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HomeMy WebLinkAbout2008-04-17 MinutesBoard Members Mayor Coody Chairman Sondra E. Smith Treasurer Eldon Roberts Secretary/ Retired Position 1 Jerry Friend Retired Position 2 Tim Helder Retired Position 3 Melvin Stanley Retired Position 4 Frank Johnson Retired Position 5 ale evit e ARKANSAS Policemen's Pension and Relief Fund Meeting Minutes April 17, 2008 Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April 17, 2008 Page t of 6 A meeting of the Fayetteville Policemen's Pension and Relief Fund was held at 1:30 PM on April 17, 2008 in Room 326 of the City Administration Building Mayor Coody called the meeting to order. Present: Mayor Coody, Melvin Stanley, Tim Helder, Eldon Roberts, Jerry Friend, Sondra Smith, City Clerk, Kit Williams, City Attorney, Amber Wood, Deputy City Clerk, Trish Leach, Accounting, Elaine Longer and Kim Cooper of Longer Investments. Jerry Friend arrived at 1:40 PM. Absent: Frank Johnson Approval of the Minutes: Approval of the January 17, 2007 Meeting Minutes Melvin Stanley moved to approve the minutes. Tim Helder seconded the motion. Upon roll call the motion carried 5-0. Frank Johnson was absent. Jerry Friend was absent during the vote. Approval of the Pension List: April, May, June and July 2008 Pension Lists Mayor Coody: Any changes? Sondra Smith: There are no changes. Tim Helder moved to approve the April, May, June and July 2008 Pension List. Eldon Roberts seconded the motion. Upon roll call the motion carried 5-0. Frank Johnson was absent. Jerry Friend was absent during the vote. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April l7, 2008 Page 2 of 6 Old Business: Elections — Election Ballot Sondra Smith: This year the ballots went to the widows but not the two divorcees that are on the plan. We put your return address on the envelope so that we would know who the ballot came from instead of the pensioner having to sign the envelope. That way we knew if we should count the ballot or not. Eldon Roberts: A total of 50 went out? Sondra Smith: 50 went out. There are 52 on the plan but two are divorcees. Eldon Roberts: We still have a week and a half. Sondra Smith: Until the first of the month, first of May. Mayor Coody: When will you announce the winner? Sondra Smith: Right now the two current pensioners are in the lead. Mayor Coody: Who are the winners? Sondra Smith: It will be Frank Johnson and Jerry Friend. Eldon Roberts: The two that are not here. Sondra Smith: Frank called and he is in training so he could not be here. I think he wants to serve again. New Business: No New Business Items Longer Investments: Investment Report Mayor Coody: Good news, right? Elaine Longer: Today. Stay tuned. Just to bring you up to date the big event was in March. The Fed had cut interest rates twice in January by 125 basis points, they cut again in March by 75 basis points so that brings us 300 below where we were last summer before this whole sub prime thing started unfolding. The big event in March was when they bailed out Bear Sterns and they opened the discount window to investment banking firms which are different and they are not regulated by the FDIC as banks are. This is the first time the Fed has opened up the discount Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April l7, 2008 Page 3 of 6 window to the investment banking firms since the depression. It really is unprecedented. We haven't seen this in our generation what we are going through right now. There was a collective sigh of relief by all the market participants when the Feds brought out the big guns and arranged the shot gun marriage between JP Morgan and Bear Steams. That was the Fed and the Treasury working together to say we are going to maintain orderly markets. So with that the market has held and has since then started responding to good earnings numbers, at that point we were kind of looking over the abyss. We didn't know how bad it looked until after the Fed and Treasury came out on the weekend. Basically they made this announcement before the Asian markets opened that Sunday night, which was March 16th; so that the Asian markets wouldn't have an adverse reaction and then the US markets would then follow through. It was amazing that they did take that step but as it turns out, from everything I'm reading about what was going on behind the scenes, they really had to take that step. With that they have shored up the financial markets even more and some of the interest rate spreads have improved. A lot of the fear indicators in the market which are the volatility index and the credit spreads have improved. The two year treasury yield has come back up to almost 2% which it was down to under 1 % in the midst of all this crisis because people were just flowing to treasuries. A lot of the fear and anxiety type of indicators in the market have really calmed down. It's like the market had a major stress attack and then everybody took a collective sigh of relief and now people are more focused on the earnings which we're seeing a mixed bag. The financial stocks are still very weak as far as the earnings. We're