Qualified NDT Fixed Income
Investment Philosophy
We believe that diversified and controlled exposure to a variety of risks associated with the fixed income market provides the best opportunity to achieve above-market after-tax returns over the long-term.
Investment Process
Complete Understanding of Client Guidelines / Benchmark: Our Qualified NDT Fixed Income investment process does not begin until we develop a clear understanding of each client’s investment guidelines and applicable benchmark. Portfolio construction is dependent on benchmark selection and can be significantly different if the benchmark is the Lehman G/C Index versus the Lehman Aggregate Index or some other index, including customized benchmarks.
Duration and Yield Curve Strategy: Once the constraints are clearly understood for an individual portfolio, our Qualified NDT Fixed Income investment process begins with determining an overall macro economic outlook and a forecast for the expected behavior of interest rates. Next, we utilize this outlook to determine our duration and yield curve strategy. Interest rate risk is limited by keeping overall portfolio duration within +/- 20% of the applicable benchmark.
Sector Allocations / Credit Risk: Sector allocations are determined based on input from sector specialists who recommend weightings based on their overall outlook for each sector and the relative value among sectors. Each sector specialist performs in-depth fundamental analysis to select the optimal securities in each sector- - - government, structured (MBS, ABS and CMBS), corporate and municipal (both taxable and tax-exempt). Credit risk in the portfolio is minimized by limiting all holdings to investment grade ratings and maintaining an overall average credit rating for our portfolios of “AA” or higher. A thorough analysis is made of each credit sensitive issue prior to purchase and each holding on a regular basis to insure that we understand the credit fundamentals and that our minimum credit standards are exceeded.
Tax-Efficient Management: Each potential trade that we consider for our Qualified NDT Fixed Income portfolios is analyzed in terms of its expected incremental after-tax return versus the potential realized gain or loss. Overall portfolio annual net realized gains are held to a minimum. Largely to minimize transaction costs, active tax loss harvesting is not practiced with our Qualified NDT Fixed Income product.
Sector Allocations vs Benchmark (%)*
|
Portfolio |
Lehman Aggregate |
| Treasuries |
10.2 |
23.9 |
| Agencies |
5.9 |
10.0 |
| Corporates |
14.8 |
12.1 |
| Taxable-Municipals |
7.2 |
0.0 |
| Mortgage-Backed |
43.0 |
41.7 |
| ABS |
0.6 |
0.8 |
| CMBS |
7.5 |
4.8 |
| Tax-Exempt Municipals |
9.5 |
0.0 |
| Yankees |
0.3 |
6.7 |
| Cash |
1.0 |
0.0 |
After-Tax Risk/Return (10 Years) (%)*
| R2 vs Lehman Aggregate |
0.99 |
| Lehman Aggregate Standard Deviation |
3.48 |
| Composite Standard Deviation |
3.38 |
| Tracking Error vs Lehman Aggregate |
0.47 |
Quality vs. Benchmark (%)*
*Periods ending 9/30/08. Past performance is no guarantee of future results. This material is deemed supplemental and complements the Institutional Performance & Disclosure contained in the Product Profile. Holdings are subject to change. Indices are not available for direct investment.
Contact Information
Please direct inquiries to Dave Krause at (312) 917-6548 or Kyle West at (312) 917-6526.
Investment team
Daniel J. Petrisko, CFA- Senior Portfolio Manager
Lisa Leonard- Senior Portfolio Manager
Akin Rojugbokan, CFA- Investment Analyst
Tim Heaney, CFA- Senior Portfolio Manager
Shalini Sharma, CFA, CPA- Portfolio Manager