Finding Value in the Fixed Income Markets.
New York, Apr 30, 2012 - (ACN Newswire) - Institutional investors should expect volatility to persist for at least the next 12 months, so they may want to consider taking a long-term and patient approach to investing, says David Wilson, CFA, Managing Director, Liability Driven Investing, Cutwater Asset Management. "Despite the historically low interest rate environment, there are many attractive investment opportunities in the fixed income space, which require patience through volatile markets," he adds.
From an asset management firmat the upcoming marcus evans US Pensions Summit Spring 2012, in Wheeling, Illinois, July 23-25, Wilson examines Cutwater's fixed income investing approach and outlook for the future.
- How do you identify value in the fixed income markets?
Toextract value from the fixed income markets, we have five approaches that we employ: sector rotation, security selection, duration management, yield curve positioning and trading (buy/sell negotiations). We believe that our sector rotation and security selection approaches represent more attractive opportunities for adding alpha. With this in mind, we expect these approaches to account for approximately 50 per cent and 30 per cent respectively of excess return attribution. We take a measured approach to taking interest rate and curve exposure in our clients' portfolios based on the efficiency we believe exists within the rates market. This generally translates into a lower share of portfolio alpha coming from these two decisions, approximately 15 per cent over a market cycle. Buy/sell negotiation represents approximately five per cent.
- What is unique about Cutwater's investment philosophy and strategy?
The objective of our philosophy is to provide clients with consistent, top quartile risk-adjusted portfolio performance through market cycles. We consider it important to take a long-term view of markets with an appreciation for their full business cycle, and apply a counter-cyclical approach to capital allocation, centered on adding risk to the portfolio when the margin of safety is high and de-risking when low. Additionally, we focus on the spread sectors of the market, where the inefficiencies are greatest and separate fundamental credit research from relative value analysis. Utilizing the entire universe of fixed income instruments, both index and non-index sectors, helps us maximize risk-adjusted returns for investors.
In our experience, this has produced risk-adjusted portfolio returns in excess of relevant benchmarks and peers. When spreads are low and do not offer an adequate "margin of safety" relative to our fundamental outlook, we lower our allocation to the spread sectors of the market, increase our allocation to risk neutral sectors, including treasuries, and evaluate for a more attractive entry point.
- What is your outlook on the future? What should institutional investors prepare for?
For 2012, we expect the US to grow at or slightly below 2 per cent, which is below blue chipeconomists' consensus view of 2.2 per cent. We expect Europe to experience a moderate recession, with Euro area corporate profits dropping 4 per cent (versus flat earnings this year). We think this is already priced into the markets, but a deeper recession may cause us to revise our forecast lower. Asia and emerging market growth will likely slow, but timely central bank action and prudent fiscal risk management can support solid growth in 2012.
The opinions expressed in this interview are solely those of Cutwater Asset Management. All information presented is believed to be reliable, however the accuracy, timeliness, and completeness of the content is not guaranteed and should not be relied upon as a basis for any investment decision. This interview does not constitute investment advice and Cutwater Asset Management disclaims any liability for any use of the content thereof. Past performance is no guarantee of future results.
About the US Pensions Summit Spring 2012
This unique forum will take place at The Westin Chicago North Shore, Wheeling, Illinois, July 23-25 2012. Offering much more than any conference, exhibition or trade show, this exclusive meeting will bring together esteemed industry thought leaders and solution providers to a highly focused and interactive networking event. The Summit includes presentations on managing pension risks, dynamic investment policies and socially responsible investing. For more information please send an email to email@example.com or visit the event website at www.uspensions-summit.com/DavidWilsonInterview
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About Cutwater Asset Management
Cutwater Asset Management is a client-centric and solutions-based investment advisor focused exclusively on fixed income investments. As one of the largest institutional fixed-income investment managers in the world, Cutwater's model combines world-class investment expertise and risk management capabilities with exceptional client service, in-depth consultation, and extensive interaction between clients and the investment team. www.cutwater.com.
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|Date:||Apr 30, 2012|
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