percentage (%) of the portfolio, to show compliance with the Council’s Investment Policy
                                             objectives of minimising risk.
Graph 1.4

                                   A2, 0.55%    A3, 1.64%    A3, 2.60%         Baa2, 1.07%

                                A2, 1.64%
                               Aa3, 0.55%
                              Aa3, 1.31%
                           Aa3, 1.09%

                     Aa3, 25.19%

                                                                                                           Prime 1, 64.36%
Penrith City Council
                                              Diversification of Portfolio
                                      (Graphed to reflect fund ratings as % of portfolio)

Table 1.4

                                                                                                      30 April 2022
 Dealing Bank                                           Short Term          Long Term       Investment ($)        Allocation (%)
 TCorp                                                     Prime 1            Aaa                2,495,936                1.37%
 Commonwealth Bank of Australia                            Prime 1            Aa3               42,591,387               23.30%
 National Australia Bank                                   Prime 1            Aa3               72,400,000               39.63%
 Westpac Banking Corporation                               Prime 1            Aa3               36,500,000               19.98%
 ING Bank (Australia)                                      Prime 1            Aa3                1,000,000                0.55%
 Macquarie Bank                                            Prime 1             A2               13,000,000                7.12%
 Bendigo and Adelaide Bank                                 Prime 2             A3                3,000,000                1.64%
 Bank of Queensland                                        Prime 2             A3                4,750,000                2.60%
 Barclays Bank                                             Prime 2            Baa2               1,961,530                1.07%
 AMP Bank                                                  Prime 2            Baa2               5,000,000                2.74%
 Total Investment                                                                              182,698,853              100.00%

                  April 2022 Investment % Allocation by Financial Institutions (per Moody’s Credit Ratings)

Reflects the spread of investments amongst various Financial Institutions to show portfolio diversification in accordance
                                      with the Council’s Policy of risk aversion.

Graph 1.5

                                                Barclays Bank        AMP Bank
                         Bank of Queensland                                                   Tcorp
                                                   1.07%              2.74%
                               2.60%                                                          1.37%
         Bendigo and Adelaide Bank
                   1.64%
                                                                                                  Commonwealth Bank of
                 Macquarie Bank                                                                        Australia
                     7.12%                                                                             23.30%

             ING Bank (Australia)
                   0.55%

                Westpac Banking
                 Corporation
                    19.98%

                                                                                             National Australia
                                                                                                   Bank
                                                                                                  39.63%
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