Stamp Portfolio

Short-Term Asset Management Pool (STAMP) – 101

The launch of the Short-Term Asset Management Pool (STAMP) was several years in the making during 2010 to 2012 and was launched in April 2012. Since the oldest fund managed within the core portfolio dates to 1754, and the core portfolio was formally chartered in 1892, this new service of the Trustees of the Funds sought to continue the long-standing tradition of the Trustees in providing an additional benefit to the churches and institutions of the Episcopal Church in Virginia.

A trigger in the development of STAMP was through the reading of church audits each year over 20 years’ time. In doing so, it was noticed that a fairly high level of cash was being held in reserve accounts and, with the interest rate environment being what it has been, these reserves could not be earning much, if anything, for the various Episcopal institutions. Many church-level points of contact for the core portfolio asked if the Trustees could develop an alternate fund for cash reserves, or for funds being held in the very short-term for specific projects.

Input was sought from current TOTF participants through both paper and electronic surveys and there was a clear desire for a fund that provides some level of return for generally idle cash reserves but would still remain highly liquid. The Trustees have been instrumental in guiding this project during this time and have proven time and again how much they care about the broader Church in the creation of this fund. The pilot period allowed the Trustees to work with SunTrust Bank in developing the underlying processes for investments, disbursements, and reporting. The Trustees cannot overstate how much they appreciate the staff in the Institutional Trust office at SunTrust for their time and patience in the development of this new fund.

As with the core portfolio, STAMP, given the underlying investments, is not without risk. From the pilot phase through the active management period to present, STAMP has performed well within the estimated range of net return. Historical and current performance can be found on the performance tab.

In late 2013, the Trustees authorized the expansion of TOTF services to the entire Commonwealth of Virginia, meaning that the churches and institutions of the dioceses of Southern Virginia and Southwestern Virginia can utilize both the core portfolio and STAMP.

 

Managers

 

The initial portfolio design had three asset managers, each being a cash or short-term bond manager, and each fund being utilized has varying levels of duration and maturity. In June 2014, the Vanguard Short-term Investment Grade Bond Fund was added.

STAMP is a risk-based fund, regardless of the use of short-term cash and bond funds for asset management.

Because of the long-standing relationship with SunTrust Bank, functioning as custodian for STAMP, the Trustees are able to access best-in-class expense ratios for the managers in use. The funds are shown below and current fund information for Federated, PIMCO and Vanguard can be located at their respective web sites.

  1. IMMDO. Institutional Money Market Demand Option. This is the internal SunTrust Bank cash fund and it is used as the inflow/outflow account, much as is used for the core portfolio. IMMDO will use the 91-day Treasury Bill for a benchmark, although STAMP enjoys a fixed annual return for the cash holdings (currently annualized at +0.17%). There is no cost for TOTF to use this fund as a part of the STAMP investment strategy. IMMDO has a current target of 15% of assets. As an internal bank money management tool, the IMMDO account is not rated.
  2. Federated Ultra-Short Bond Fund. Ticker: FULIX. This fund will use the Merrill-Lynch Six-Month Treasury Bill return for a benchmark. The expense cost for STAMP is 0.36%, or 36 basis points. The fund has 35% of the account assets at present. It currently has a 5-star rating with Morningstar and is also rated as 5-star in the ten-year period. The original share class was issued in October 1998. Please see www.federatedinvestors.com and search for FULIX.
  3. PIMCO Low-Duration Fund. Ticker: PTLDX. This fund will use the Merrill-Lynch 1-3 Year US Treasury return for a benchmark. The expense cost for STAMP is 0.46%, or 46 basis points. This fund has an equal fund weighting with Vanguard at 25% of the portfolio. It currently has a 4-star rating with Morningstar and is also rated with 4-stars in the ten-year period. It has a fund inception date of May 1987. Please see www.PIMCO.com and search for PTLDX.
  4. Vanguard Short-Term Investment-Grade Fund. Ticker: VFSUX. This fund will use the Merrill-Lynch 1-3 year US Treasury return for a benchmark. The expense cost for STAMP is 0.10%, or 10 basis points, as we access the Admiral-level class of shares through SunTrust. Like PIMCO, this has a 25% allocation. It currently as a 4-star rating with Morningstar and has maintained that level (or 5-star over three years) since inception. The initial share class was issued in October 1982. Please see www.Vanguard.com and search for VFSUX.