still very underweight financials. The industrial companies and technology are reporting good numbers. IBM and Intel this week reported good numbers that caused a pretty big rally because not only were their earnings but their guidance was more optimistic than what we have heard for awhile. Caterpillar reports tomorrow. Most of these companies that are doing real well are dollar decline beneficiaries which means that as the dollar comes down they become more competitive internationally. It's the companies out there that are producing goods for the growth, they are tapped into the growth in China and India, and those are the ones that are doing the best. It's really interesting to watch the earnings come out. It was a surprise last week when GE missed because GE never, never, never misses. That is why you can never say never in this business because they did on Friday. It scared everybody because it was right in front of this week's earnings numbers and its like if GE is going to miss you can't trust anything. That is why the market was down 260 points on Friday. This week we've had some good numbers. It's still very dicey out there. I don't feel like we are on real solid footings yet. I do think that the lows of January will hold which we tested again in March that's around 11,650 and so now we are around 12,600 or so about 1,000 points off that low that we hit in March. It will take more good news to get us through this trading range which means we would have to break out above 14,000 or so. We are kind of in no mans land here between 11,600 and 14,600. We will trade around in there until we get more good news or more resolution of how this financial crisis is going to unfold. The government is just basically trying to buy time to let the banks re -liquefy, let the inventory of unsold homes get worked off, and just keep everything orderly while we get through this crisis because there's still a lot more to go as far as getting inventory back to a manageable level. So at this point we don't have much exciting news to report except that we're holding our own. That's a good thing. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April l7, 2008 Page 4 of 6 Mayor Coody: The exciting news is that the excitement may be waning and we may have seen the bottom. Elaine Longer: Yes, we hope so. Kit Williams: Except that we are now getting increasing unemployment figures. Elaine Longer: They will probably go up but unemployment is kind of a lagging indicator. The market is a leading indicator so the market discounts a recession six to nine months in advance. There are some economists that say we are in a recession. The text book definition of a recession is two back to back quarters of negative GDP growth. I don't think we are going to have a recession because I don't think you're going to have a first quarter and second quarter down. The first quarter looks like it may actually be a growth recession in that you grow at zero to half of one percent. It will feel like a recession because to keep unemployment from climbing you have to be growing at 2% GDP growth. Anything less than two you are going to see rising unemployment and everyone is going to think we are in a recession but technically we are not. Then the stimulus checks get mailed and they get into the hands of tax payers in May. That will help with some of the retail sales and maybe a boost of confidence. Second quarter GDP is probably not going to be negative either so then you would have to go out to maybe third and forth quarter negative and its really too early to say that it could be that bad in the third and forth quarter. At this point I don't buy into the recession outlook. It will feel like one but I don't think we will technically have one at this point. By July we will know if that's right. Page one is your March 31st Portfolio Appraisal. We were pretty light in January and then as this turmoil has developed we've taking advantage of some of the buying opportunities and so you're back up to 45% in stocks and 8.3% in the international funds. That takes us to 53%. We need approval again to be over 50%. Equity Overage Eldon Roberts moved to approve the equity overage. Jerry Friend seconded the motion. Upon roll call the motion passed 6-0. Frank Johnson was absent. Elaine Longer: I do want to mention something on page one; if you look at the list of holdings you will see the Standard & Poor's depositary receipt of 4,600 shares. This is a proxy for the S&P 500 and we have been able to use this. Last year our performance was double the S&P index, part of the reason is because we use this tool to be able to be very nimble in these kinds of markets. This is called the Spyder, it's an exchange traded fund and it's very liquid and so we hold that as the difference between being fully invested and being under invested in stocks. We can go back and forth taking that off. Yesterday we started selling some of it, we put it on at 127 and it's trading at 137 so we have had a pretty quick 8% pop since mid March. Now we will take some of it off and we will use that to add to other positions that we want to own. The important thing is that that's a really effective tool to be able to get us in and get us out of these volatile markets and control the down side risk when we do go in like we did in March. We went in on the day that it opened and the Bear Sterns news was out because he had about a 1.5% down side risk to see if we were going to violate January lows and it held. So that's something that I wanted to point out because it looks like a large position at 6% but it's a mutual fund. