The URL can be used to link to this page

AC 01-24-2022 Searchable PacketCITY OF CUPERTINO AUDIT COMMITTEE AGENDA This will be a teleconference meeting without a physical location. Monday, January 24, 2022 4:00 PM Regular Meeting TELECONFERENCE / PUBLIC PARTICIPATION INFORMATION TO HELP STOP THE SPREAD OF COVID-19 In accordance with Government Code 54953(e), this will be a teleconference meeting without a physical location to help stop the spread of COVID-19. Members of the public wishing comment on an item on the agenda may do so in the following ways: 1) E-mail comments by 2:00 p.m. on Monday, January 24 to the Audit Committee at AuditCommittee@cupertino.org. These e-mail comments will be received by the Audit Committee members before the meeting and posted to the City’s website after the meeting. 2) E-mail comments during the times for public comment during the meeting to the Audit Committee at AuditCommittee@cupertino.org. The staff liaison will read the emails into the record, and display any attachments on the screen, for up to 3 minutes (subject to the Chair’s discretion to shorten time for public comments). Members of the public that wish to share a document must email AuditCommittee@cupertino.org prior to speaking. 3) Teleconferencing Instructions Members of the public may observe the teleconference meeting or provide oral public comments as follows: Oral public comments will be accepted during the teleconference meeting. Comments may be made during “oral communications” for matters not on the agenda, and during the public comment period for each agenda item. To address the Audit Committee, click on the link below to register in advance and access the meeting: Register in advance for this webinar: Page 1 1 Audit Committee Agenda January 24, 2022 https://cityofcupertino.zoom.us/webinar/register/WN_duCd4fNpRqurt9rYyOs0fQ Phone Dial: 669-900-6833 and enter Webinar ID: 914 5469 4403 (Type *9 to raise hand to speak, *6 to unmute yourself). Unregistered participants will be called on by the last four digits of their phone number. Or an H.323/SIP room system: H.323: 162.255.37.11 (US West) Meeting ID: 914 5469 4403 SIP: 94164589868@zoomcrc.com After registering, you will receive a confirmation email containing information about joining the webinar. Please read the following instructions carefully: 1. You can directly download the teleconference software or connect to the meeting in your internet browser. If you are using your browser, make sure you are using a current and up-to-date browser: Chrome 30+, Firefox 27+, Microsoft Edge 12+, Safari 7+. Certain functionality may be disabled in older browsers, including Internet Explorer. 2. You will be asked to enter an email address and a name, followed by an email with instructions on how to connect to the meeting. Your email address will not be disclosed to the public. If you wish to make an oral public comment but do not wish to provide your name, you may enter “Cupertino Resident” or similar designation. 3. When the Chair calls for the item on which you wish to speak, click on “raise hand.” Speakers will be notified shortly before they are called to speak. 4. When called, please limit your remarks to the time allotted and the specific agenda topic. In compliance with the Americans with Disabilities Act (ADA), anyone who is planning to attend this teleconference meeting who is visually or hearing impaired or has any disability that needs special assistance should call the City Clerk's Office at 408-777-3223, at least 6 hours in advance of the meeting to arrange for assistance. In addition, upon request, in advance, by a person with a disability, meeting agendas and writings distributed for the meeting that are public records will be made available in the appropriate alternative format. Page 2 2 Audit Committee Agenda January 24, 2022 REGULAR MEETING ROLL CALL ORDERS OF THE DAY APPROVAL OF MINUTES 1.Subject: Approve Regular Meeting Minutes from December 13, 2021 Recommended Action: Approve Regular Meeting Minutes from December 13, 2021 A - Minutes 12.13.21 ORAL COMMUNICATIONS This portion of the meeting is reserved for persons wishing to address the Committee on any matter within the jurisdiction of the Committee and not on the agenda. Speakers are limited to three (3) minutes. In most cases, State law will prohibit the Commission from making any decisions with respect to a matter not on the agenda. NEW BUSINESS 2.Subject: Treasurer's Report for Quarter Ending December 31, 2021 Recommended Action: Accept Treasurer's Report for Quarter Ending December 31, 2021 Staff Report A - Treasurer's Report 12.31.2021 B - LAIF Statement C - WF Custodial Statement 12.31.21 D - WF Operating Statement 12.31.21 E - Workers Compensation Statement 12.31.21 3.Subject: US Bank Performance Report for Quarter Ending December 31, 2021 Recommended Action: Accept US Bank Performance Report for Quarter Ending December 31, 2021 A - US Bank Performance Report 12.31.21 4.Subject: FY 2020-21 ACFR and Supplemental Reports Recommended Action: Accept FY 2020-21 ACFR and Supplemental Reports OLD BUSINESS STAFF AND COMMITTEE REPORTS FUTURE AGENDA SETTING Page 3 3 Audit Committee Agenda January 24, 2022 ADJOURNMENT In compliance with the Americans with Disabilities Act (ADA), anyone who is planning to attend this teleconference meeting who is visually or hearing impaired or has any disability that needs special assistance should call the City Clerk's Office at 408-777-3223, at least 6 hours in advance of the meeting to arrange for assistance. In addition, upon request, in advance, by a person with a disability, meeting agendas and writings distributed for the meeting that are public records will be made available in the appropriate alternative format. Any writings or documents provided to a majority of the members after publication of the agenda will be made available for public inspection. Please contact the City Clerk’s Office in City Hall located at 10300 Torre Avenue, Cupertino, California 95014, during normal business hours. IMPORTANT NOTICE: Please be advised that pursuant to Cupertino Municipal Code section 2.08.100 written communications sent to the Cupertino City Council, Commissioners or City staff concerning a matter on the agenda are included as supplemental material to the agendized item. These written communications are accessible to the public through the City’s website and kept in packet archives. Do not include any personal or private information in written communications to the City that you do not wish to make public, as written communications are considered public records and will be made publicly available on the City website. Members of the public are entitled to address the members concerning any item that is described in the notice or agenda for this meeting, before or during consideration of that item. If you wish to address the members on any other item not on the agenda, you may do so during the public comment. Page 4 4 CITY OF CUPERTINO Agenda Item 22-10371 Agenda Date: 1/24/2022 Agenda #: 1. Subject: Approve Regular Meeting Minutes from December 13, 2021 Approve Regular Meeting Minutes from December 13, 2021 CITY OF CUPERTINO Printed on 1/21/2022Page 1 of 1 powered by Legistar™5 Page 1 City of Cupertino Audit Committee Special Meeting Minutes December 13, 2021 CALL TO ORDER At 4:00 p.m., Chair Liang called the special meeting to order. This was a teleconference meeting with no physical location. ROLL CALL Committee Members Present: Chair Daisy Liang, Vice Chair Chen, Vice Mayor Chao, Councilmember Moore City Staff Present: Chris Jensen, Dianne Thompson, Kristina Alfaro, Zach Korach, Thomas Leung Absent: Committee Member Song Guests: None. 1. APPROVAL OF MINUTES Vice Mayor Chao moved to approve the regular meeting minutes of November 15, 2021. Chair Liang seconded and the motion carried unanimously by all members present. ORAL COMMUNICATIONS None. NEW BUSINESS 2. Embezzlement Update – 20 minutes City Attorney, Chris Jensen briefed the Committee on the current status of the embezzlement case. The Committee requested this item be brought back upon conclusion of the case. 3. Proposed Audit Committee 2022 Schedule and Work Plan – 35 minutes The Committee reviewed the proposed work plan. Councilmember Moore referenced CA Gov’t Code 41004 regarding the monthly submission of receipts, disbursements, and fund balance and the City being non-compliant. Korach noted staff would consult with the City Attorney regarding a remedy and bring back to the Committee. Councilmember Moore also requested budgets be brought to the Committee. Korach noted there are two meetings in 2022 that cover budget format review. Vice Mayor Chao and Chair Liang discussed the possibility of having monthly meetings. 4. Budget Format Review and Opengov Study Session – 45 minutes Thomas Leung provided the walk through training of Opengov 6 Page 2 Vice Mayor Chao and Councilmember Moore spoke to budget workshops, community engagement, and surveys regarding the OpenGov tool. Vice Mayor Chao and Chair Liang requested a “global search” function be added. Councilmember Moore requested consistent references to OpenGov be used and that more explanatory notes are included on the site. Vice Mayor Chao asked about examples of how to find things a viewer might be looking for (guides/FAQs). Leung provided explanations and also noted that a short video has been created and can be added to the City’s website. Public Comment: Peggy Griffin spoke to various recommendations for improvement to Opengov. 