 

Performance

2016

January    +0.21%

February    -0.09%

March    +0.57%

April    +0.34%

May    +0.05%

June    +0.34%

July

August

September

October

November

December

By year to date:

2012    +3.06% (nine months, net of fees)

2013    +0.27% (twelve months, net of fees)

2014    +0.70% (twelve months, net of fees)

2015    +0.52% (twelve months, net of fees)

2016    +1.44% (six months, net of fees)

Inception to date (April 1, 2012 through June 30, 2016)

+1.30% (51 months, annualized, net of all fees)

 

Forms and Sample Documents

STAMP is designed to be fairly simple to operate. There are really only two documents in use for TOTF operations.

New Fund

There is one form to establish a fund and that same form can be used to make changes in local administrative contact. As noted, a copy of a cancelled check is very helpful to establish the ACH transfer process. Click here for the Account Setup/Change form

Additions and Withdrawals

There is one form to use for either additions to funds or withdrawals from funds. At the present time, all new deposits and additions need to be received by check (although we can accept wires if we are notified in advance). All withdrawals will be sent via ACH directly into the participants depository account as provided when the fund was established. If the TOTF office has a copy of a cancelled check from the participant, the ACH process is very easy. It is the hope of the Trustees that the receipt of funds will also be refined in coming months so that inflows can all be received electronically. Click here for the STAMP Addition or Withdrawal form

 

Investment Policy Statement

BACKGROUND

The Trustees of the Funds of the Protestant Episcopal Church in the Diocese of Virginia, more commonly known as The Trustees of the Funds (“the Funds”), was chartered by the General Assembly of Virginia in 1892 to raise, receive, manage and disburse funds for the support of the Episcopate, churches, related organizations, clergy, widows and orphans and for other purposes of the Diocese of Virginia. With roots to October 31, 1754, the Trustees of the Funds was created to support the Diocese of Virginia and, to use current canonical language, is considered a related organization of the Diocese of Virginia. The Trustees are elected to three-year terms from a slate of nominees approved by the Annual Council of the Diocese of Virginia. In 2013, access to the system of managed funds was widened to include the Dioceses of Southern Virginia and Southwestern Virginia.

PURPOSE OF INVESTMENT POLICY STATEMENT

The purpose of this Investment Policy Statement (“IPS”) is to set forth the objectives and policies of the Trustees, the guidelines to be used for the selection, monitoring and evaluation of investment managers, and the guidelines for investment managers for the prudent investment management of the Short-Term Asset Management Pool portfolio (the “Fund”) assets.

This IPS will further the Trustees’ objectives, defined in the various sections that follow, by:

  1. Stating in written form the Trustees’ expectations, attitudes and guidelines for investment of the Fund’s assets.
  2. Specifying an investment structure, including various asset classes, investment management styles, allocations and ranges expected to produce overall diversification and acceptable total investment risk and return over the investment time horizon.
  3. Establishing formal criteria to select, monitor, evaluate and compare performance results of investment managers on a regular basis.
  4. Encouraging effective communication between the Trustees, Investment Advisor(s), Investment Manager(s) and other interested parties.
  5. Complying with all applicable duties of fiduciary prudence, due diligence, legal and regulatory compliance.

MANAGEMENT OBJECTIVE

The management objective for the Trustees is to preserve and provide the Funds’ real, inflation-adjusted, purchasing power while providing current income while maintaining limited net asset value volatility in support of the respective missions of the Fund’s Participants.

To support distributions and preserve purchasing power, the Trustees’ objective is to maximize investment return within reasonable and prudent levels of risk. While it is understood that each Participant in the Fund has the right to withdraw its investments at any time according to the then-current withdrawal policy of the Trustees, it is the express intent of the Trustees to invest the Fund for the short-term and accept that level of portfolio risk consistent with achieving short-term growth and preservation of capital. The Fund is expected to maintain an average weighted duration of between 12 and 18 months.

