2 min readExecutive Summary In the past year or so, LBO minefields started to appear in the “safe and sound” investment-grade credit landscape filled with A and AA-rated names. About 27% of the A-rated corporate index may be buyout targets. The LBO of Sallie Mae brings takeover risk to the “safe haven” financial sector. All of the…
2 min readWhen the obscurely named ABX.HE.BBB-.06-1 crawled from Wall Street trading computers into millions of living rooms through the national media last February, a system meltdown was fast approaching. The ABX isn’t an Internet worm; it is a specimen of “asset-backed credit default swaps,” or a quasi insurance policy on borderline investment-grade bonds repackaged from subprime…
3 min readExecutive Summary Superior returns do not happen by chance all the time, so it is relevant to identify active strategies to help achieve them. We focus on the three broad investment strategies used by most fixed income managers: duration management, sector rotation, and credit selection. Excess return potential from active duration management can be sizeable,…
2 min readExecutive Summary As 2006 drew to a close, corporate cash investors found themselves in a surprisingly benign market. Despite the 100 basis-point increase in the Fed funds rate, major short-duration bond indices brought in positive returns almost universally. As managers of corporate cash investments, we picked five trends that reflect what we feel may have…
2 min readExecutive Summary We set out to answer 10 of the most common questions related to investment policy statement writing for cash portfolios. In doing so, we will provide a number of peer group data comparisons to further add helpful insight in the process. The questions address the following investment subjects: Maximum liquidity limits Minimum credit…
2 min readIntroduction The CFA Institute, an investment industry trade group formerly known as the Association for Investment Management and Research (AIMR), establishes and interprets the AIMR Performance Presentation Standards (AIMR-PPS) in North America. In more than a decade since their introduction, an increasing number of investment managers have voluntarily complied with the new standards that promote…
2 min readExecutive Summary Results of three studies examining investment returns show that, in aggregate, investors with tax rates above 23% received higher returns from tax-exempt securities than from taxable investments over the last nine years. The annual return advantage for taxpayers in the top tax bracket (35%) was approximately 0.26%. While the results of the studies…
2 min readExecutive Summary Few financial executives have a firm grasp of what liquidity means in a portfolio of individual cash assets. The two main criteria in measuring liquidity are: 1. how long it takes to convert an asset to cash, and 2. how much of a price “haircut” must be taken on the sale. The Top…
2 min readExecutive Summary The recent SEC investigation into the auction rate securities market found “industry-wide” violations by 15 major brokerage firms of the Securities Act of 1933. We think that the violations uncovered by the SEC lend evidence to the opinion that the auction rate securities (ARS) market did not have the competitive bidding element. We…
2 min readExecutive Summary With 400 basis points of Fed Funds rate increases over the past 24 months, investors are rightfully anxious about the impact of the Fed tightening policy. Our study finds that historically falling core CPI data tends to encourage the Fed to stop raising rates. Other key indicators, however, do not seem to have…