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HomeMy WebLinkAbout2008-07-17 MinutesBoard Members Mayor Coody Chairman Sondra E. Smith Treasurer Eldon Roberts Secretary/Retired Positior Jerry Friend Retired Position 2 Tim Helder Retired Position 3 Melvin Stanley Retired Position 4 Frank Johnson Retired Position 5 17a*ye evl e ARKANSAS Policemen's Pension and Relief Fund Meeting Minutes July 17, 2008 Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 17, 2008 Page t of 6 A meeting of the Fayetteville Policemen's Pension and Relief Fund was held at 1:30 PM on July 17, 2008 in Room 326 of the City Administration Building Mayor Coody called the meeting to order. Present: Mayor Coody, Frank Johnson, Melvin Stanley, Eldon Roberts, Jerry Friend, Sondra Smith, City Clerk, Kit Williams, City Attorney, Kim Cooper of Longer Investments. Absent: Tim Helder Approval of the Minutes: Approval of the April 17, 2008 Meeting Minutes Mayor Coody: Are there any corrections? Eldon Roberts moved to approve the minutes. Melvin Stanley seconded the motion. Upon roll call the motion carried 6-0. Tim Helder was absent. Approval of the Pension List: August, September, and October 2008 Pension Lists Mayor Coody: Any changes to the pension lists? Sondra Smith: There are a few changes to the pension lists. They happen to be the turnback funds. Accounting just received those this week and the pension list will show the new turnback amounts. Supplemental amount is at the top of the page, third column over from the left, and the year to date supplement is the fourth column over. You have not received those funds yet because we just received them yesterday but you will be receiving them in August. Eldon Roberts: Is the insurance turnback check aside from the supplemental money? Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 17, 2008 Page 2 of 6 Sondra Smith: There are three different tumback amounts and will go over that in just a minute. It is later in the agenda. I just wanted to let you know that the pension list has changed only by the turnback amounts. The monthly benefits have not changed. I take that back there was one minor change Don Bayles passed away but his benefit amount is going to his spouse so the name is the only thing that changed on the report. Mayor Coody: Alright anything else? Jerry Friend moved to approve the August, September, and October 2008 Pension Lists. Eldon Roberts seconded the motion. Upon roll call the motion carried 6-0. Tim Helder was absent. Old Business: Elections — Results Mayor Coody: Who won? Sondra Smith: Same two that were serving before. Mayor Coody: Congratulations. Jerry Friend: Thank you. Sondra Smith: Its Jerry Friend and Frank Johnson. New Business: Don Bayles — Deceased Sondra Smith: We sent the $200 death benefit check to his estate. A copy of the check is in your packet and a copy of the affidavit that his wife has turned in. Turnback Funds Sondra Smith: The amount this year was less than last year. Last year there was some money that was being held back in a fund and you received that last year. We knew this year's amount would be down some because you received more last year than you normally do. The future supplement was $41,370 the police supplement $30,000 and the regular supplement is $186,429.42. Trish in accounting has done a really good excel spread sheet showing you your turnback funds from 2002 through 2008. If you have any questions on that I would be happy to try to answer them for you or we have Paul Becker here that can help. Mayor Coody: Any questions for Paul on this? Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 17, 2008 Page 3 of 6 Longer Investments: Kim Cooper: I want to reiterate a few of the things that Elaine had mentioned in the letter that she sent to Sondra along with the reports that we sent at the end of the quarter. One of the things that she mentioned in the letter was that as we move through the second quarter the DOW peaked in May, which hit a level of 13,136. Today we are at 11,400. The DOW hit that high on May 23rd and since then, the rise in energy prices, which has progressed further and gone on longer than most people had expected pressure on economic growth is beginning to show in corporate earnings. We're seeing some inflationary pressures, which is putting pressure on the value of the dollar. The credit crisis continues. All of these things are putting pressure on the market, which is why we have seen the pull back to the level that we are at today. Another uncertainty out there is the election, with two candidates that differ very significantly on issues, like tax trade and regulation. That's also putting a strain on the stock market. Quarterly Report Kim Cooper: Page one of your report shows your common stocks as of June 30th were 29.4% and including the foreign which is on the second page of 8.2% you're at 37.6% equities. That's within your policy range. It's very close to the low end of 35%, but still within the policy. I wanted to point out on page two under the government bond section you hold 750,000 two year treasury notes. We've put that in there as a place to put cash. We also own, listed on page three, under alternative investments gold stock or a gold exchange traded fund and we are using both the treasury and that gold fund as a cash alternative since we are so low on stocks. We had a lot more cash in the account than we usually do. You're earning more than money market rates on those two investments. We will use that, one or the other or both of them, when we are ready to go back into equities and get your equity exposure back to the normal level. Since June 30th when we bought that Treasury note you have already made a dollar per bond in capital appreciation on it. Interest rates have come down, as the markets weakened and the financial crisis continued, so interest rates have come down. People are going into bonds as a safe place to be. Page four is your total account value. You have $815,000 in cash which is about 8% of your portfolio. Your total portfolio value is $9,910,000 and the current yield on the account is 3.8% and that includes your stocks and bonds. Page five is a summary of your realized gains year to date which have been $90,883 and your net income which is the cash flow of your dividends and interest of $136,689. Page six is distribution of your fixed income holdings. Right now your average yield to maturity is 5.0% and your average maturity is 4.5 years, those two compare to a five year treasury which right now is 3.25%. The total of your bonds at 5% is even more than you could get it in a thirty year treasury, but you have the safety and liquidity of being in a five year average maturity as opposed to a thirty