LEGAL and DISCLOSURES
Website data and information as of September 30, 2023
The information in this website is intended for U.S. institutional investors only. No part of this material may be modified, distributed or duplicated without the explicit permission of Pugh Capital Management, Inc.
This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
This web site is a publication of Pugh Capital Management, Inc. Nothing in this publication is intended to be relied upon as a forecast or research; legal, tax, securities, or investment advice; an opinion regarding the appropriateness of any investment, or a solicitation of any type. The contents of this publication are intended for general information purposes only, and investors should evaluate their own situation and ability to invest for the long-term, especially during periods of volatility in the financial markets.
The information contained herein has been obtained from sources that we believe to be reliable, but its accuracy and completeness are not guaranteed and is subject to change. Pugh Capital reserves the right at any time and without notice to change, amend, or cease publication of the information. It has been prepared solely for informative purposes on an “as is” basis. Pugh Capital does not make any warranty or representation regarding the information. Pugh Capital disclaims any and all liability for the information, including without limitation, any express or implied representations or warranties for information or errors contained in, or omissions from, the information. Pugh Capital and its employees and officers shall not be liable for any loss or liability suffered by you resulting from the provision to you of the information or your use or reliance in any way on the information.
PERFORMANCE and FEE DISCLOSURES
Past performance is not a guarantee or a reliable indicator of future results. Investing involves risk; principal loss is possible. Investors should carefully consider risk when investing in bonds or other securities, which include, but are not limited to, default, credit rating, interest rate, duration, prepayment, liquidity, and structural risks. Securities are also subject to general market risks due to factors that affect the overall market, which may include, but are not limited to, government actions, investor behavior, and economic conditions. Economic conditions may be influenced by liquidity risk, geopolitical risks, monetary and fiscal policy, interest rate risk, and inflation, among others. There is no guarantee that investment strategies presented will work under all market conditions. Risk management processes including diversification cannot eliminate the risk of losses nor assure the likelihood of a gain. Each investor should evaluate their ability to invest for the long-term, especially during downturn or volatility in the market.
Returns for less than one year are not annualized. All portfolio returns of Pugh Capital Management are based in U.S. dollars and are calculated using a time-weighted return (TWR) methodology, which is a method of calculating period-by-period returns that reflect the change in value and negates the effect of external cash flows. The monthly composite return is the asset-weighted performance of all portfolios in the composite. Monthly composite returns are geometrically linked to form year-to-date and annual returns. The total returns include reinvestment of interest and other earnings and include accrued interest. Account returns may be higher or lower than the product composite returns due to differences in portfolio holdings, timing of security transactions, and account inception date.
Gross of fee performance is calculated net of all transaction costs but before investment management fees, and includes accrued interest. Net of fee performance reflects the deduction of actual investment management fees and all transaction costs but does not reflect the deduction of custodial fees. Pugh Capital does not assess performance-based fees. Fees are disclosed as part of the firm’s Form ADV Part 2A, which is available upon request.
It is not possible to invest directly in an index. The index is unmanaged and does not incur charges or expenses. Holdings in the strategy may differ from the index and holds fewer securities than contained in the index. The benchmark index is provided for comparative purposes to represent the investing environment during the periods shown. Pugh Capital manages other investment strategies for clients that had investment returns materially different than the returns presented.
Composite Returns. Pugh Capital claims compliance with the Global Investment Performance Standards (GIPS®). Pugh Capital has been independently verified for the periods from January 1, 2006 to December 31, 2022 by Absolute Performance Verification LLC. Results are based on all fee-paying, fully discretionary accounts under management, including those that are no longer with the firm. To receive a GIPS Composite Report, the verification, performance examination reports and additional information regarding policies for valuing investments, calculating and reporting returns, please contact Deanna Hobson, Executive Vice President, Marketing & Client Service, at (206) 322-4985, or write Pugh Capital Management, 520 Pike Street, Suite 2900, Seattle, WA 98101, or email@example.com. Verification does not provide assurance on the accuracy of any specific performance report. GIPS® is a registered trademark of CFA Institute, which does not endorse or promote Pugh Capital, nor does it warrant the accuracy or content contained herein.
Each composite includes all fee paying, fully discretionary accounts that invest in the strategy. Pugh Capital adheres to the GIPS valuation hierarchy principles. For more information about composite inclusion criteria, significant cash flow policy, large cash flow policy, and benchmark description, please refer to the GIPS Report which may be obtained as explained above.
