City chooses higher returns over stability
By Adam Proskiw
Image Credit: istockphoto.com
June 17, 2014 - 4:29 PM
KELOWNA – The city of Kelowna is looking for a better return on its massive reserve funds by moving more of it into corporate bonds over government bonds.
Jackie Dueck, a manager at the city, said the city makes little money by putting its surplus in long-term government bonds in part because of record-low interest rates. Corporate bonds can provide slightly higher returns with a similar risk rating.
The City has already been creeping over its corporate limits set by policy, and made it official yesterday.
“The portfolio continues to be slightly overweight in its corporate holdings and is now underweight in its Government of Canada holding,” Dueck says. “This is because the corporate bank debt offerings continue to provide the highest fixed income returns while the 10 year interest rate returns offered on federal debt are now extremely low.”
They dropped federal investments to 30 per cent from 40 per cent and raised corporate investments to 20 per cent from 10 per cent.
Coun. Luke Stack supported the changes but offered a cautionary note about taking that limit any higher than 20 per cent.
“To me that’s the upper limit,” he says. “It is taxpayers’ funds, and we always have to balance security. We all like it when the market’s buoyant, but it also swings a bit more than the government issue.”
The city’s investment portfolio assets are approximately $175 million, including funds used for the financing of internal projects. Approximately $66 million a year is kept in short term liquid assets to meet the annual operating budget. The report also shows that at the end of last year, the city had $59 million in provincial bonds, $40 million in federal, and $8.7 million in municipal. Corporate investments totaled approximately $15 million. The annual average rate of return for 2013 was 2.7 per cent.
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News from © InfoTel News Ltd, 2014