3 min readIntroduction In its most basic form, investing is all about understanding and managing risk. For fixed income securities, it’s more about managing credit and interest rate risk. And, understanding credit is of particular importance for corporate cash investors whose primary concerns are principal stability and liquidity, while attractive yield potential is often a secondary concern….
2 min readExecutive Summary Our five core themes for the risk-averse, short-duration, and buy-and-hold corporate cash investor are: Economy and Interest Rates: Looming Recession Risk and Lower Rates Corporate Credit: Battered and Cheapened, but Not Down and Out Market Technical Factors: A Wary Market Short on Liquidity Asset-backed Securities (ABS): Show Me the Collateral Return Expectations: A…
2 min readAmidst the financial rubble brought on by the subprime crisis, might there be havens for cash (aside from under the mattress) for the corporate treasury investor? We think so. First, let’s review what led to the flurry of recent negative headlines. Since last August, there have been large write-downs by financial firms with credit exposure…
2 min readIn April 2007 increasing losses sustained by bonds with exposure to subprime mortgages became apparent. [See “The Subprime Flu,” April 2007] In the months that followed, this brought on a widespread credit contagion and took many investors by surprise. Among the hardest-hit areas was the short-term credit market that came to a screeching halt in…
2 min readExecutive Summary Ratings don’t tell the whole story. A basket of bad apples won’t make a good pie. Hidden leverage may sneak up on you. Not all repos are alike. Extension risk may cost you more. Structured notes equal speculation. Do you want to “buy” or “sell” protection? Hedge funds are not for the faint…
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 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…