Commentary on Performance and Supplemental Return Information are Gross of Fees (such as attribution and excess returns) unless otherwise noted. Please refer to the performance report for the effect of management fees by comparing gross vs. net returns.
Interim Performance Disclosure. Where requested, performance presented between official quarterly performance periods is preliminary. Net of fees returns are calculated after actual investment management fees, which are assessed and collected on a quarterly basis. During months where management fees are not collected, gross and net returns reflected may be the same. During months where management fees are collected, the net return is understated as it generally represents fees for the full quarter. Likewise, where other partial periods are reported, fees are not estimated or prorated. Both gross and net of fee performance figures are reflected for official quarterly performance periods. Where reflected, interim period reporting is provided at your request for informational purposes.
Performance Reported as of 4:00 p.m. EST as of March 31, 2021 forward. In mid-January 2021, Bloomberg changed the time at which it strikes closing prices from 3:00 p.m. EST to 4:00 p.m. EST for the Bloomberg Indices. Because our performance is measured against these benchmarks, Pugh Capital moved to reporting performance as of 4:00 p.m. EST (1:00 p.m. EST on early close days) for performance as of March 31, 2021 forward. All periods prior reflect reporting as of 3:00 p.m. EST.
Investing in securities involves risk of loss that clients should be prepared to bear. Securities will fluctuate in value on a daily basis. Pugh Capital does not guarantee market value, investment returns or performance for any securities or strategies.
Investing in fixed income securities comes with certain risks. For example, idiosyncratic risks may arise from events affecting the issuer of fixed income securities, such as failing to meet its obligations to make payments to its bondholders (default risk), or a downgrade in its credit ratings, may cause a decline or loss in the value of its securities. High yield securities with lower credit ratings generally involve greater risk than higher-rated securities. In addition, participants in the fixed income markets, including Pugh Capital, rely on the accuracy and timeliness of information from issuers of securities, rating agencies, and other public sources of information. If this information is inaccurate or materially misleading, or if these entities engage in fraud or similar practices that undermine the fairness and efficiency of the capital markets, investments in securities may lose money.
In addition, the market values of fixed income securities are sensitive to prevailing interest rates. A rise in interest rates generally causes a decline in the value of fixed-income securities (interest rate risk). Expectations of higher inflation generally cause interest rates to rise. Fixed income securities of longer duration are more sensitive to this risk so may experience greater fluctuation in market values as a result. This risk is more significant for our Long Duration Strategy, Long Credit Strategy, and Long Corporate strategies.
Fixed income securities are also subject to general market risks, meaning a decline in the value of securities, due to factors that affect the overall market, which may include, but are not limited to, government actions, regulatory environment, investor behavior, and economic conditions.
Economic conditions may be influenced by liquidity risk, geopolitical risks, monetary and fiscal policy, interest rate risk, and inflation, among others. It may become difficult to purchase or sell at an advantageous time or price (liquidity risk) under adverse market or economic conditions independent of any specific adverse change in the conditions of a particular issuer. Liquidity risk has increased in recent years with the reduction in dealer market-making capacity. Fixed income securities are also subject to risks that may only affect a sector of the market, if they fall within the sector.
Mortgage-related and other asset-backed securities are subject to certain additional risks. Generally, rising interest rates tend to extend the duration of fixed-rate mortgage-related securities, making them more sensitive to changes in interest rates (extension risk). When interest rates decline, borrowers may pay off mortgages sooner than expected, and investors may have to reinvest at lower interest rates (prepayment risk). Certain types of asset-backed securities may also be subject to prepayment risk, as well as additional risks associated with the nature of the assets and the servicing of those assets.
There is also a risk that Pugh Capital’s investment style may underperform other investment styles or the overall market.
INVESTMENT PROCESS DISCLOSURES
Past performance is not a guarantee or a reliable indicator of future results. Investing involves risk; principal loss is possible. Investors should carefully consider risk when investing in bonds or other securities, which include, but are not limited to, default, credit rating, interest rate, duration, prepayment, liquidity, and structural risks. Securities are also subject to general market risks due to factors that affect the overall market, which may include, but are not limited to, government actions, investor behavior, and economic conditions. Economic conditions may be influenced by liquidity risk, geopolitical risks, monetary and fiscal policy, interest rate risk, and inflation, among others. There is no guarantee that investment strategies presented will work under all market conditions. Risk management processes including diversification cannot eliminate the risk of losses nor assure the likelihood of a gain. Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn or volatility in the market.