5. Pension and OPEB Discount Rate Sensitivity Analysis – 15 minutes Leung provided the follow-up presentation. Chair Liang and Vice Chair Chen inquired about the use of the trusts and the history/schedule of contributions. Leung explained how the trusts are used and the historical and current contribution plan. OLD BUSINESS None. STAFF AND COMMITTEE REPORTS None. FUTURE AGENDA SETTING None. ADJOURNMENT The meeting adjourned at 6:00 p.m. Recording Secretary: Zach Korach, Finance Manager 7 CITY OF CUPERTINO Agenda Item 22-10361 Agenda Date: 1/24/2022 Agenda #: 2. Subject: Treasurer's Report for Quarter Ending December 31, 2021 Accept Treasurer's Report for Quarter Ending December 31, 2021 CITY OF CUPERTINO Printed on 1/21/2022Page 1 of 1 powered by Legistar™8 ADMINISTRATIVE SERVICES DEPARTMENT CITY HALL 1 10300 TORRE AVENUE • CUPERTINO, CA 95014-3255 TELEPHONE: (408) 777-3227 www.cupertino.org AUDIT COMMITTEE STAFF REPORT Meeting: January 24, 2022 Subject Treasurer’s Investment Report for period ending December 31, 2021 Recommended Action Accept staff report and provide recommendations. Discussion Background The City retained Chandler Asset Management (Chandler) through a formal Request for Proposal (RFP) process in 2018. Chandler began their work with the City in the winter of 2018, conducting multiple meetings with staff to determine an investment structure and strategy. Using an assumption for the compound annualized growth rate (CAGR) of 2% over the next three years and a continued 10% liquidity cushion, the initial core portfolio was estimated to total at approximately $121 million, leaving the City with liquid funds ranging between $13-$20 million. Additionally, Chandler performed a comprehensive review of the City’s investment policy. Although the policy was sufficient for operational purposes, significant recommended changes were made for completeness and clarification purposes. These changes were approved by City Council on May 21, 2019. Beginning in March 2019, Chandler began forming the City’s portfolio by purchasing agency (FHLB), corporate medium-term notes, and negotiable certificates of deposit. Portfolio Report Overview As of and for the quarter ending December 31, 2021, the City initiated $10,625,933 in corporate, and treasury purchases. The City also made treasury dispositions of $5,519,672. Ending book and market value for the portfolio was $139,190,635 and $139,354,120, respectively. In accordance with California Government Code §53646 (b)(3), the City maintains the ability to meets its expenditure requirements for the next six months. City’s holdings were as follows: Wells Fargo – Workers Comp Checking $ 24,767 Wells Fargo – Regular Checking $ 29,950,992 LAIF State Pool $ 21,031,062 Total Cash & Cash Equivalents $ 51,006,821 Total Investments $139,325,625 TOTAL $190,332,446 9 Below are some historical quarterly comparisons for the City’s portfolio:  Total cash and investment balance increased approximately $10.4 million over previous quarter to $190.3 million  Average maturity increased from 2.82 years to 2.83 years  Average purchase yield remained at 1.21%  Average market yield increased from 0.56% to at 0.96%  Duration increased from 2.56 to 2.59 Yield comparisons for the 1Y Treasury, 2Y Treasury, LAIF, and City average are presented below: 10 Historical revenues, expenditures, and liquidity ratios are presented below: Using three-year historical trend data, the City estimates revenues of $31.8 million and expenditures of $25.6 million, resulting in an ending cash and cash equivalent balance of $57.2 million for the period ending March 31, 2022. 11 incurs one-time special project or capital expenditure costs and the timing of these costs is more difficult to pinpoint to a particular month. From a cash flow analysis perspective, the Adopted and Amended Budgets are efficient planning tools in determining cash flow needs for a single fiscal year. If a budget is adopted at a position in which revenues and expenditures are balanced, then it’s reasonable to conclude cash flow is unlikely to be of a concern. Beyond one fiscal year, a City requires a multi-year forward-looking forecast using historical as well as prospective assumptions. This forecasting model is incorporated and presented to the City’s Fiscal Strategic Planning Committee as well as the City Council as part of the City’s Adopted Budget process. Investment Trust Portfolio A Section 115 Trust is a tax-exempt investment tool that allows local governments to pre-fund pension and retiree health costs. Once contributions are placed into the trust, assets from the trust can only be used for retirement plan purposes. Withdrawals may be made to either reimburse the City for retirement system contributions or to directly pay CalPERS. The benefits of a Se ction 115 Trust include the following:  Local control over assets: The City controls the contributions, withdrawals, investment strategy, and risk level of assets in the Trust.  Pension rate stabilization: Assets can be transferred to CalPERS at the City’s discretion to pay for Normal Cost or UAL contributions, and can be used to reduce or eliminate large fluctuations in the City’s pension costs.  Potential for higher investment returns than General Fund: Investment requirements that apply to the City’s General Fund assets under Government Code 53601 are not applicable to Trust assets.  Diversification: Trust assets will be diversified from CalPERS investments. Given that pension obligations are one of the City’s largest financial obligations, the City has taken proactive steps to reduce the impacts of pension cost volatility. In March 2018, the City provided options to Council on address rising pension costs and in April 2018, the City presented a long-term pension funding strategy to the Fiscal Strategic Plan Committee. In May 2018, the City implemented a Pension Rate Stabilization Program (PRSP), also known as a Section 115 Trust, to reduce the effect of pension rate volatility on the City’s budget. The City contributed $8.0 million in FY 2017-18, $4.0 million in FY 2019-20, and $2 million in FY 2020-21. This brings total contributions to $14.0 million and investment earnings of $4.8 million for a total balance of $18.8 million as of December 31, 2021. As a fiscal sustainability measure, the City funds the Section 115 Trust using a more conservative discount rate of 6.5%. The City plans to accumulate sufficient funds in the Section 115 Trust to fund the difference between a 6.25% and a 7% discount rate. By using a more conservative discount rate than CalPERS, the City is able to allocate more funds towards pensions each year than required by CalPERS. 14 With the $18.8 million currently set aside for pension funding, the City is in a strong position to withstand the effects of pension cost increases. If CalPERS investment returns fall short of their assumptions and expectations, the City will be better prepared for future pension cost increases. If the discount rate is lowered in the future, which is a distinct possibility, the City will be better prepared to absorb these costs. The table below illustrates CalPERS’ historical performance with similar date ranges as presented by US Bank in their quarterly performance reports: The CalPERS Public Employees' Retirement Fund (PERF) ended the previous fiscal year with a market value of $471 billion. With 1-Year, 3-Year, 5-Year, and 10-Year returns of 21.3%, 10.7%, 10.3%, and 8.5%, respectively. While performance comparisons can be made from one financial institution to the next, it is important to understand that investment portfolios are not all designed equally. While two portfolios can have similar target rates of return, the size of the portfolio, available resources, regulation and oversight, and stakeholder interests may differ. These variations result in fluctuations in performance and return through time. While City staff monitor the performance of CalPERS and the City’s investment trusts, diversification, General Fund stabilization, and local control over assets remain key factors for continuing to fund the City’s Section 115 Pension Trust. Prepared by: Zach Korach, Finance Manager Reviewed by: Kristina Alfaro, Director of Administrative Services Approved by: Jim Throop, City Manager Attachments: A – Staff Report B – Treasurer’s Report 12.31.21 C – WF Custodial Statement 12.31.21 D – WF Workers’ Compensation Statement 12.31.21 E – WF Operating Statement 12.31.21 F – LAIF Statement 12.31.21 15 SECTION 1 Economic Update SECTION 2 Account Profile SECTION 3 Portfolio Holdings SECTION 4 Transactions Table of Contents As of December 31, 2021 1 17 Economic Update ▪ ▪ ▪ In our view, economic growth is likely to moderate but remain modestly above-trend in 2022,fueled in part by ongoing tailwinds from fiscal support, accommodative monetary policy, and continued progress on vaccinations. Our outlook assumes an improving global health backdrop, though risks to the downside remain. Covid infection rates in the US and on a global basis have recently increased, and the new omicron variant poses a significant risk to the outlook. Given the high level of uncertainty regarding omicron’s impact on the global health situation, supply chains, and the broader economy,we expect financial market volatility will be elevated over the near-term. Inflation readings continue to run hot,but market- based inflation expectations remain relatively contained and we believe inflation may be at or near a peak.We expect supply chain bottlenecks will continue to put upward pressure on prices over the near-term but should improve during 2022. The Federal Open Market Committee (FOMC) kept the fed funds target rate unchanged in December,in a range of 0.0%- 0.25%,but announced plans to accelerate the pace of their tapering process. The Fed will reduce the magnitude of their monthly asset purchases by $30 billion in January, doubling the pace of the monthly reduction in asset purchases thatbegan in November. Should the Fed continue to reduce their monthly asset purchases at the new pace, their bond-buying program would end this spring (late-March or mid-April). The FOMC’s updated Summary of Economic Projections indicates thatpolicymakers may be prepared to hike the fed funds rate three times in 2022 (based on the median estimate),up from the previous projection of just one 25 basis point hike. The Fed’s updated projections suggest that these hikes would be amid a backdrop of strong economic growth. With inflation now more elevated and prolonged than originally anticipated, we believe the Fed’s decision to accelerate the tapering process is prudent. However,we do not believe that monetary policy is on a pre-set course and expect the Fed will adjust policy if necessary, depending on developments in the economy. In December, the 2-year Treasury yield increased nearly 17 basis points to 0.73%, the 5-year Treasury yield increased ten basis points to 1.26%, and the 10-year Treasury yield increased about seven basis points to 1.51% in the month. 