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April l7, 2008 Page 5 of 6 Page five shows realized loss year to date is about $7,000. I think with what we sold yesterday you are back up to no realized losses this year. Net income is $42,389. Page six is your fixed income information. The average yield to maturity on your bond portfolio has remained at 5.5%. That's unchanged from year end. It's actually a little bit higher. It was 5.4% last year. The average maturity is 4.6 years. To give you a comparison the current five year treasury is yielding 2.5%. You have a five year government portfolio that's yielding 5.5%. We still have a lot of flexibility in the fixed income portfolio because 39% of your holdings mature within three years. If we get a run back up in interest rates where we can have an opportunity to lengthen maturity and tap into higher yields we've got the flexibility to sell before maturity and we have 39% there to take advantage of it. Page seven is your largest equity holdings none of which exceeds 4% of equity portfolio. The largest is 2% of total portfolio. Page eight is the industry weightings. To give you an idea of where we are structured, we continue to be overweight in capital goods, energy, healthcare and technology. We are underweight consumer cyclical, consumer non-cyclical, and financials. I think you've seen that for about eight quarters running. We are still very underweight the consumer financials. Kit Williams: When are you going to look at going back in to financial? How long do you think it will be? Elaine Longer: It's going to be a while. The way that we have played it is to buy the XLF which is a financial exchange traded fund and that way you have exposure to Citigroup, Bank America, AGI, American Express and JP Morgan, all of them. You're isolated from a single stock risk but we are still seeing dividend cuts. We're seeing these companies have to go out and attract capital. They are paying dearly to attract capital so the current share holders are getting diluted when they go out and try to bring capital in. If you look at the way you value stock, dividend yield, who knows what the dividends are going to be. Citigroup has cut by 40% and they are probably going to cut again. So you can't value them on a dividend yield because that's still a moving target and then you look at price to book value, well what's book value? Every time you turn around they are taking a $9 billion write down. So you can't value it price to book and then what are price to earnings, well there aren't any earnings right now. All your valuation bench markets don't work right now so the only way to do it is if you want to play it as a under valued sector you can go in when you have a pretty close stop loss and buy the XLF. That's about the only way I would do it at this point and time. Page nine shows your contributions and withdrawals year to date, $335,000 in distributions so far this year. Page 10 we have separated out the performance for this year. Last year equity performance was 10.8% and total was 8.2%, so your compounded annualized numbers were 7.1% over all. Year to date through March 31 equities alone we're down 10.8%, International is down 8.2% but it has out performed the US market. Bonds were up 2.2% so the total was down 3.4%. I think it's up about 2.5% month to date. Stocks are still down year to date but they have recovered some since March 31st. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes April l7, 2008 Page 6 of 6 The out look is still hazy and I would say there's still a lot of this quick trigger. Everybody's finger is on the trigger because nobody knows exactly how this will play out. Everyone has a little more confidence that we are not going to go falling off the cliff but we are also coming into an election that is going to have real important implications for the capital markets. Regardless if you are republican or democrat the parry differences are really important as far as capital markets are concerned because the Democratic Party candidates want to raise taxes on capital, dividend taxes and capital gains taxes which would be a negative impact to the stock market. The stock market will start discounting this stuff in advance and depending on how earnings look and how settled everything is in the summer it may not have a big impact. Because stocks are cheap relative to bonds but if we are still kind of iffy and if earnings aren't coming through it could have a negative impact as we go into the fall. Mayor Coody: Any questions for Elaine? I think you've done a good job. Elaine Longer: Thank you, we appreciate you. Meeting Adjourned at 1:50 PM