Material presented is for informational purposes to demonstrate Pugh Capital’s investment process. Such reports are for internal use only and are not intended to be utilized as investment advice or a recommendation as to the appropriateness of investing in any particular security, asset class, strategy, or product. This section contains Pugh Capital’s opinions which are subject to change without notice. New positions purchased which do not have an associated analyst issuer report will undergo analysis at the next review.
Analyst Research Report. The report contained herein is for informational purpose only to demonstrate Pugh Capital’s credit analysis and selection process. New positions purchased which do not have an associated analyst issuer report will undergo analysis at the next review. The report should not be considered as investment advice or a recommendation of any particular security. The report contains the current opinions of the analyst when the report was written, and such opinions are subject to change without notice. Such reports are for internal use only at Pugh Capital.
Attribution Analysis. Attribution analysis is based on gross of fees performance data and is provided as supplemental information to the performance report. Please refer to the performance report to view the effect of management fees by viewing the gross vs. net returns. The attribution analysis contained herein is calculated by Pugh Capital and is intended to provide an estimate as to which elements of a strategy contributed (positively or negatively to a portfolio’s performance. Attribution analysis is not a precise measure and should not be relied upon for investment decisions.
Avg. Credit Quality or Rating: Pugh Capital utilizes an internal methodology consistent with market convention to report the quality of a security or the portfolio average quality.
Charts and Graphs. No graph, chart, formula, or other device can by itself determine whether to buy or sell a security. Performance results for certain charts and graphs may be limited by date ranges specified on those charts and graphs; different time periods may produce different results.
Commentary Disclosure. The commentary reflects Pugh Capital’s opinions based on information available at the time of the analysis. Opinions, outlook, and strategies are subject to change without notice. Statements concerning financial market trends are based on current market conditions which will fluctuate. Nothing in this report is intended to be relied upon as a forecast or investment advice. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
Investment Adviser. Pugh Capital Management is a registered investment adviser. Registration of an investment adviser does not imply any level of skill or training.
Issuers and Securities. References to specific securities and their issuers or security types are for illustrative purposes only and are not intended, and should not be interpreted, as recommendations to purchase or sell such securities. Pugh Capital may or may not own the securities referenced and, if such securities are owned, no representation is being made that such securities will continue to be held.
Market Forecasts. Market forecasts and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice or as an offer or solicitation.
Opinions. This material contains the current opinions of the manager, and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, asset class, strategy, or product. Statements concerning financial market trends are based on current market conditions, which will fluctuate.
Outlook. Statements concerning financial market trends are based on information available and current market conditions, which will fluctuate. Outlook and strategies are subject to change without notice.
Performance Targets Disclosure. Targeted return ranges are provided to relay information to institutional investors about how the investment strategy is intended to perform over a market cycle. Targets are informed by the performance of Pugh Capital portfolios or model portfolios designed to represent an intended strategy. Some important criteria and assumptions about events or other factors, that we believe to be reasonable based on our experience, were used to develop targets. These criteria and assumptions include changes in portfolio composition and asset allocation, changes in interest rates, and changes in credit conditions. Actual events or factors are difficult to predict and may differ from those assumed, and such differences may be material and are beyond the control of Pugh Capital. As a result, actual returns and results may vary significantly. Targets include the intent, belief or current expectations for performance, which involve known and unknown risks and uncertainties, and investors should not place undue reliance on targets. In addition, targets have certain inherent limitations and may not reflect the effects of cash flows, trading costs, or liquidity constraints and do not reflect the effects of investment management fees or other costs. There can be no assurance that any portfolio will achieve its investment objective or any target. In no case should any target be interpreted to be a prediction, projection, or guarantee of investment returns. Investing involves risk; principal loss is possible. Targets are developed by Pugh Capital, have not been verified by a third party, and are subject to change.
Portfolio Structure. Portfolio structure or allocation is subject to change without notice and may not be representative of current or future allocations.
CLIENT REFERENCES DISCLOSURE
No portion of any content is to be interpreted as a testimonial or endorsement of Pugh Capital Management’s services and it is not known whether any clients referenced in listing of clients approve of Pugh Capital Management or its services, nor should it be assumed that any references to Pugh Capital client experiences are representative of all client experiences.