3 19 Objectives Chandler Asset Management Performance Objective The performance objective for the portfolio is to earn a total rate of return through a market cycle that is equal to or above the return on the benchmark index. Investment Objectives The City of Cupertino’s investment objectives,in order of priority,are to provide safety to ensure the preservation of capital in the overall portfolio,provide sufficient liquidity for cash needs and a market rate of return consistent with the investment program. Strategy In order to achieve these objectives,the portfolio invests in high quality fixed incomes securities consistent with the investment policy and California Government Code. As of December 31, 2021 15 31 Compliance As of December 31, 2021 Category Standard Comment Money Market Funds 20% maximum; Daily money market funds administered for or by trustees, paying agents and custodian banks contracted by a City of Cupertino as allowed under California Government Code; Only funds holding U.S. Treasury obligations, Government agency obligations or repurchase agreements collateralized by U.S. Treasury or Government agency obligations can be utilized. Complies Local Agency Investment Fund (LAIF)Maximum amount permitted by LAIF; Not used by investment adviser Complies Repurchase Agreements 1 year max maturity; 102% collateralized; A PSA Master Repurchase Agreement is required between City of Cupertino and the broke/dealer or financial institution for all repurchase agreements; Not used by investment adviser Complies Prohibited Securities Reverse Repurchase Agreement; Common stocks; Long-term (> 5 years maturity) notes and bonds; Special circumstances arise that necessitate purchase of securities beyond the 5-year limitation. On such occasions, request must be approved by City Council prior to purchase; Futures/Options; Inverse floaters; Ranges notes, Mortgage-derived, Interest-only strips; Zero interest accrual securities; Purchasing/selling securities on margin; Foreign currency denominated securities. Complies Minimum Budgeted Operating Expenditures in Short Term Investments Minimum 6 months of budgeted operating expenditures in short term investments to provide sufficient liquidity for expected disbursements Complies Max Per Issuer 5% per issuer, unless otherwise specified in the policy Complies Maximum maturity 5 years Complies City of Cupertino Assets managed by Chandler Asset Management are in full compliance with state law and with the City's investment policy. 17 33 Portfolio Characteristics City of Cupertino 12/31/2021 9/30/2021 Benchmark*Portfolio Portfolio Average Maturity (yrs)2.64 2.83 2.82 Average Modified Duration 2.57 2.59 2.56 Average Purchase Yield n/a 1.21%1.21% Average Market Yield 0.85%0.96%0.56% Average Quality**AAA AA/Aa1 AA/Aa1 Total Market Value 139,803,983 140,794,510 *ICE BofA 1-5 Yr US Treasury & Agency Index **Benchmark is a blended rating of S&P, Moody’s, and Fitch. Portfolio is S&P and Moody’s respectively. As of December 31, 2021 18 34 Issue Name Investment Type % Portfolio Government of United States US Treasury 23.46% Federal National Mortgage Association Agency 11.18% Federal Home Loan Mortgage Corp Agency 7.25% Federal Home Loan Bank Agency 6.85% Federal Home Loan Mortgage Corp CMO 5.18% International Finance Corp Supranational 3.76% Inter-American Dev Bank Supranational 3.72% Bank of America Corp Corporate 1.83% JP Morgan Chase & Co Corporate 1.73% Intl Bank Recon and Development Supranational 1.67% Deere & Company Corporate 1.47% Truist Financial Corporation Corporate 1.45% Honda ABS ABS 1.44% Toyota ABS ABS 1.41% Amazon.com Inc Corporate 1.33% John Deere ABS ABS 1.28% Air Products & Chemicals Corporate 1.28% Salesforce.com Inc Corporate 1.25% Toyota Motor Corp Corporate 1.23% Royal Bank of Canada Corporate 1.12% Toronto Dominion Holdings Corporate 1.11% Charles Schwab Corp/The Corporate 1.11% Paccar Financial Corporate 1.08% Wal-Mart Stores Corporate 0.99% Honda Motor Corporation Corporate 0.98% Guardian Life Global Funding Corporate 0.98% US Bancorp Corporate 0.93% Bank of Montreal Chicago Corporate 0.90% PNC Financial Services Group Corporate 0.88% Verizon Owner Trust ABS 0.86% Caterpillar Inc Corporate 0.81% Bank of New York Corporate 0.75% Apple Inc Corporate 0.74% United Health Group Inc Corporate 0.73% Nissan ABS ABS 0.73% Mass Mutual Insurance Corporate 0.71% GM Financial Automobile Leasing Trust ABS 0.68% Prudential Financial Inc Corporate 0.63% Issuers City of Cupertino –Account #10659 As of December 31, 2021 22 38 Issue Name Investment Type % Portfolio Hyundai Auot Receivables ABS 0.60% Northwestern Mutual Glbl Corporate 0.59% State of California Municipal Bonds 0.56% Hyundai Auto Lease Securitization ABS 0.56% Metlife Inc Corporate 0.54% Wells Fargo 100% Treasury MMKT Fund Money Market Fund 0.48% Mercedes-Benz Auto Lease Trust ABS 0.37% BMW Vehicle Lease Trust ABS 0.30% Toronto Dominion Holdings Negotiable CD 0.25% GM Financial Securitized Term Auto Trust ABS 0.25% TOTAL 100.00% Issuers City of Cupertino –Account #10659 As of December 31, 2021 23 39 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration ABS 58770FAC6 Mercedes Benz Auto Lease Trust 2020-A A3 1.840% Due 12/15/2022 167,273.16 01/21/2020 1.85% 167,251.12 167,265.86 100.27 0.51% 167,718.78 136.79 0.12% 452.92 Aaa / AAA NR 0.96 0.20 65479GAD1 Nissan Auto Receivables Trust 2018-B A3 3.060% Due 03/15/2023 121,201.11 09/16/2019 1.65% 122,914.97 121,288.65 100.21 0.48% 121,450.66 164.83 0.09% 162.01 Aaa / AAA NR 1.20 0.08 47789JAD8 John Deere Owner Trust 2019-A A3 2.910% Due 07/17/2023 272,754.98 Various 1.94% 278,111.16 273,887.73 100.55 0.36% 274,244.22 352.76 0.20% 356.49 Aaa / NR AAA 1.54 0.22 43815NAC8 Honda Auto Receivables Trust 2019-3 A3 1.780% Due 08/15/2023 519,037.92 Various 1.93% 518,165.40 518,825.60 100.57 0.35% 522,000.07 410.61 0.37% 3,174.47 Aaa / AAA NR 1.62 0.40 58769EAC2 Mercedes-Benz Auto Lease Trust 2020-B A3 0.400% Due 11/15/2023 345,000.00 09/15/2020 0.40% 344,982.51 344,992.15 99.88 0.54% 344,585.66 61.33 0.25% (406.49) NR / AAA AAA 1.87 0.86 477870AC3 John Deere Owner Trust 2019-B A3 2.210% Due 12/15/2023 433,689.99 08/27/2019 1.79% 437,705.01 435,514.53 100.66 0.63% 436,546.71 425.98 0.31% 1,032.18 Aaa / NR AAA 1.96 0.42 92348AAA3 Verizon Owner Trust 2019-C A1A 1.940% Due 04/22/2024 403,445.50 10/01/2019 1.95% 403,414.40 403,429.71 100.69 0.48% 406,209.91 239.15 0.29% 2,780.20 NR / AAA AAA 2.31 0.47 44891VAC5 Hyundai Auto Lease Trust 2021-B A3 0.330% Due 06/17/2024 790,000.00 06/08/2021 0.34% 789,881.50 789,910.22 99.37 0.73% 785,054.60 115.87 0.56% (4,855.62) Aaa / AAA NR 2.46 1.56 65479JAD5 Nissan Auto Receivables Owner 2019-C A3 1.930% Due 07/15/2024 895,285.06 Various 1.70% 899,726.40 897,948.75 100.81 0.38% 902,511.80 767.96 0.65% 4,563.05 Aaa / AAA NR 2.54 0.52 43813DAC2 Honda Auto Receivables 2020-2 A3 0.820% Due 07/15/2024 165,844.77 05/18/2020 0.83% 165,831.72 165,836.77 100.18 0.57% 166,141.13 60.44 0.12% 304.36 Aaa / AAA NR 2.54 0.71 47789KAC7 John Deere Owner Trust 2020-A A3 1.100% Due 08/15/2024 247,962.99 03/04/2020 1.11% 247,947.84 247,954.03 100.35 0.58% 248,835.32 121.23 0.18% 881.29 Aaa / NR AAA 2.62 0.68 43813KAC6 Honda Auto Receivables Trust 2020-3 A3 0.370% Due 10/18/2024 575,000.00 09/22/2020 0.38% 574,915.53 574,949.39 99.72 0.65% 573,392.88 76.83 0.41% (1,556.51) NR / AAA AAA 2.80 0.99 36262XAC8 GM Financial Auto Lease Trust 2021-3 A2 0.390% Due 10/21/2024 965,000.00 08/10/2021 0.39% 964,986.88 964,988.90 99.04 0.91% 955,750.48 115.00 0.68% (9,238.42) NR / AAA AAA 2.81 1.84 47787NAC3 John Deere Owner Trust 2020-B A3 0.510% Due 11/15/2024 260,000.00 07/14/2020 0.52% 259,960.38 259,976.83 99.85 0.69% 259,601.94 58.93 0.19% (374.89) Aaa / NR AAA 2.88 0.83 09690AAC7 BMW Vehicle Lease Trust 2021-2 A3 0.330% Due 12/26/2024 425,000.00 09/08/2021 0.34% 424,956.14 424,961.84 99.24 0.80% 421,755.98 23.38 0.30% (3,205.86) Aaa / NR AAA 2.99 1.64 89236XAC0 Toyota Auto Receivables 2020-D A3 0.350% Due 01/15/2025 455,000.00 10/06/2020 0.36% 454,915.23 454,939.49 99.74 0.64% 453,828.83 70.78 0.32% (1,110.66) NR / AAA AAA 3.04 0.90 92290BAA9 Verizon Owner Trust 2020-B A 0.470% Due 02/20/2025 800,000.00 08/04/2020 0.48% 799,832.00 799,883.53 99.73 0.71% 797,876.00 114.89 0.57% (2,007.53) Aaa / NR AAA 3.14 1.11 As of December 31, 2021 27 43 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 43813GAC5 Honda Auto Receivables Trust 2021-1 A3 0.270% Due 04/21/2025 295,000.00 02/17/2021 0.27% 294,994.60 294,996.10 99.47 0.71% 293,426.18 22.13 0.21% (1,569.92) Aaa / NR AAA 3.31 1.21 89240BAC2 Toyota Auto Receivables Owners 2021-A A3 0.260% Due 05/15/2025 1,090,000.00 02/02/2021 0.27% 1,089,797.70 1,089,856.19 99.50 0.67% 1,084,522.75 125.96 0.78% (5,333.44) Aaa / NR AAA 3.37 1.23 44933LAC7 Hyundai Auto Receivables Trust 2021-A A3 0.380% Due 09/15/2025 515,000.00 04/20/2021 0.38% 514,945.82 514,957.89 99.25 0.84% 511,155.53 86.98 0.37% (3,802.36) NR / AAA AAA 3.71 1.62 43815GAC3 Honda Auto Receivables Trust 2021-4 A3 0.880% Due 01/21/2026 460,000.00 11/16/2021 0.89% 459,903.03 459,906.14 99.76 0.99% 458,890.02 112.44 0.33% (1,016.12) Aaa / NR AAA 4.06 2.13 47789QAC4 John Deere Owner Trust 2021-B A3 0.520% Due 03/16/2026 580,000.00 07/13/2021 0.52% 579,948.26 579,954.63 98.86 1.02% 573,390.90 134.04 0.41% (6,563.73) Aaa / NR AAA 4.21 2.30 89238JAC9 Toyota Auto Receivables Trust 2021-D A3 0.710% Due 04/15/2026 430,000.00 11/09/2021 0.71% 429,990.84 429,991.20 99.39 1.37% 427,356.79 135.69 0.31% (2,634.41) NR / AAA AAA 4.29 0.94 44935FAD6 Hyundai Auto Receivables Trust 2021-C A3 0.740% Due 05/15/2026 330,000.00 11/09/2021 0.75% 329,926.34 329,929.21 99.31 1.05% 327,737.52 108.53 0.23% (2,191.69) NR / AAA AAA 4.37 2.19 362554AC1 GM Financial Securitized Term 2021-4 A3 0.680% Due 09/16/2026 350,000.00 