In pursuit of this objective, the Trustees have put in place a portfolio of managed funds investing in a variety of quality fixed income securities, the majority of which shall be ultra-short, short- and intermediate term investment grade securities.

To serve these management objectives, the investment objective of the Fund is to attain a real total return in excess of the Merrill Lynch 1-3 Year U.S. Treasury Index over the long term.

The Trustees will periodically consider actions of the General Convention and of the Annual Convention of the Diocese of Virginia regarding socially-responsible investing guidelines and will carefully apply such guidance in making investment commitments.

ASSET ALLOCATION GUIDELINES

The Trustees believe that long-term performance, even for a short-term portfolio, in large part, is primarily a function of asset class mix. The Trustees have reviewed the long-term performance characteristics of the broad asset classes, focusing on balancing the risks and rewards of using specific asset classes. The Trustees are conscious of the risk tolerance of the Participant electing to place assets with the Fund, and that is taken into consideration when determining asset allocation.

The Fund asset structure should reflect a proper balance between the need for liquidity and preservation of short-term purchasing power, as well as the risk tolerance of the Participants whom the Trustees serve.

To achieve this balance, the Fund shall be invested across a variety of asset classes in proportions determined by the Trustees and intended to achieve the intended investment objectives. Target allocations and ranges for the Fund are described in the Appendix to this document.

Rebalancing

Deviations from policy targets will occur due to market fluctuations and normal additions and withdrawals from the Fund. As long as individual fund weights remain within their policy ranges, the Trustees have the discretion whether or not to rebalance back to the policy target. However, if individual fund weights exceed their policy ranges, then the Trustees will convene to determine a rebalancing action, whether back to the policy limit or to the policy target. Cash flow, such as deposits or pending divestments, will be allocated to rebalance any deviation from the target allocations, according to the policies detailed herein. Should no cash flow be pending, the Chief Executive Officer, or other authorized officer, shall rebalance by transferring among the funds.

Guidelines for the Short-Term Bond Exposure

The objective of the Fund’s Short-Term Bond Exposure is to match or outperform, net of fees, the Merrill-Lynch 1-3 Year U.S. Treasury Index. To ensure that this objective is met, the performance of each short-term bond manager will be measured against an appropriate index and against an appropriate universe of the manager’s peers.

The duration of the Bond Exposure should range from one to five years. The average bond rating of the Bond Exposure is intended to be “AA” or higher, and investments in securities rated less than “BBB” should represent no more than 10 percent of the total Bond Exposure. Credit risk and currency risk should be carefully considered when purchasing obligations denominated in foreign currencies, and such holdings are limited to no more than 10 percent of the Bond Exposure.

Obligations issued or guaranteed by the U.S. Government may be held without limitation. All other securities in the Fund shall be well diversified with respect to type, industry and issuer in order to minimize default exposure.

Guidelines for the Ultra-Short-Term Exposure

The objective of the Fund’s Ultra-Short-Term Bond Exposure is to match or outperform, net of fees, the Merrill-Lynch 6-Month Treasury Bill. To ensure that this objective is met, the performance of each ultra-short-term bond manager will be measured against an appropriate index and against an appropriate universe of the manager’s peers.

The duration of the Ultra-Short Bond Exposure should range up to one year, but no more. The average bond rating of the Ultra-Short Bond Exposure is intended to be “AA” or higher, and investments in securities rated less than “BBB” should represent no more than 10 percent of the total Ultra-Short Bond Exposure. Credit risk and currency risk should be carefully considered when purchasing obligations denominated in foreign currencies, and such holdings are limited to no more than 10 percent of the Ultra-Short Bond Exposure.

Obligations issued or guaranteed by the U.S. Government may be held without limitation. All other securities in the Fund shall be well diversified with respect to type, industry and issuer in order to minimize default exposure.