year. So that yield is excellent. The distribution by maturity you have 42% of your fixed income holdings that are currently in less than a three year maturity. A big part of Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 17, 2008 Page 4 of 6 that is because we have all of those two year bonds that we are holding for liquidity. Having that 42% gives us flexibility as rates rise we can increase your yield on the account. Page seven is your largest holdings, Johnson & Johnson, AT&T, Oracle Corp., General Electric and Intel Corp. All of them, even the largest holding, are within your portfolio perimeters of 2.5% of total portfolio. On page eight right now the industry weightings on the account, you are overweight in energy, health care and technology. You are underweight capital goods, consumer cyclical, consumer non-cyclical, financial and utilities. We are about even with the S&P 500 on cyclical industries. Going through the portfolio appraisal you notice that we've been in a very defensive position and it has served us well throughout the financial crisis. We've got a lot of liquidity in the gold, the bonds, and a lot of cash. We will use that as the turmoil creates opportunities. We're not planning to go fully in all at one point but there's going to be a point that we will see a bottom and we think it will probably be reached before the election. Since we have gone through those lows of March we are just kind of defining what that lower end of the trading range is going to be. We want to in times like these maintain an equity component, but we follow your investment policy and we are staying on the low end of that investment policy. We may at some point go below it but we have that 10% lead way and if that were the case we would come to you and ask your permission at the next meeting if we felt we needed to do that. As the out look becomes more clear we do anticipate moving back up to your normal ranges. Page nine is your contributions and withdrawals. You have received a couple litigations settlements for about a $100 year to date and your withdrawals year to date have been $569,000. Page 10 has the numbers you have been waiting for your performance. We show your annualized return through year end of 2007 where your equities were up 7%, equity mutual funds were up 5.5% and bonds were up 5.9%. Your annualized return through December was 7.1 % on the total account and that exceeds your actuarial assumption. In the middle of the page your 2008 returns through June 30th, your stocks are down 8.9%. That sounds like a huge number but that compares to that 12.8% down that the S&P is. So you are four hundred bases points better than what the S&P 500 has done year to date. Mayor Coody: That is a very good stand. I am very proud of you for that. Kit Williams: It's important to not lose money, not just make a whole bunch. Kim Cooper: That also follows a year last year where we were five hundred points ahead of the S&P 500. The fact that we have not been in financials or the lower allocation to the financials is really served us well throughout the financial crisis. The financial crisis kind of reared its head in June of last year. So it's been about a year since that crisis has irrupted. During that time frame the S&P is down 15%. Your total account return for the year that ended June 30th is up .4%. Even when you hear that the stock market is down so much your portfolio has held up very well throughout that. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 17, 2008 Page 5 of 6 Going on through 2008 returns, your equity mutual returns funds are down 11.5%, your bonds are up 1.7% and total account return year to date is down 2.9%. Again that compares to the S&P 500 year to date which is down 12.8%. At the bottom we show reconciliation since we began managing your account. The total investment return since then has been $6,837,000. To give you a current update right now we are still at about the same level of equities. Your equities are about 39% of portfolio. Yesterday the market snapped back we are up again two hundred points today. Those are mostly due to the steps that the Federal Reserve and the Treasury Department have taken to shore up Freddie Mack and Fannie Mae, the mortgage lenders. It seems like the fed is stepping in quite frequently. We also have had good earnings on Johnson & Johnson, United Technologies, and Intel today. We are right in the middle of heavy earnings. We've seen some very dramatic responses, if earnings are good the stocks going up dramatically, if the earnings are bad there is devastating decline. There is still a lot of volatility in the market and we are just watching everything as each earnings report comes out. The rally off of Tuesday's low probably is not going to hold very long, that was a new low and it was a higher level off of the fifty two week lows that we saw in January and March. So there is still going to be a retest of those lows that we seen earlier in the year before we will start putting cash balances into the stock market. Mayor Coody: Any questions? Jerry Friend: You said the low would probably be reached before the election? Kim Cooper: That is what Elaine feels. Jerry Friend: What if the wrong person gets elected? Mayor Coody: Which one would that be? Kim Cooper: It's not really the fact that there is a wrong or a right person it's just the uncertainty. Jerry Friend: I just wanted to know how you come about that low before the election. Kim Cooper: Probably what she is thinking is the financial crisis. Elaine is sorry that she wasn't able to come today. She is out of town but she is babysitting the market via her laptop. She is watching all these earnings reported as they come out. Paul Becker: If I understand this correctly the equity portion of the portfolio is down 11.5% year to date. Kim Cooper: The equity portion is down 8.9% through June 30. Paul Becker: The yield to maturity in your bond fund is about 5%? Kim Cooper: Yes, 5%. Policemen's Pension and Relief Fund Board of Trustees Meeting Minutes July 17, 2008 Page 6 of 6 Paul Becker: Okay. Basic volatility is done in the last two months. Just in a couple sentences how has that changed your investment strategy. What have you tried to do in the last couple of months? Kim Cooper: We don't change our investment strategy, but like I have said we have moved from being closer to the upper end of the investment policy range which is 35 to 50%. Now we have gone down to that 37% level. Paul Becker: So your over all strategy hasn't changed you have just gone into a more defensive mode. Kim Cooper: Exactly. Mayor Coody: Thank you for keeping our losses to as minimum as you can. Kim Cooper: You're welcome. Meeting Adjourned at 1:50 PM