10/13/2021 0.68% 349,991.08 349,991.60 99.25 1.06% 347,371.15 99.17 0.25% (2,620.45) Aaa / AAA NR 4.71 1.98 TOTAL ABS 11,891,495.48 0.79% 11,904,995.86 11,896,136.94 0.72% 11,861,355.81 4,141.70 8.49% (34,781.13) Aaa / AAA Aaa 2.97 1.19 Agency 3137EAER6 FHLMC Note 0.375% Due 05/05/2023 1,500,000.00 05/05/2020 0.39% 1,499,370.00 1,499,718.14 99.78 0.54% 1,496,757.00 875.00 1.07% (2,961.14) Aaa / AA+ AAA 1.34 1.34 3137EAEN5 FHLMC Note 2.750% Due 06/19/2023 800,000.00 06/21/2019 1.83% 828,320.00 810,386.59 103.15 0.59% 825,169.60 733.33 0.59% 14,783.01 Aaa / AA+ AAA 1.47 1.44 3130A3DL5 FHLB Note 2.375% Due 09/08/2023 2,000,000.00 09/06/2019 1.52% 2,066,320.00 2,027,936.16 102.93 0.62% 2,058,682.00 14,909.72 1.48% 30,745.84 Aaa / AA+ NR 1.69 1.65 3135G0U43 FNMA Note 2.875% Due 09/12/2023 1,500,000.00 06/21/2019 1.89% 1,559,805.00 1,524,022.90 103.70 0.68% 1,555,467.00 13,057.29 1.12% 31,444.10 Aaa / AA+ AAA 1.70 1.65 3137EAFA2 FHLMC Note 0.250% Due 12/04/2023 1,755,000.00 12/02/2020 0.28% 1,753,262.55 1,753,886.13 99.07 0.74% 1,738,599.53 329.06 1.24% (15,286.60) Aaa / AA+ AAA 1.93 1.91 3130A0F70 FHLB Note 3.375% Due 12/08/2023 2,100,000.00 Various 1.74% 2,222,418.00 2,163,647.99 105.07 0.73% 2,206,541.40 4,528.13 1.58% 42,893.41 Aaa / AA+ AAA 1.94 1.88 3130A0XE5 FHLB Note 3.250% Due 03/08/2024 1,500,000.00 03/28/2019 2.27% 1,568,115.00 1,530,059.61 105.23 0.83% 1,578,393.00 15,302.08 1.14% 48,333.39 Aaa / AA+ NR 2.19 2.10 3130A1XJ2 FHLB Note 2.875% Due 06/14/2024 1,500,000.00 06/18/2019 1.96% 1,564,890.20 1,531,875.26 104.87 0.87% 1,572,999.00 2,036.46 1.13% 41,123.74 Aaa / AA+ NR 2.45 2.37 As of December 31, 2021 28 44 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 3135G0V75 FNMA Note 1.750% Due 07/02/2024 1,500,000.00 07/16/2019 1.96% 1,484,895.00 1,492,389.15 102.21 0.86% 1,533,163.50 13,052.08 1.11% 40,774.35 Aaa / AA+ AAA 2.50 2.43 3130A2UW4 FHLB Note 2.875% Due 09/13/2024 2,000,000.00 09/13/2019 1.79% 2,103,380.00 2,055,884.14 105.11 0.95% 2,102,102.00 17,250.00 1.52% 46,217.86 Aaa / AA+ AAA 2.70 2.59 3135G0W66 FNMA Note 1.625% Due 10/15/2024 1,975,000.00 Various 1.73% 1,965,802.75 1,969,727.73 101.88 0.94% 2,012,177.40 6,775.35 1.44% 42,449.67 Aaa / AA+ AAA 2.79 2.72 3135G0X24 FNMA Note 1.625% Due 01/07/2025 1,295,000.00 Various 1.38% 1,309,953.95 1,304,369.37 101.83 1.01% 1,318,664.83 10,171.14 0.95% 14,295.46 Aaa / AA+ AAA 3.02 2.92 3137EAEP0 FHLMC Note 1.500% Due 02/12/2025 2,365,000.00 02/13/2020 1.52% 2,363,178.95 2,363,864.46 101.46 1.02% 2,399,628.33 13,697.29 1.73% 35,763.87 Aaa / AA+ AAA 3.12 3.02 3135G03U5 FNMA Note 0.625% Due 04/22/2025 1,860,000.00 04/22/2020 0.67% 1,856,168.40 1,857,464.51 98.64 1.04% 1,834,689.12 2,228.13 1.31% (22,775.39) Aaa / AA+ AAA 3.31 3.26 3135G04Z3 FNMA Note 0.500% Due 06/17/2025 2,500,000.00 Various 0.50% 2,499,227.30 2,499,611.14 98.03 1.08% 2,450,667.50 486.11 1.75% (48,943.64) Aaa / AA+ AAA 3.46 3.42 3137EAEU9 FHLMC Note 0.375% Due 07/21/2025 1,250,000.00 07/21/2020 0.48% 1,243,775.00 1,245,573.56 97.48 1.10% 1,218,493.75 2,083.33 0.87% (27,079.81) Aaa / AA+ AAA 3.56 3.51 3135G05X7 FNMA Note 0.375% Due 08/25/2025 2,500,000.00 Various 0.48% 2,487,983.75 2,490,972.07 97.29 1.14% 2,432,227.51 3,281.25 1.74% (58,744.56) Aaa / AA+ AAA 3.65 3.60 3137EAEX3 FHLMC Note 0.375% Due 09/23/2025 2,500,000.00 Various 0.46% 2,489,362.80 2,491,896.85 97.32 1.11% 2,432,875.00 2,552.08 1.74% (59,021.85) Aaa / AA+ AAA 3.73 3.68 3135G06G3 FNMA Note 0.500% Due 11/07/2025 2,500,000.00 Various 0.56% 2,492,700.00 2,494,362.02 97.59 1.14% 2,439,790.00 1,875.00 1.75% (54,572.02) Aaa / AA+ AAA 3.85 3.79 TOTAL Agency 34,900,000.00 1.17% 35,358,928.65 35,107,647.78 0.92% 35,207,087.47 125,222.83 25.27% 99,439.69 Aaa / AA+ Aaa 2.76 2.70 CMO 3137B4WB8 FHLMC K033 A2 3.060% Due 07/25/2023 1,000,000.00 08/13/2019 2.02% 1,037,656.25 1,014,915.96 102.99 0.83% 1,029,859.00 510.00 0.74% 14,943.04 Aaa / NR NR 1.56 1.41 3137B5JM6 FHLMC K034 A2 3.531% Due 07/25/2023 1,000,000.00 09/26/2019 2.00% 1,053,867.19 1,022,041.85 103.64 0.88% 1,036,356.00 2,942.50 0.74% 14,314.15 NR / NR AAA 1.56 1.43 3137B7MZ9 FHLMC K036 A2 3.527% Due 10/25/2023 1,000,000.00 08/19/2019 1.92% 1,061,914.06 1,026,876.79 104.12 0.92% 1,041,234.00 587.83 0.75% 14,357.21 Aaa / NR AAA 1.82 1.63 3137BFE98 FHLMC K041 A2 3.171% Due 10/25/2024 1,300,000.00 07/01/2021 0.72% 1,398,414.06 1,383,593.67 105.13 1.19% 1,366,653.60 3,435.25 0.98% (16,940.07) Aaa / AAA AAA 2.82 2.62 3137BLMZ8 FHLMC K049 A2 3.010% Due 07/25/2025 1,000,000.00 07/01/2021 0.87% 1,079,687.50 1,069,938.79 105.51 1.33% 1,055,054.00 2,508.33 0.76% (14,884.79) NR / NR AAA 3.57 3.28 As of December 31, 2021 29 45 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 3137BLW95 FHLMC K050 A2 3.334% Due 08/25/2025 950,000.00 11/16/2021 1.17% 1,018,132.81 1,015,964.26 106.65 1.25% 1,013,160.75 2,639.42 0.73% (2,803.51) NR / NR AAA 3.65 3.17 3137BSP72 FHLMC K058 A2 2.653% Due 08/25/2026 650,000.00 11/12/2021 1.35% 687,451.17 686,470.20 105.21 1.44% 683,848.75 1,437.04 0.49% (2,621.45) NR / NR AAA 4.65 4.28 TOTAL CMO 6,900,000.00 1.40% 7,337,123.04 7,219,801.52 1.11% 7,226,166.10 14,060.37 5.18% 6,364.58 Aaa / AAA Aaa 2.72 2.47 Corporate 05531FBG7 Truist Financial Corporation Callable Note Cont 5/20/2022 3.050% Due 06/20/2022 2,000,000.00 07/01/2021 0.21% 2,049,420.00 2,021,601.82 100.98 0.50% 2,019,612.00 1,863.89 1.45% (1,989.82) A3 / A- A 0.47 0.39 69353RFE3 PNC Bank Callable Note Cont 6/28/2022 2.450% Due 07/28/2022 1,200,000.00 06/20/2019 2.16% 1,210,236.00 1,201,656.37 100.97 0.48% 1,211,598.00 12,495.00 0.88% 9,941.63 A2 / A A+ 0.57 0.49 808513AT2 Charles Schwab Corp Callable Note Cont 12/25/2022 2.650% Due 01/25/2023 1,500,000.00 Various 2.53% 1,504,955.00 1,501,555.19 101.85 0.75% 1,527,823.50 17,225.00 1.11% 26,268.31 A2 / A A 1.07 0.97 24422ETG4 John Deere Capital Corp Note 2.800% Due 03/06/2023 1,000,000.00 03/28/2019 2.60% 1,007,580.00 1,002,261.35 102.47 0.69% 1,024,729.00 8,944.44 0.74% 22,467.65 A2 / A A 1.18 1.16 89236TJD8 Toyota Motor Credit Corp Note 0.400% Due 04/06/2023 355,000.00 04/06/2021 0.44% 354,712.45 354,818.06 99.77 0.58% 354,195.93 335.28 0.25% (622.13) A1 / A+ A+ 1.26 1.26 06406RAG2 Bank of NY Mellon Corp Note 3.500% Due 04/28/2023 1,000,000.00 03/05/2019 3.15% 1,013,650.00 1,004,348.51 103.56 0.79% 1,035,601.00 6,125.00 0.75% 31,252.49 A1 / A AA- 1.32 1.29 037833AK6 Apple Inc Note 2.400% Due 05/03/2023 1,000,000.00 03/11/2019 2.79% 984,840.00 995,117.12 102.39 0.60% 1,023,930.00 3,866.67 0.74% 28,812.88 Aaa / AA+ NR 1.34 1.32 931142EK5 Wal-Mart Stores Callable Note Cont 5/26/2023 3.400% Due 06/26/2023 1,000,000.00 03/13/2019 2.80% 1,023,630.00 1,007,861.25 104.03 0.51% 1,040,336.00 472.22 0.74% 32,474.75 Aa2 / AA AA 1.48 1.38 69371RP59 Paccar Financial Corp Note 3.400% Due 08/09/2023 435,000.00 06/18/2019 2.56% 449,315.85 440,542.54 104.03 0.87% 452,514.41 5,833.83 0.33% 11,971.87 A1 / A+ NR 1.61 1.55 02665WCQ2 American Honda Finance Note 3.625% Due 10/10/2023 1,300,000.00 Various 2.77% 1,345,306.00 1,318,522.58 104.84 0.87% 1,362,965.50 10,603.13 0.98% 44,442.92 A3 / A- NR 1.78 1.72 24422EVN6 John Deere Capital Corp Note 0.450% Due 01/17/2024 1,030,000.00 03/01/2021 0.47% 1,029,268.70 1,029,479.93 99.05 0.92% 1,020,205.73 2,111.50 0.73% (9,274.20) A2 / A A 2.05 2.02 06051GHF9 Bank of America Corp Callable Note 1X 3/5/2023 3.550% Due 03/05/2024 1,200,000.00 Various 2.39% 1,226,303.25 1,213,069.16 102.98 1.00% 1,235,755.20 13,726.67 0.89% 22,686.04 A2 / A- AA- 2.18 1.15 89114QCA4 Toronto Dominion Bank Note 2.650% Due 06/12/2024 1,500,000.00 09/11/2019 2.24% 1,527,255.00 1,514,036.17 103.75 1.09% 1,556,193.00 2,097.92 1.11% 42,156.83 A1 / A AA- 2.45 2.37 As of December 31, 2021 30 46 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 79466LAG9 Salesforce.com Inc Callable Note Cont 7/15/2022 0.625% Due 07/15/2024 1,760,000.00 Various 0.87% 1,748,937.40 1,749,301.26 99.09 0.99% 1,743,968.16 5,163.89 1.25% (5,333.10) A2 / A+ NR 2.54 2.50 78013XZU5 Royal Bank of Canada Note 2.550% Due 07/16/2024 1,500,000.00 Various 1.98% 1,533,359.18 1,520,579.39 103.34 1.21% 1,550,032.50 17,531.26 1.12% 29,453.11 A2 / A AA- 2.54 2.44 91159HHX1 US Bancorp Callable Note Cont 6/28/2024 2.400% Due 07/30/2024 1,250,000.00 10/10/2019 2.07% 1,268,262.50 1,259,662.75 103.34 1.04% 1,291,718.75 12,583.33 0.93% 32,056.00 A2 / A+ A+ 2.58 2.40 009158AV8 Air Products & Chemicals Callable Note Cont 4/30/2024 3.350% Due 07/31/2024 1,675,000.00 08/07/2019 2.07% 1,771,212.00 1,722,381.34 105.13 1.12% 1,760,873.90 23,536.08 1.28% 38,492.56 A2 / A NR 2.58 2.22 69371RR40 Paccar Financial Corp Note 0.500% Due 08/09/2024 680,000.00 08/03/2021 0.52% 679,632.80 679,681.38 98.29 1.17% 668,349.56 1,341.11 0.48% (11,331.82) A1 / A+ NR 2.61 2.57 69371RQ25 Paccar Financial Corp Note 2.150% Due 08/15/2024 370,000.00 08/08/2019 2.20% 369,182.30 369,571.68 102.43 1.20% 379,009.13 3,005.22 0.27% 9,437.45 A1 / A+ NR 2.62 2.53 14913Q3B3 Caterpillar Finl Service Note 2.150% Due 11/08/2024 1,100,000.00 01/28/2020 1.92% 1,111,517.00 1,106,881.14 102.92 1.11% 1,132,144.20 3,481.81 0.81% 25,263.06 A2 / A A 2.86 2.76 74153WCQ0 Pricoa Global Funding Note 1.150% Due 12/06/2024 885,000.00 12/01/2021 1.19% 884,088.45 884,108.45 99.84 1.21% 883,571.61 650.23 0.63% (536.84) Aa3 / AA- AA- 2.93 2.87 06367WB85 Bank of Montreal Note 1.850% Due 05/01/2025 1,240,000.00 07/23/2021 0.85% 1,285,656.80 1,280,406.60 101.52 1.38% 1,258,843.04 3,823.33 0.90% (21,563.56) A2 / A- AA- 3.33 3.22 46647PCH7 JP Morgan Chase & Co Callable Note Cont 6/1/2024 0.824% Due 06/01/2025 1,370,000.00 05/24/2021 0.74% 1,371,773.90 1,371,514.07 98.85 1.10% 1,354,264.18 940.73 0.97% (17,249.89) A2 / A- AA- 3.42 3.36 46647PCK0 JP Morgan Chase & Co Callable Note Cont 6/23/2024 0.969% Due 06/23/2025 655,000.00 Various 0.87% 655,406.85 655,353.63 99.05 1.16% 648,751.30 141.05 0.46% (6,602.33) A2 / A- AA- 3.48 3.41 40139LBC6 Guardian Life Glob Fun Note 0.875% Due 12/10/2025 1,400,000.00 Various 1.12% 1,385,860.00 1,386,677.23 97.43 1.55% 1,364,032.60 714.58 0.98% (22,644.63) Aa2 / AA+ NR 3.95 3.85 66815L2A6 Northwestern Mutual Glbl Note 0.800% Due 01/14/2026 850,000.00 12/06/2021 1.47% 827,449.50 