Unless otherwise stated, the source of information is Pugh Capital Management.
Third Party Sources. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed and may be incomplete or condensed. Investors should be aware of the risks associated with data sources and quantitative processes used in our investment management process. Errors may exist in data acquired from third party vendors, the construction of model portfolios, and in coding related to the index and portfolio construction process. While Pugh Capital takes steps to identify data and process errors so as to minimize the potential impact of such errors on index and portfolio performance, we cannot guarantee that such errors will not occur.
AWARDS and RANKINGS DISCLOSURES
Third party rankings and recognition from rating services or publications are not a guarantee or reliable indicator of future investment success and are not constant over time. Working with a highly rated adviser does not ensure that a client or prospective client will experience a higher level of performance or results. These ratings should not be construed as an endorsement of the firm by any client nor are they representative of any one client’s evaluation. Generally, ratings, rankings and recognition are based exclusively on information prepared and/or submitted by the recognized firm. Rankings based on AUM do not represent an assessment of investment performance or the quality of services provided. Rankings based on performance are not indications of future performance.
eVestment is a third-party institutional investment data and analytics provider. Pugh Capital submits data to eVestment for certain of its investment products free of charge. Pugh Capital purchases a subscription to access the eVestment analytics system and also purchases eVestment’s OMNI product to facilitate the upload and distribution of data to multiple databases. Past performance is not a guarantee or a reliable indicator of future results. eVestment results are not indications of an adviser’s future performance. Peer ranking information pulled based on gross of fee returns. eVestment universes are based on a set of criteria which includes qualitative and quantitative factors to create and maintain a comparative peer group. Not all investment managers participate. Rankings may vary significantly as additional data from managers is reported. Rankings based on AUM do not represent an assessment of investment performance or the quality of services provided. Additional information is available by contacting eVestment. eVestment does not endorse investment advisers or their respective investment products. Not for general distribution. All categories not necessarily included; totals may not equal 100%. eVestment and its affiliated entities (collectively, “eVestment”) collect information directly from investment management firms and other sources believed to be reliable; however, eVestment does not guarantee or warrant the accuracy, timeliness, or completeness of the information provided and is not responsible for any errors or omissions. Copyright 2023 eVestment, LLC. All Rights Reserved.
The following awards do not pertain to and are not reflective of the services or quality of investment management provided by Pugh Capital.
Pension & Investments Best Places to Work in Money Management 2018 – 2022 (Small Firm Category). This award does not assess or reflect on the quality of investment management services provided by Pugh Capital. The Pensions & Investments Best Places to Work in Money Management is a national program managed by Best Companies Group, an independent research firm. Participating workplaces are ranked based on an analysis of an employer benefits and policies questionnaire and an employee engagement and satisfaction survey. A minimum of 20 employees is required to participate. No fee is required to participate in the survey; optional purchases include an employee feedback report, a logo for promotional use, and a featured employer advertisement. Pugh Capital is a subscriber of Pensions & Investments Magazine. No Pugh Capital client was part of the selection process. This distinction is not an endorsement of any Pugh Capital strategy of its performance. Recipients are determined the December prior to the years listed above. For more information and a complete listing of the winners, please refer the December Pensions & Investments online magazine publication or call the Best Companies Group at 877-455-2159.
CEO of The Year Award 2016, Seattle Business Magazine February 2016 Issue, awarded to Mary Pugh. This award does not pertain to and is not reflective of the services or quality of investment management provided by Pugh Capital. The Seattle Business Magazine’s Executive Excellence Awards program recognizes WA executives demonstrating extraordinary leadership guiding companies/nonprofits to success. There was 1 winner in each of the 5 categories from a list of 85 nominees. Criteria: length of time in leadership position, growth of company under leadership, notable milestones/projects led, etc. Judges: Jeffrey Seely Founder former CEO, ShareBuilder Corp; John Oppenheimer, founder/CEO,Columbia Hospitality; JonFine, President/CEO, United Way King County; Joseph M. Phillips, Dean, Albers School of Business and Economics, Seattle University; Phyllis Campbell, Chair, JP Morgan Chase & Co., Pacific Northwest; Stanley B. McCammon, President/CEO, Joshua Green Corp. No existing Pugh Capital client was part of the nomination or selection process. Pugh Capital is not a subscriber of Seattle Business Magazine, did not pay any fees to the magazine, its organizers, or any third party to be nominated or selected for this award. For more information, please refer to the February 2016 issue of Seattle Business Magazine and contact Seattle Business Magazine at 206.284.1750
Federal Reserve Bank of San Francisco Fed Family Distinguished Service Award, awarded to Mary Pugh in 2023. This award does not pertain to and is not reflective of the services or quality of investment management provided by Pugh Capital.