Guidelines for the Cash Exposure

The purpose of the Fund’s Cash Exposure is to provide liquidity sufficient to meet short-term withdrawal needs of Participants. Its investment objective, as a whole, is to outperform, net of fees, a 91-day T-Bill index. To ensure that this objective is met, the performance of any cash fund manager will be measured against an appropriate index.

Money market instruments may be used in the Short-Term Exposure, but equities and convertible bonds are excluded. Since the Short-Term Exposure is designed as a stable, temporary repository for funds to facilitate operations and management, its average duration should never be greater than 30 days.

DUTIES AND RESPONSIBILITIES

Trustees: As stewards of the Fund, the Trustees’ fiduciary duties include:

  • Preparing and periodically reviewing the Investment Policy Statement.
  • Prudently selecting and reviewing asset allocations.
  • Prudently diversifying the Fund’s assets to meet the Policy’s risk/return profile.
  • Controlling and accounting for all expenses of investment, record-keeping and administration associated with the Fund.
  • Selecting, monitoring and supervising all service vendors.
  • Avoiding prohibited transactions and conflicts of interest.

Investment Advisor: The Trustees may seek advice from and elect to delegate certain investment reporting and manager search/monitoring duties to an objective, third-party Investment Advisor in relation to the overall investment process. The Investment Advisor will be responsible for guiding the Trustees through a disciplined and rigorous investment process governed by the guidelines of this Policy. The Investment Advisor’s process will be designed to enable the Trustees to meet the fiduciary duties outlined above.

Investment Managers: The Trustees’ investment process will be implemented by engaging Investment Managers who will execute specific investment decisions including security selection and price decisions.

Passive mandates may be used in more efficient segments of the capital markets to gain exposure; otherwise, active managers will be engaged to generate superior returns relative to their benchmarks). Benchmarks, whether they are passive investible indices, floating rate (e.g., Libor) plus a hurdle or absolute return targets, will be determined by the Trustees. The Trustees may seek active Investment Managers who demonstrate effective strategies, sustainable advantages, and high-quality organizational structures that pursue prudent, risk conscious, asset management processes that have been thoroughly diligenced by either the Trustees or the Investment Advisor and who adhere to the highest ethical standards.

All Investment Managers within each asset class will be compared to their own relevant style index benchmarks. While a horizon of at least three years is the preferred comparison period, significant short-term differences will be highlighted and, if warranted, the Trustees may take action to remedy performance deficiencies.

Attractive investment management firm characteristics include:

  • Strong reputation in the marketplace and a meaningful, high quality, institutional client base.
  • Aligned interests (e.g. significant principal/employee dollars invested in the funds).
  • Stable and experienced professional team.
  • Appropriate demonstrable risk controlled processes.
  • Controlled growth and a manageable level of assets under management and,
  • Competitive long-term performance among peers.

The Investment Managers’ duties will include:

  • Managing the assets under their supervision in accordance with the provisions of their respective service agreements, prospectus or trust agreement.
  • Exercising full discretion on buying, managing and selling assets under their supervision in accordance with this IPS.
  • Effecting all transactions on a “best price and execution” basis. If an Investment Manager utilizes transactions of Fund assets to facilitate “soft dollar” relationships, detailed disclosure will be made to the Trustees.
  • Using the skill, care, prudence and due diligence that experienced professionals would use in similar circumstances, in accordance and compliance with the Uniform Prudent Management of Institutional Funds Act (UPMIFA) and all applicable laws, rules and regulations.
  • Voting promptly all proxies and related actions in a manner consistent with the long-term interests and objectives of the Fund as outlined in this IPS. Each manager shall keep detailed records of the voting of proxies and related actions, and will comply with all applicable laws, rules and regulations.
  • Communicating with the Trustees all significant changes pertaining to the assets under their supervision and to their firm itself. Changes in management, ownership, financial condition or organization structure are examples of changes about which the Trustees should be informed.

The Investment Advisor will conduct extensive due diligence prior to recommending each Investment Manager to the Trustees. Evaluations include meetings with key personnel and typically include at least one on-site visit to the principal office. Research includes reviews of audited financial statements, reference checks with other clients and business associates, and comparison to competitors.