827,810.79 97.17 1.53% 825,911.85 3,154.44 0.59% (1,898.94) Aaa / AA+ AAA 4.04 3.93 06051GHY8 Bank of America Corp Callable Note Cont 2/13/2025 2.015% Due 02/13/2026 600,000.00 05/24/2021 1.01% 620,988.00 618,309.72 101.33 1.40% 607,963.80 4,634.50 0.44% (10,345.92) A2 / A- AA- 4.12 3.92 46647PBK1 JP Morgan Chase & Co Callable Note Cont 4/22/2025 2.083% Due 04/22/2026 401,000.00 05/20/2021 1.11% 415,969.33 413,643.79 101.54 1.60% 407,172.99 1,600.96 0.29% (6,470.80) A2 / A- AA- 4.31 3.18 As of December 31, 2021 31 47 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 023135BX3 Amazon.com Inc Callable Note Cont 4/12/2026 1.000% Due 05/12/2026 1,875,000.00 05/10/2021 1.09% 1,866,900.00 1,867,938.01 99.07 1.22% 1,857,622.50 2,552.08 1.33% (10,315.51) A1 / AA AA- 4.36 4.25 91324PEC2 United Health Group Inc Callable Note Cont 4/15/2026 1.150% Due 05/15/2026 1,035,000.00 Various 1.37% 1,025,051.35 1,025,139.64 98.97 1.39% 1,024,375.73 1,520.88 0.73% (763.91) A3 / A+ A 4.37 4.24 89236TJK2 Toyota Motor Credit Corp Note 1.125% Due 06/18/2026 1,385,000.00 06/15/2021 1.13% 1,384,390.60 1,384,456.35 98.54 1.46% 1,364,754.07 562.66 0.98% (19,702.28) A1 / A+ A+ 4.47 4.33 06051GJD2 Bank of America Corp Callable Note Cont 6/19/2025 1.319% Due 06/19/2026 700,000.00 07/16/2021 1.26% 701,274.00 701,156.89 98.98 1.53% 692,871.90 307.77 0.50% (8,284.99) A2 / A- AA- 4.47 4.32 57629WDE7 Mass Mutual Global funding Note 1.200% Due 07/16/2026 1,000,000.00 08/19/2021 1.15% 1,002,230.00 1,002,066.62 98.04 1.65% 980,360.00 5,500.00 0.71% (21,706.62) Aa3 / AA+ AA+ 4.54 4.37 58989V2D5 Met Tower Global Funding Note 1.250% Due 09/14/2026 770,000.00 09/07/2021 1.27% 769,291.60 769,333.89 97.89 1.72% 753,775.33 2,860.76 0.54% (15,558.56) Aa3 / AA- AA- 4.71 4.52 931142ER0 Wal-Mart Stores Callable Note Cont 08/17/2026 1.050% Due 09/17/2026 350,000.00 09/08/2021 1.09% 349,338.50 349,376.90 98.94 1.28% 346,276.70 1,061.67 0.25% (3,100.20) Aa2 / AA AA 4.72 4.56 TOTAL Corporate 37,371,000.00 1.59% 37,754,244.31 37,550,221.57 1.07% 37,762,103.07 182,368.89 27.14% 211,881.50 A1 / A+ AA- 2.68 2.53 Money Market Fund 94975H270 Wells Fargo 100% Treasury Money Mkt Fund 674,385.81 Various 0.01% 674,385.81 674,385.81 1.00 0.01% 674,385.81 0.00 0.48% 0.00 Aaa / AAA NR 0.00 0.00 TOTAL Money Market Fund 674,385.81 0.01% 674,385.81 674,385.81 0.01% 674,385.81 0.00 0.48% 0.00 Aaa / AAA NR 0.00 0.00 Municipal Bonds 13063DRK6 California State Taxable GO 2.400% Due 10/01/2024 755,000.00 10/16/2019 1.91% 772,342.35 764,651.73 103.86 0.97% 784,143.00 4,530.00 0.56% 19,491.27 Aa2 / AA- AA 2.75 2.65 TOTAL Municipal Bonds 755,000.00 1.91% 772,342.35 764,651.73 0.97% 784,143.00 4,530.00 0.56% 19,491.27 Aa2 / AA- AA 2.75 2.65 As of December 31, 2021 32 48 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration Negotiable CD 89114W7M1 Toronto Dominion Yankee CD 0.240% Due 04/28/2022 350,000.00 04/29/2021 0.24% 349,999.99 350,000.00 100.00 0.23% 350,013.30 578.67 0.25% 13.30 P-1 / A-1 F-1+ 0.32 0.32 TOTAL Negotiable CD 350,000.00 0.24% 349,999.99 350,000.00 0.23% 350,013.30 578.67 0.25% 13.30 Aaa / AA Aaa 0.32 0.32 Supranational 45950KCP3 International Finance Corp Note 2.875% Due 07/31/2023 2,700,000.00 07/01/2021 0.31% 2,842,425.00 2,808,658.01 103.41 0.71% 2,791,975.50 32,559.38 2.02% (16,682.51) Aaa / AAA NR 1.58 1.54 4581X0DP0 Inter-American Dev Bank Note 0.250% Due 11/15/2023 2,800,000.00 07/01/2021 0.37% 2,792,300.00 2,793,898.96 99.09 0.74% 2,774,534.00 894.44 1.99% (19,364.96) Aaa / AAA NR 1.87 1.86 45950KCT5 International Finance Corp Note 0.375% Due 07/16/2025 2,500,000.00 05/27/2021 0.66% 2,471,150.00 2,475,249.54 97.28 1.16% 2,432,042.50 4,296.88 1.74% (43,207.04) Aaa / AAA NR 3.54 3.49 459058JL8 Intl. Bank Recon & Development Note 0.500% Due 10/28/2025 2,400,000.00 Various 0.60% 2,388,859.25 2,390,941.15 97.46 1.18% 2,339,085.61 2,100.01 1.67% (51,855.54) Aaa / AAA AAA 3.83 3.77 4581X0DV7 Inter-American Dev Bank Note 0.875% Due 04/20/2026 2,460,000.00 04/13/2021 0.97% 2,448,733.20 2,450,312.77 98.44 1.25% 2,421,508.38 4,245.21 1.74% (28,804.39) Aaa / AAA AAA 4.30 4.20 TOTAL Supranational 12,860,000.00 0.57% 12,943,467.45 12,919,060.43 0.99% 12,759,145.99 44,095.92 9.16% (159,914.44) Aaa / AAA Aaa 2.94 2.89 US Treasury 912828L57 US Treasury Note 1.750% Due 09/30/2022 550,000.00 09/11/2019 1.62% 552,169.92 550,529.82 101.07 0.32% 555,865.20 2,459.13 0.40% 5,335.38 Aaa / AA+ AAA 0.75 0.74 912828N30 US Treasury Note 2.125% Due 12/31/2022 2,000,000.00 Various 1.68% 2,029,085.94 2,008,648.95 101.66 0.46% 2,033,204.00 117.41 1.45% 24,555.05 Aaa / AA+ AAA 1.00 0.99 912828T91 US Treasury Note 1.625% Due 10/31/2023 2,000,000.00 Various 1.94% 1,973,554.69 1,989,080.94 101.69 0.69% 2,033,828.00 5,566.29 1.46% 44,747.06 Aaa / AA+ AAA 1.83 1.80 912828V23 US Treasury Note 2.250% Due 12/31/2023 1,500,000.00 06/21/2019 1.80% 1,529,472.66 1,513,013.67 103.01 0.73% 1,545,175.50 93.23 1.11% 32,161.83 Aaa / AA+ AAA 2.00 1.96 912828B66 US Treasury Note 2.750% Due 02/15/2024 2,000,000.00 Various 2.14% 2,053,613.28 2,024,701.28 104.17 0.77% 2,083,360.00 20,774.45 1.51% 58,658.72 Aaa / AA+ AAA 2.13 2.05 91282CBR1 US Treasury Note 0.250% Due 03/15/2024 1,450,000.00 03/30/2021 0.33% 1,446,488.28 1,447,385.72 98.82 0.79% 1,432,894.35 1,081.49 1.03% (14,491.37) Aaa / AA+ AAA 2.21 2.19 912828X70 US Treasury Note 2.000% Due 04/30/2024 1,700,000.00 06/10/2019 1.92% 1,705,976.56 1,702,845.98 102.73 0.82% 1,746,418.50 5,823.20 1.25% 43,572.52 Aaa / AA+ AAA 2.33 2.27 As of December 31, 2021 33 49 Holdings Report City of Cupertino -Account #10659 CUSIP Security Description Par Value/Units Purchase Date Book Yield Cost Value Book Value Mkt Price Mkt YTM Market Value Accrued Int. % of Port. Gain/Loss Moody/S&P Fitch Maturity Duration 912828XX3 US Treasury Note 2.000% Due 06/30/2024 2,000,000.00 Various 1.80% 2,018,574.22 2,009,584.57 102.81 0.86% 2,056,250.00 110.49 1.47% 46,665.43 Aaa / AA+ AAA 2.50 2.44 912828D56 US Treasury Note 2.375% Due 08/15/2024 1,700,000.00 09/18/2019 1.71% 1,753,191.41 1,728,406.35 103.86 0.89% 1,765,543.50 15,250.34 1.27% 37,137.15 Aaa / AA+ AAA 2.62 2.53 912828ZC7 US Treasury Note 1.125% Due 02/28/2025 1,500,000.00 03/18/2020 0.81% 1,523,144.53 1,514,780.73 100.38 1.00% 1,505,742.00 5,733.77 1.08% (9,038.73) Aaa / AA+ AAA 3.16 3.09 91282CAB7 US Treasury Note 0.250% Due 07/31/2025 1,500,000.00 03/12/2021 0.72% 1,469,765.63 1,475,286.85 97.04 1.10% 1,455,528.00 1,569.29 1.04% (19,758.85) Aaa / AA+ AAA 3.58 3.55 91282CAM3 US Treasury Note 0.250% Due 09/30/2025 2,400,000.00 Various 0.56% 2,366,140.63 2,372,278.02 96.88 1.10% 2,325,000.00 1,532.96 1.66% (47,278.02) Aaa / AA+ AAA 3.75 3.71 91282CAT8 US Treasury Note 0.250% Due 10/31/2025 2,450,000.00 Various 0.49% 2,422,492.19 2,427,941.20 96.69 1.13% 2,368,939.30 1,049.03 1.70% (59,001.90) Aaa / AA+ AAA 3.84 3.79 91282CAZ4 US Treasury Note 0.375% Due 11/30/2025 2,250,000.00 03/26/2021 0.77% 2,209,658.20 2,216,228.22 97.02 1.15% 2,183,026.50 741.76 1.56% (33,201.72) Aaa / AA+ AAA 3.92 3.87 91282CBH3 US Treasury Note 0.375% Due 01/31/2026 2,500,000.00 05/27/2021 0.75% 2,456,445.31 2,462,001.15 96.79 1.18% 2,419,727.50 3,923.23 1.73% (42,273.65) Aaa / AA+ AAA 4.09 4.03 91282CBW0 US Treasury Note 0.750% Due 04/30/2026 2,500,000.00 05/27/2021 0.80% 2,493,652.34 2,494,421.97 98.07 1.21% 2,451,757.50 3,211.33 1.76% (42,664.47) Aaa / AA+ AAA 4.33 4.24 91282CCZ2 US Treasury Note 0.875% Due 09/30/2026 1,400,000.00 10/18/2021 1.19% 1,379,054.68 1,379,912.43 98.28 1.25% 1,375,882.20 3,129.81 0.99% (4,030.23) Aaa / AA+ AAA 4.75 4.62 91282CDG3 US Treasury Note 1.125% Due 10/31/2026 1,400,000.00 11/15/2021 1.25% 1,391,468.75 1,391,680.97 99.40 1.25% 1,391,577.60 2,697.51 1.00% (103.37) Aaa / AA+ AAA 4.84 4.68 TOTAL US Treasury 32,800,000.00 1.20% 32,773,949.22 32,708,728.82 0.96% 32,729,719.65 74,864.72 23.46% 20,990.83 Aaa / AA+ Aaa 3.08 3.02 TOTAL PORTFOLIO 138,501,881.29 1.21% 139,869,436.68 139,190,634.60 0.96% 139,354,120.20 449,863.10 100.00% 163,485.60 Aa1 / AA Aaa 2.83 2.59 TOTAL MARKET VALUE PLUS ACCRUALS 139,803,983.30 As of December 31, 2021 34 50 Transaction Ledger City of Cupertino -Account #10659 Transaction Type Settlement Date CUSIP Quantity Security Description Price Acq/Disp Yield Amount Interest Pur/Sold Total Amount Gain/Loss ACQUISITIONS Purchase 10/14/2021 40139LBC6 700,000.00 Guardian Life Glob Fun Note 0.875% Due: 12/10/2025 98.634 1.21%690,438.00 2,109.72 692,547.72 0.00 Purchase 10/19/2021 91282CCZ2 1,400,000.00 US Treasury Note 0.875% Due: 09/30/2026 98.504 1.19%1,379,054.68 639.42 1,379,694.10 0.00 Purchase 10/21/2021 362554AC1 350,000.00 GM Financial Securitized Term 2021-4 A3 0.68% Due: 09/16/2026 99.997 0.68%349,991.08 0.00 349,991.08 0.00 Purchase 11/15/2021 89238JAC9 430,000.00 Toyota Auto Receivables Trust 2021-D A3 0.71% Due: 04/15/2026 99.998 0.71%429,990.84 0.00 429,990.84 0.00 Purchase 11/17/2021 3137BSP72 650,000.00 FHLMC K058 A2 2.653% Due: 08/25/2026 105.762 1.35%687,451.17 766.42 688,217.59 0.00 Purchase 11/17/2021 44935FAD6 330,000.00 Hyundai Auto Receivables Trust 2021-C A3 0.74% Due: 05/15/2026 99.978 0.75%329,926.34 0.00 329,926.34 0.00 Purchase 11/17/2021 91282CDG3 1,400,000.00 US Treasury Note 1.125% Due: 10/31/2026 99.391 1.25%1,391,468.75 739.64 1,392,208.39 0.00 Purchase 11/19/2021 3137BLW95 950,000.00 FHLMC K050 A2 3.334% Due: 08/25/2025 107.172 1.17%1,018,132.81 1,583.65 1,019,716.46 0.00 Purchase 11/24/2021 43815GAC3 460,000.00 Honda Auto Receivables Trust 2021-4 A3 0.88% Due: 01/21/2026 99.979 0.89%459,903.03 0.00 459,903.03 0.00 Purchase 12/01/2021 91324PEC2 700,000.00 United Health Group Inc Callable Note Cont 4/15/2026 1.15% Due: 05/15/2026 98.424 1.52%688,968.00 357.78 689,325.78 0.00 Purchase 12/02/2021 79466LAG9 800,000.00 Salesforce.com Inc Callable Note Cont 7/15/2022 0.625% Due: 07/15/2024 99.290 0.90%794,320.00 1,944.44 796,264.44 0.00 Purchase 12/02/2021 79466LAG9 700,000.00 Salesforce.com Inc Callable Note Cont 7/15/2022 0.625% Due: 07/15/2024 99.250 0.92%694,750.00 1,701.39 696,451.39 0.00 Purchase 12/08/2021 66815L2A6 850,000.00 Northwestern Mutual Glbl Note 0.8% Due: 01/14/2026 97.347 1.47%827,449.50 2,720.00 830,169.50 