Federal Reserve Bank of San Francisco Grit, Grace, and Gratitude Award, awarded to Mary Pugh in 2018. This award does not pertain to and are not reflective of the services or quality of investment management provided by Pugh Capital.
NASP Joyce Johnson Award, awarded to Mary Pugh in 2023. This award does not pertain to and is not reflective of the services or quality of investment management provided by Pugh Capital. Created by NASP (National Association for Security Professionals) as a tribute to co-founder Joyce Johnson whose mission was to make a difference for minorities and women professionals in the securities industry.
Pensions and Investments Influential Women in Institutional Investing Award in 2023. This award does not pertain to and is not reflective of the services or quality of investment management provided by Pugh Capital.
Puget Sound Business Journal’s Power 100 Executives 2022, awarded to Mary Pugh in 2023. This award does not pertain to and is not reflective of the services or quality of investment management provided by Pugh Capital.
Seattle Storm Inspiring Women Award, awarded to Mary Pugh in 2017. This award does not pertain to and is not reflective of the services or quality of investment management provided by Pugh Capital. _______________________________________________________________________________
ASA – Associate of the Society of Actuaries. To attain the ASA designation, a candidate must successfully complete educational requirements in several categories as specified by the Society of Actuaries (SOA), the world’s largest actuarial professional organization. Requirements include an application process, examinations, an e-Learning course, a proctored project assessment, validation of educational experiences outside the SOA Education system (VEE), and a professionalism seminar.
CFA® – Chartered Financial Analyst®. The charter is a graduate-level investment credential established in 1962 and awarded by the CFA institute, a global association of investment professionals. To earn the CFA charter, candidates must 1) pass three sequential, six-hour examinations, 2) have at least four years of qualified professional experience; 3) join CFA institute as members; and 4) commit to abide by, and annually reaffirm their adherence to the CFA institute Code of Ethics and Standards of Professional Conduct. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
Core Fixed Income Composite Description The Core Fixed Income strategy seeks to add value relative to the benchmark and peers by minimizing downside risk across the portfolio through diversification, while adding incremental return through sector rotation and issue selection. The composite includes all fee-paying, fully discretionary portfolios that invest in the Core Fixed Income strategy, including those that are no longer with the firm. Client portfolios within the strategy contain U.S. dollar denominated corporates, governments, mortgage-backed and asset-backed securities with stated maturities typically from one to thirty years. The average credit rating of the portfolios is generally AA. Portfolio effective durations are normally managed within a range of +/- 10% of the benchmark duration, which is usually between 4 and 6. Portfolios in the composite are benchmarked to the Bloomberg US Aggregate Bond Index. The minimum asset value for an account to be included in the composite is $1 million. The inception date and the creation date of the Core Fixed Income Composite are March 31, 1994.
Core Plus Fixed Income Composite Description The Core Plus Fixed Income strategy is managed against the Bloomberg US Aggregate Bond Index, and seeks to add value by diversifying across all investment-grade sectors of the fixed income market. Client portfolios within the strategy contain US dollar denominated corporates, governments, municipals, agency mortgage-backed, commercial mortgage-backed and asset-backed securities. In addition, the strategy opportunistically invests in high yield bonds. It may also have a higher allocation to the credit sector than the Core Fixed Income strategy, including those that are no longer with the firm. Portfolios will generally have average credit quality of A or better. Portfolio effective durations are typically managed within a range of +/- 10% of the benchmark duration, which is currently around 6. The composite includes all fee-paying, fully discretionary portfolios that invest in the Core Plus Fixed Income strategy.
The inception date and the creation date of the Core Plus Fixed Income Composite are December 31, 2008. The composite was closed on July 1, 2013 when its underlying client account moved to the Intermediate Core Plus Fixed Income Composite when the client’s investment guidelines changed. The composite was reopened on September 30, 2014 when an existing account was qualified to be included in the composite based on a change of its investment guidelines.
