Thanks to sound investments, Woolwich Township is faring relatively well in the current economic storm, says the municipality’s director of finance, Richard Petherick.
In a report to council last week highlighting the township’s investments for 2008, Petherick revealed that because of its “passive approach” to investing, the municipality’s portfolio of investments is providing some significant yields.
“The overall investments we have are solid investments,” he said in an interview.
Composed of holdings ranging from cash balances to long-term bonds, as of Dec. 31, 2008, the total book value of these holdings was approximately $9.53 million, down significantly from $18.5 million in 2007. That decline, however, comes as a result of drawing on its cash holdings, part of the township’s plan for funding its extensive capital building program. Last year saw a flurry of construction in the township, with ground breakings on a number of projects, including the Woolwich Memorial Centre, the township administration building in Elmira, and the new fire hall in Floradale.
In his report, Petherick revealed that the township has a total of $6.9 million in long-term investments (GICs, bonds), and $2.5 million in cash balance and munipal pooled funds.
While the total market value of those investments as of Dec. 31 offers a marginal yield, actually dipping from that of 2007, it is positive given the economic downturn.
“We have basically a passive trading strategy, which really means that we look at primarily just individual bond securities. With that, we’re actually really stable and we’ve been able to secure some very good yields, especially in this day and age,” he said.
The overall yield for 2008, including cash balances, was 4.23 per cent, down slightly from 4.32 per cent in 2007, but still a touch ahead of 2006’s 4.13 per cent.
“For the most part it is [tied to the economy]. Typically, what happens is that usually investors, when they’re skittish about the stock market, they usually try to look at bonds as their investment tool. Short-term bonds are not doing very well … we carry long-term bonds and we’ve picked up some pretty significant yields, so we’re pretty fortunate.”
The township’s “laddered” portfolio of individual bond securities continues to outperform returns on bank balances and bond investments, resulting in increased interest income for the municipality.
Bank prime currently stands at three per cent (February 2009), which is down 0.5 per cent from December 2008. Projections from the Bank of Canada show that interest rates will likely rise as the economy stabilizes. That said, Petherick noted that more rate cuts are to be expected, at least “until the Canadian economy shows signs of stability.”
For the meantime, the township’s laddered approach to its investments will help cushion the effects of the spiraling economy: with maturity dates for the individual bonds ranging from 2009 to 2023 the effect of weak bonds won’t hit as hard.
“The way we do it is that we can weather any of these economic storms,” he explained.
While Wellesley Township doesn’t have any investments in bonds or GICs other than its 6.6 per cent corporate ownership of Waterloo North Hydro, it is collecting interest on its regular accounts, explained treasurer Diane Lorbetski.
“At this point we have no investments as in GICs or anything like that … the township only has our regular bank account and there’s no money at this point invested,” she explained.
“We were getting more interest in our back account than our (previous) GIC,” said Lorbetski of a GIC that was redeemed last year.
“We don’t have that kind of cash flow unless we get some kind of provincial funding; our money pretty well goes in and out of the township, there’s not a lot of extra money that’s not accounted for,” she said, adding that by the time all of the projects for 2009 are completed, the total reserve fund balance will be $2,642, 391.62.