0.00 September 30, 2021 through December 31, 2021 As of December 31, 2021 36 52 Transaction Ledger City of Cupertino -Account #10659 Transaction Type Settlement Date CUSIP Quantity Security Description Price Acq/Disp Yield Amount Interest Pur/Sold Total Amount Gain/Loss Purchase 12/08/2021 74153WCQ0 885,000.00 Pricoa Global Funding Note 1.15% Due: 12/06/2024 99.897 1.19%884,088.45 0.00 884,088.45 0.00 Subtotal 10,605,000.00 10,625,932.65 12,562.46 10,638,495.11 0.00 TOTAL ACQUISITIONS 10,605,000.00 10,625,932.65 12,562.46 10,638,495.11 0.00 DISPOSITIONS Sale 10/19/2021 3137EADB2 750,000.00 FHLMC Note 2.375% Due: 01/13/2022 100.540 1.84%754,050.00 4,750.00 758,800.00 3,124.63 Sale 10/19/2021 912828XG0 700,000.00 US Treasury Note 2.125% Due: 06/30/2022 101.438 1.61%710,062.50 4,486.75 714,549.25 7,609.21 Sale 11/16/2021 313380GJ0 2,000,000.00 FHLB Note 2% Due: 09/09/2022 101.490 1.55%2,029,800.00 7,444.44 2,037,244.44 22,709.96 Sale 11/16/2021 912828XG0 550,000.00 US Treasury Note 2.125% Due: 06/30/2022 101.273 1.61%557,003.91 4,414.57 561,418.48 5,288.82 Sale 11/18/2021 912828L57 700,000.00 US Treasury Note 1.75% Due: 09/30/2022 101.395 1.62%709,761.72 1,649.04 711,410.76 8,978.32 Sale 12/08/2021 912828L57 750,000.00 US Treasury Note 1.75% Due: 09/30/2022 101.199 1.62%758,994.14 2,487.98 761,482.12 8,207.91 Subtotal 5,450,000.00 5,519,672.27 25,232.78 5,544,905.05 55,918.85 Maturity 11/24/2021 06417MMB8 3,000,000.00 Bank of Nova Scotia Houston Yankee CD 0.28% Due: 11/24/2021 100.000 3,000,000.00 8,493.32 3,008,493.32 0.00 Subtotal 3,000,000.00 3,000,000.00 8,493.32 3,008,493.32 0.00 TOTAL DISPOSITIONS 8,450,000.00 8,519,672.27 33,726.10 8,553,398.37 55,918.85 September 30, 2021 through December 31, 2021 As of December 31, 2021 37 53 Important Disclosures 2021 Chandler Asset Management,Inc,An Independent Registered Investment Adviser. Information contained herein is confidential.Prices are provided by IDC,an independent pricing source.In the event IDC does not provide a price or if the price provided is not reflective of fair market value,Chandler will obtain pricing from an alternative approved third party pricing source in accordance with our written valuation policy and procedures.Our valuation procedures are also disclosed in Item 5 of our Form ADV Part 2A. Performance results are presented gross-of-advisory fees and represent the client’s Total Return.The deduction of advisory fees lowers performance results.These results include the reinvestment of dividends and other earnings.Past performance may not be indicative of future results.Therefore,clients should not assume that future performance of any specific investment or investment strategy will be profitable or equal to past performance levels.All investment strategies have the potential for profit or loss.Economic factors,market conditions or changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio. Index returns assume reinvestment of all distributions.Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee,the incurrence of which would have the effect of decreasing historical performance results.It is not possible to invest directly in an index. Source ice Data Indices,LLC ("ICE"),used with permission.ICE permits use of the ICE indices and related data on an "as is"basis;ICE,its affiliates and their respective third party suppliers disclaim any and all warranties and representations,express and/or implied,including any warranties of merchantability or fitness for a particular purpose or use,including the indices,index data and any data included in,related to,or derived therefrom.Neither ICE data,its affiliates or their respective third party providers guarantee the quality,adequacy,accuracy,timeliness or completeness of the indices or the index data or any component thereof,and the indices and index data and all components thereof are provided on an "as is"basis and licensee's use it at licensee's own risk.ICE data,its affiliates and their respective third party do not sponsor,endorse,or recommend chandler asset management,or any of its products or services. This report is provided for informational purposes only and should not be construed as a specific investment or legal advice.The information contained herein was obtained from sources believed to be reliable as of the date of publication,but may become outdated or superseded at any time without notice.Any opinions or views expressed are based on current market conditions and are subject to change.This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as indicator of future results.Past performance is not indicative of future results.This report is not intended to constitute an offer,solicitation,recommendation or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest,credit and market risk.Interest rate risk:the value of fixed income investments will decline as interest rates rise.Credit risk:the possibility that the borrower may not be able to repay interest and principal.Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk.Market risk:the bond market in general could decline due to economic conditions,especially during periods of rising interest rates. Ratings information have been provided by Moody’s,S&P and Fitch through data feeds we believe to be reliable as of the date of this statement,however we cannot guarantee its accuracy. Security level ratings for U.S.Agency issued mortgage-backed securities (“MBS”)reflect the issuer rating because the securities themselves are not rated.The issuing U.S.Agency guarantees the full and timely payment of both principal and interest and carries a AA+/Aaa/AAA by S&P,Moody’s and Fitch respectively. As of December 31, 2021 38 54 Benchmark Disclosures ICE BofA 1-5 Yr US Treasury & Agency Index The ICE BofA 1-5 Year US Treasury &Agency Index tracks the performance of US dollar denominated US Treasury and nonsubordinated US agency debt issued in the US domestic market.Qualifying securities must have an investment grade rating (based on an average of Moody’s,S&P and Fitch).Qualifying securities must have at least one year remaining term to final maturity and less than five years remaining term to final maturity,at least 18 months to maturity at time of issuance,a fixed coupon schedule,and a minimum amount outstanding of $1 billion for sovereigns and $250 million for agencies. As of December 31, 2021 39 55 CITY OF CUPERTINO Agenda Item 22-10364 Agenda Date: 1/24/2022 Agenda #: 3. Subject: US Bank Performance Report for Quarter Ending December 31, 2021 Accept US Bank Performance Report for Quarter Ending December 31, 2021 CITY OF CUPERTINO Printed on 1/21/2022Page 1 of 1 powered by Legistar™102 Contacts Mitch Barker Executive Vice President (800) 540 -6369 x116 Office (949) 310 -4876 Cell mbarker@pars.org Jennifer Meza Manager, Consulting (800) 540-6369 x141 jmeza@pars.org Ryan Maxey Vice President, Relationship Manager (503) 464-3789 ryan.maxey@usbank.com Rick Rosenthal Vice President, Senior Portfolio Manager (213) 359-7954 richard.rosenthal@usbank.com 2 104 U.S. BANK | 6 Table of Contents Section 1 – PORTFOLIO REVIEW PARS/CITY OF CUPERTINO 115P - OPEB (X9600) • History of Asset Growth •Account Performance •Asset Allocation •Holdings PARS/CITY OF CUPERTINO 115P – PENSION (X9601) • History of Asset Growth •Account Performance •Asset Allocation •Holdings Section 2 – ECONOMIC OUTLOOK Section 3 – DISCLOSURES, DEFINITIONS, DESCRIPTIONS 10 8 Custom Benchmark Asset Class Benchmark Range Target Equities MSCI AC World Free Index 50%-70% 63% Fixed Income BBARC Global Aggregate Index 20%-40% 29% Real Estate S&P Global REIT TR USD 0%-15%5% Commodities S&P GSCI Commodity Index 0%-10%2% Cash FTSE 3-Mo US T-Bill Index 0%-10%1% CITY OF CUPERTINO U.S. BANK | 911 1 Custom Benchmark Asset Class Benchmark Range Target Equities MSCI AC World Free Index 50%-70% 63% Fixed Income BBARC Global Aggregate Index 20%-40% 29% Real Estate S&P Global REIT TR USD 0%-15%5% Commodities S&P GSCI Commodity Index 0%-10%2% Cash FTSE 3-Mo US T-Bill Index 0%-10%1% CITY OF CUPERTINO U.S. BANK | 1511 7 [ 2 ] Situation analysis – fourth quarter 2021 Global economy Quick take: Our proprietary Health Check scores, which compile more than 1,000 global economic indicators, slipped from a strong recovery signal earlier this year. U.S. and developed economy Health Checks are decelerating but still indicate above-average economic activity. Our emerging markets Health Check fell to below-average activity with a negative trend, indicating challenging growth. Our view: The global economy remains in a multi-speed recovery, governed by differing responses to the coronavirus global pandemic and shifting central bank policies. Our base case is generally positive for the United States and major developed economies, including Europe and Japan. The story is more challenging for China and other emerging market economies. After a strong 2021, the United States is likely to see moderation in growth and inflation over the course of 2022. The conclusion of the Federal Reserve’s (Fed) asset purchase program in the first half of 2022 and a deceleration in federal government stimulus policies will likely temper economic output. However, rising consumer incomes and strong savings levels should maintain above-average growth and inflation. While our base case for 2022 is constructive, we are monitoring key issues such as the ongoing coronavirus global pandemic and unexpected changes in Fed policies relative to our outlook. Developed economies Europe and Japan have seen a more limited economic recovery this year, but growth should reach more normal levels in 2022. Rising government spending in Japan and reopening from recent coronavirus lockdowns in Europe should lift economic growth. Additionally, the easing of global supply constraints should lift production of major global trade items, such as automobiles, providing further lift. Risks in this region stem from any extension of coronavirus infections and lockdowns, and continuing supply constraints that limit export growth and inflation, which harms consumer spending. Recent slowing trends for most emerging market economies