When deemed appropriate, background checks may be conducted. Staff and the Investment Advisor will use their respective networks of contacts in an effort to gain further confirmation of an Investment Manager’s abilities and business practices. New firms may have additional business risk and are subject to a more rigorous level of due diligence and more stringent ongoing monitoring. Selection of Investment Managers is not geographically restricted.

Custodian: The Trustees may elect to delegate record-keeping, custody and administrative duties to an institutional Custodian. The duties of the institutional Custodian include:

  • Maintaining separate accounts.
  • Valuing the Fund’s holdings.
  • Collecting all income and dividends owed to the Fund.
  • Disbursing all distributions from the Fund.
  • Settling all transactions initiated by the Investment Managers.
  • Providing monthly reports that detail transactions, cash flows, securities held and their values and change in value since the previous report.

MONITORING OF PERFORMANCE, PARTIES AND POLICY

Investment Managers: The Trustees acknowledge that the securities markets are characterized by fluctuating rates of return, particularly during short-term periods. With such fluctuations in mind, the Trustees intend to evaluate Investment Manager performance from a long-term perspective. In conjunction with the periodic review of the Fund’s performance, the Trustees will review each Investment Manager.

In addition to performance measurement, staff and/or the Investment Advisor will monitor for consistent implementation of investment strategy and philosophy, appropriate risk controls, adherence to any stated guidelines, and any material changes in the Investment Manager’s organization and/or personnel.

The performance of the Fund’s Investment Managers will be actively monitored by staff, who will report any meaningful observations and performance deviations to the Trustees in a timely manner. Quarterly performance will be evaluated versus appropriate benchmarks and peer universes, but emphasis will be placed on relative performance over longer investment periods.

The Trustees have the discretion to take corrective action by replacing an Investment Manager if the Trustees deem it appropriate at any time.

Corrective action typically occurs as a result of meaningful organizational or process-related change, and, in some cases, sustained relative underperformance. Significant short-term underperformance may also trigger a review.

The following are some examples of reasons that may cause the Trustees to lose confidence in a manager:

  • Change in organizational structure or personnel – a significant change in culture through a merger or acquisition that is likely to distort incentives and promote turnover; or if the investment team leaves the firm.
  • Changes in strategy and style – if the manager departs from the strategy and style that they were hired to implement; such as a switch from a quantitative process to a fundamental one.
  • Performance – continued performance shortfalls versus a peer group of managers with similar style and/or a market index. Performance is most meaningfully evaluated over a medium-term time horizon of at least three years.
  • Changes in regulatory or legal matters relating to a manager.

Investment Advisor: The Trustees recognize that maintaining a rigorous, disciplined investment process is essential in the performance of their fiduciary duties to the Fund Participants, and that the Investment Advisor can be a principal guide in that process.

If engaged to support the work of the Fund, the Trustees will conduct an annual review of the Investment Advisor’s services including:

  • Market guidance and developments in the investment profession and fiduciary field.
  • Assistance in reviewing and adhering to asset allocations.
  • Due diligence research of potential Investment Managers.
  • Monitoring, analysis and reporting on current Investment Managers.
  • Communication and responsiveness on an ongoing basis.

The Investment Advisor’s performance will be monitored regularly, and it is at the Trustees’ discretion to replace the Investment Advisor if they deem it appropriate to do so at any time.

Cost Review: The Trustees will review at least annually all costs associated with the management of the Fund’s investment process, including:

  • Expense ratios of each investment option versus other options, indices and peers.
  • Whether each manager is adhering to the standard of “best execution” in trading securities.
  • Advisor’s fees as measured against similar professionals in the field.
  • Custody fees as measured against similar professionals in the field.
  • Administrative costs, to ensure appropriate balance between capabilities and costs.

Investment Policy Review: The Trustees will review this IPS annually to determine whether stated investment objectives are still relevant and feasible. It is not expected that short-term fluctuations in the financial markets would result in adjustments to this Investment Policy.

 

Appendix