are likely to continue into 2022. Despite early recoveries from the global pandemic, the cycle of lockdowns hampers economic growth. China is pivoting to policies to stimulate credit growth, which should help economic output later in 2022. In contrast, major commodity exporting economies, such as Russia, Brazil and South Africa, have been raising interest rates to combat inflation, which is likely to slow growth in 2022. However, rising commodity demand from reopening of travel as we emerge from the pandemic should offset some of the challenge. U.S. BANK | 2212 4 [ 3 ] Situation analysis – fourth quarter 2021 U.S. equity market Quick take: Positive sales and profit growth, moderating inflation and relatively low interest rates support our positive outlook for U.S. equities as we begin the new year. Our view: We maintain our “glass half-full” orientation for U.S. equities, bolstered primarily by continued sales and profit growth, a measured pace of inflation and low interest rates. While our outlook reflects a positive bias, we anticipate more subdued returns in 2022 compared to those experienced in 2021; evolving pandemic and commensurate monetary policy responses, potential fiscal policy changes and a positive but slowing pace of earnings growth lends to the potential of heightened volatility in the new year. Company earnings continue to trend higher, providing valuation support and serving as the basis for higher stock prices. Analysts project S&P 500 earnings for 2022 will rise to $225 per share, approximately 10 percent above projected 2021 levels, according to data providers Bloomberg, FactSet and S&P Global. While the index is trading near all-time highs, earnings are also near record levels. Broad market and sector performance trends in 2021 bode well for performance in early-2022. As of mid-December, all 11 S&P 500 sectors are in positive territory, with nine advancing 16 percent or more, reflecting strength among both cyclical-oriented and longer-term secular-growing sectors. Strong performance across both cyclical and secular-growing sectors while defensive sectors lag is typical during periods of economic growth. Valuation is elevated relative to history, but well below dot-com era extremes. The S&P 500 is trading at a price-to-earnings ratio (the index’s price divided by earnings) of approximately 21 based on analysts’ 2022 earnings projections, a valuation level elevated relative to history but well below the dot-com era extremes of nearly 30 times. Inflation remains a key concern. Rising inflation typically corresponds to lower prices investors are willing to pay for corporate earnings. Historically, according to Bloomberg and the U.S. Bureau of Labor Statistics based on data extending back to the 1950s, price-earnings multiples don’t become compressed, resulting in lower equity prices, until sustained periods of inflation at or above 4 percent. Opportunities exist in all market environments. As the adage goes, “the rate of change has never been faster, and it will never be this slow again.” Fast is getting faster and speed, scale and efficiencies do not occur without technology. This presents an investment opportunity, in our view. Clearly, technology is impacting all sectors. It is changing how we live, work and play, enabled by 24/7 connectivity, mobility, cloud computing, digitalization, artificial intelligence and machine learning. This favorably positions core and enabling technologies, such as data storage, processing, software, security and analytics, for growth in 2022 and beyond. U.S. BANK | 2312 5 [ 4 ] Situation analysis – fourth quarter 2021 International equity markets Quick take: Foreign equities’ earnings growth exceeded analysts’ beginning-year forecasts by 26 percent due to stronger-than-expected profits recovery from the pandemic lows. Full-year 2022 estimates remain upward-biased, though the Omicron variant and potential future variants add uncertainty. China’s trends are key for the region’s success, with emerging Asian economies, including China, accounting for nearly 25 percent of foreign companies’ sales. Diverging monetary policies and countries’ disparate vaccination rates and policy responses create a wide range of potential future outcomes across emerging markets’ geographic footprint. Our view: Reasonable starting valuation, or stock prices relative to expected earnings, ongoing monetary policy support and upward trending earnings support foreign equities’ price appreciation potential in 2022, though the elusive “catch-up” potential relative to strong domestic equity performance remains unrealized. Ongoing supply chain constraints continue to hinder the near-term industrial recovery, but longer-term automation and digitization trends driving strong technology sector equipment demand and emerging middle-class consumers’ increasing purchasing power across Asia, Latin America and other geographies remain intact. Positive growth expectations support foreign equities’ modest price appreciation potential in 2022. Analysts revised up full-year 2021 earnings growth forecasts by 26 percent, reflecting foreign companies’ stronger-than-expected profits recovery from the pandemic lows. Forward earnings estimates remain upward biased in 2022 — monetary policy should continue to support economic recovery and earnings growth as high energy price pressures and capital goods’ supply-chain constraints abate. Policymakers’ responses to virus spread and mutation represent the key near-term risk for foreign equities. Prior to Omicron’s onset, European virus case growth had already surged to pandemic highs and policymakers responded with varied measures, from full or partial lockdowns to mandatory work-from-home to restrictions on unvaccinated persons. Though less severe than in 2020, activity restrictions negatively impact current economic activity as well as consumers’ confidence and future spending plans. A variety of factors create a wide range of potential emerging market outcomes in the year ahead. Ongoing supply chain disruptions, diverging monetary policies and countries’ disparate vaccination rates and policy responses create a wide range of potential future outcomes across the region’s geographic footprint. China’s consumers are key for emerging equities’ prospects in 2022. China’s zero-tolerance strategy toward COVID kept regional outbreaks contained, but at the expense of industries that require close physical proximity such as travel, tourism and restaurants. While global demand for China-manufactured goods remains strong, vaccination progress leading to loosening activity restrictions are key to unlocking consumer spending growth and, by extension, emerging market equities’ prospects in 2022. U.S. BANK | 2412 6 [ 5 ] Situation analysis – fourth quarter 2021 Bond market Quick take: Slightly lower Treasury yields paired with intra-quarter volatility drove modest bond returns. Bonds with longer-term maturities outperformed as the market began pricing in multiple Fed interest rate hikes in 2022, which could dampen longer-term growth and inflation. Municipal bonds also fared well, with a limited supply of bonds meeting robust investor demand. Our view: We continue to see opportunities in riskier bonds with higher current income, with a focus on niche sectors like non-agency mortgage- backed securities, bank loans and some additional high yield bonds. This preference may fade in 2022 along with global policy stimulus as central banks increase interest rates more aggressively. Traditionally safe, lower-yielding bonds like Treasuries and investment-grade municipal and corporate bonds still play an important role in portfolio diversification and should eventually become more attractive as the Fed lifts interest rates. Low bond yields and tightening Fed policies set the stage for low bond returns and higher volatility in 2022. Bond yields remain near historical lows, limiting coupon income and reducing opportunities for price appreciation. We expect the Fed will wind down its bond purchase program in coming months, clearing the path for multiple interest rate increases in 2022 and 2023. More restrictive monetary policy may serve as an eventual headwind to riskier assets and push bond yields somewhat higher. Treasuries and other high-quality fixed income options like investment-grade corporate and municipal bonds provide important portfolio diversification. However, investors should focus on holding larger-than-normal allocations in riskier (but well-diversified) higher yielding bonds for additional income for now. We expect income rather than price changes will continue to drive returns in the near term, which favors riskier, higher-yielding bonds for now. Both higher-quality and lower-quality bond yields remain near all-time lows due to strong credit fundamentals, low default expectations, low policy rates and strong demand for income. Sources of differentiated yield offer better value, such as reinsurance (also referred to as insurance-linked securities, which receive the equivalent of insurance premiums while facing losses from natural disasters), corporate loans and mortgage bonds not backed by the government (non-agency). Loans are good substitutes for corporate bonds, considering similar borrower quality, reasonable valuations and less sensitivity to Treasury yields. Non-agency mortgages offer a compelling source of yield and limited risk exposure to rising interest rates. They also sport strong fundamentals driven by rising home prices, which serve as loan collateral, homeowners with strong balance sheets and high savings and improving payment histories. Municipal bonds provide a valuable source of non-taxable income, though yields are low versus history. Credit fundamentals have strengthened as aggregate state and local tax revenues are near all-time highs, up 34 percent relative to pandemic lows in the second quarter of 2020. Strong investor demand for tax-advantaged income relative to limited municipal bond issuance supports municipal bond prices. We continue to recommend somewhat higher-than-normal allocations to high yield municipal bonds for highly taxed investors, though the focus remains on capturing income rather than anticipating price gains. U.S. BANK | 2512 7 [ 6 ] Situation analysis – fourth quarter 2021 Real assets Quick take: The solid gains from most real asset sectors in 2021 could be undermined in 2022 by higher interest rates for some investments. However, the global growth recovery and rising inflation are tailwinds, especially for commodities. Our view: Our positive view on economic growth and inflation should benefit real assets in 2022. Investments with stable cash flows should remain in demand in a low interest rate environment. Additionally, we believe supply constraints and the limited recent investments in productive capacity (the available amount of output for a given commodity) can positively impact certain commodities significantly. Rising interest rates may offset accelerating income, keeping Real Estate returns subdued. Nationally, declining vacancy rates and increasing income combined with high prices relative to income should keep valuations high. However, cheap credit is readily available for property investment. Commercial mortgage interest rates are below the average earnings yield on Class A property. As a result, investors should still generate attractive relative returns on property investments. With the chance for rising interest rates, the difference between mortgage rates and property earnings yields could compress, limiting supply growth as the year progresses. Low investment, rising global growth and inflation are positives for commodities. Global raw materials demand should improve as economies continue to recover from COVID. U.S. energy output growth has been stagnant, with limited investment in productive capacity despite higher oil prices. Industrial metals are likely to see rising demand from planned infrastructure investments and have also been plagued by low investments in new development. Rising demand is likely to be resolved through higher prices over the course of 2022. U.S. BANK | 2612 8 [ 7 ] Situation analysis – fourth quarter 2021 Alternative investments Quick take: Nimbleness and agility will be critical to navigating ever-changing economic and market events in 2022, challenging hedge fund managers’ ability to both protect capital and generate performance gains when market dislocations occur. Major geopolitical, policy and macroeconomic events can more than offset favorable stock or bond selection; uncertainty over future outcomes will affect the level of risk taken by hedge funds. Opportunities exist within market dislocations but are not always easy to capture due the rapid rotation among sectors based on investors’ changing views on inflation and reactions to monetary decisions. Our view: Central banks’ varied responses to inflation lends to the potential for heightened market volatility and create attractive investment opportunities for hedge fund strategies. Market divergences due to changes in interest rates and the demand for raw materials as production ramps higher will present opportunities in sectors such as Materials, Industrials and Energy that have been dormant over the past few years as investors focused on innovation in Technology and Healthcare. Hedge funds may favor profitable companies with strong balance sheets that can grow market share, anticipating a lower- growth environment ahead. Fund managers may look to reduce holdings in higher-valuation Technology stocks and seek greater exposure to profitable securities in cyclical sectors, such as Industrials and Energy, in the event inflation proves to be more durable. In addition to this trend, we see a continued reduction in China securities due to managers having little edge in anticipating Chinese government policies that can quickly impact share prices. Long-dormant real asset strategies may come back into vogue. After many years of lackluster returns, hedge funds specializing in commodities are worth consideration in an environment of increasing production capacity, which creates demand for industrial metals due to the increase in construction, vehicle production and rebuilding our long-neglected infrastructure. U.S. BANK | 2712 9 [ 8 ] Situation analysis – fourth quarter 2021 Private markets Quick take: The number of global buyouts and total deal value in the first three quarters of 2021 has already exceeded the previous annual record for global private equity, according to PitchBook Data, Inc. The combination of a persistently low interest rate environment and rising asset prices continues to drive more investor capital toward private equity fund managers. However, several headwinds exist, and continued success will require proper planning and creativity. Successful managers in this environment will create opportunities by drawing upon industry relationships, pre-screening deals ahead of time and moving faster than their competition. Our view: As economic uncertainties increase and competition for deals remains strong, our private markets investment strategy remains focused on quality, secular transformative trends and adding value through active management. Adhering to our focused investment strategy, maintaining flexibility to adapt in this uncertain environment and deploying capital in areas offering relative value is how we plan to approach private market investing in the year ahead. Quality matters more as monetary and fiscal support subsides. High-quality businesses in attractive market segments with operational strength, long-term customer demand and strong cash flows should fare well in this environment. Managers investing in secular trends disrupting and transforming industries should benefit. A few examples of the trends that we have identified include digitization of industries, manufacturing automation, supply-chain reconfiguration and health care innovation. These present opportunities for investing in areas of the economy experiencing faster growth compared to the broader economy. Active management will drive outcomes. We continue to focus on managers with specific expertise and a history of deploying value creation strategies to grow portfolio companies. U.S. BANK | 2813 0 [ 9 ] Situation analysis – fourth quarter 2021 This commentary was prepared December 2021 and represents the opinion of U.S. Bank Wealth Management. The views are subject to change at any time based on market or other conditions and are not intended to be a forecast of future events or guarantee of future results and is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. Any organizations mentioned in this commentary are not affiliated or associated with U.S. Bank or U.S. Bancorp Investments in any way. U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation. Diversification and asset allocation do not guarantee returns or protect against losses. Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Past performance is no guarantee of future results. All performance data, while deemed obtained from reliable sources, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for investment. The S&P 500 Index is an unmanaged, capitalization-weighted index of 500 widely traded stocks that are considered to represent the performance of the stock market in general. The S&P 500 Total Return Index includes the same stocks but include the reinvestment of dividends. The MSCI EAFE Index includes approximately 1,000 companies representing the stock markets of 21 countries in Europe, Australasia and the Far East (EAFE). The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible difference in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities are subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Investment in debt securities typically decrease in value when interest rates rise. The risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults). Hedge funds are speculative and involve a high degree of risk. An investment in a hedge fund involves a substantially more complicated set of risk factors than traditional investments in stocks or bonds, including the risks of using derivatives, leverage and short sales, which can magnify potential losses or gains. Restrictions exist on the ability to redeem or transfer interests in a fund. Private capital investment funds are speculative and involve a higher degree of risk. These investments usually involve a substantially more complicated set of investment strategies than traditional investments in stocks or bonds, including the risks of using derivatives, leverage, and short sales, which can magnify potential losses or gains. Always refer to a Fund’s most current offering documents for a more thorough discussion of risks and other specific characteristics associated with investing in private capital and impact investment funds. Reinsurance allocations made to insurance-linked securities (ILS) are financial instruments whose performance is determined by insurance loss events primarily driven by weather-related and other natural catastrophes (such as hurricanes and earthquakes). These events are typically low-frequency but high-severity occurrences. Private equity investments provide investors and funds the potential to invest directly into private companies or participate in buyouts of public companies that result in a delisting of the public equity. Investors considering an investment in private equity must be fully aware that these investments are illiquid by nature, typically represent a long-term binding commitment and are not readily marketable. The valuation procedures for these holdings are often subjective in nature. Private debt investments may be either direct or indirect and are subject to significant risks, including the possibility of default, limited liquidity and the infrequent availability of independent credit ratings for private companies. ©2021 U.S. Bancorp U.S. BANK | 2913 1 CITY OF CUPERTINO Agenda Item 22-10372 Agenda Date: 1/24/2022 Agenda #: 4. Subject: FY 2020-21 ACFR and Supplemental Reports Accept FY 2020-21 ACFR and Supplemental Reports CITY OF CUPERTINO Printed on 1/21/2022Page 1 of 1 powered by Legistar™147