Long Credit Composite Description The Long Credit Strategy is managed against a custom index of “weighted average of the Bloomberg US Long Credit Index (75%) and the Bloomberg US Long Government Index (25%).” The composite includes all fee-paying, fully discretionary portfolios that invest in the Long Credit Strategy, including those that are no longer with the firm. Client portfolios within the strategy are invested in U.S. dollar denominated investment-grade fixed income securities including governments, corporates and taxable municipals and emphasize maturities between ten and thirty years. The average credit rating of the portfolios is generally A. The average effective duration of this strategy is managed within a range of +/- 4% of the benchmark duration which typically ranges from 10 to 15. The composite creation and inception dates were December 31, 2008.
Long Corporate Composite Description The Long Corporate Strategy is managed against the Bloomberg US Long Corporate Bond Index. The composite includes all fee-paying, fully discretionary portfolios that invest in the Long Corporate Strategy, including those that are no longer with the firm. Client portfolios within the strategy are invested in US dollar denominated investment-grade fixed income securities including corporates, governments and taxable municipals and emphasize maturities between ten and thirty years. The strategy holds a minimum 65% weight in corporates. The average credit rating of the portfolios is generally above BBB. The average effective duration of this strategy is managed within a range of +/- 3% of the benchmark duration which currently is around 15. The composite creation and inception dates are March 31, 2012.
Long Duration Composite Description The Long Duration Strategy is managed against the Bloomberg US Long Government/Credit Bond Index. The composite includes all fee-paying, fully discretionary portfolios that invest in the Long Duration Strategy, including those that are no longer with the firm. Client portfolios within the strategy are invested in US dollar denominated investment-grade fixed income securities including governments, corporates and taxable municipals and emphasize maturities between ten and thirty years. The average credit rating of the portfolios is generally A+. The average effective duration of this strategy is managed within a range of +/- 3% of the benchmark duration which currently is around 16.
The composite inception and creation dates are December 31, 2006. The composite was closed on January 1, 2009 when its underlying client account was moved to Pugh Capital’s Long Credit Strategy due to the client’s change of the account’s investment guidelines. The composite was reopened on September 30, 2009 when a new account was qualified to be included in the composite.
Bloomberg U.S. Aggregate Bond Index, valued in U.S. dollars, is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
Bloomberg U.S. Corporate Index is a broad-based benchmark that measures the investment grade, fixed-rate, taxable, corporate bond market. It includes US Dollar-denominated securities publicly issued by U.S. and non-U.S. industrial, utility, and financial issuers that meet specified maturity, liquidity, and quality requirements. Securities in the index roll up to the U.S. Credit and U.S. Aggregate Indices. The index breaks down to industry-level components, such as banking, Insurance, retailers, automotive, pharmaceuticals, telecommunications, energy, etc. Represents the total return measure of the corporates portion of the US Aggregate index.
Bloomberg U.S. Credit Bond Index measures the investment grade, U.S. dollar-denominated, fixed-rate, taxable corporate and government-related bond markets. It is composed of the U.S. Corporate Index and a non-corporate component that includes non-U.S. agencies, sovereigns, supranationals and local authorities. Securities must be rated investment grade. The U.S. Credit Index was called the U.S. Corporate Index until July 2000, when it was renamed to reflect its inclusion of both corporate and non-corporate issuers. The U.S. Credit Index is a subset of the U.S. Government/Credit Index and U.S. Aggregate Index.
Bloomberg U.S. Long Corporate Bond Index, valued in U.S. dollars, measures the investment grade, fixed-rate, taxable corporate bond market whose maturity is 10 years or longer. It includes USD denominated securities publicly issued by US and non-US industrial, utility and financial issuers.
Bloomberg U.S. Long Government/Credit Bond Index, valued in US dollars, is a broad-based flagship benchmark that measures the non-securitized component of the US Aggregate Index with 10 or more years to maturity. The index includes investment grade, US dollar-denominated, fixed-rate treasuries, government-related and corporate securities.
Bloomberg US Mortgage-Backed Securities (MBS) Index – tracks fixed-rate agency mortgage-backed pass-through securities guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA, and Freddie Mac (FHLMC). The index is constructed by grouping individual TBA-deliverable MBS pools into aggregates or generics-based on program, coupon and vintage.
Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg does not approve or endorse this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
Citibank Economic Surprise Index: This measures data releases relative to the consensus of analysts’ expectations. The Index covers mostly activity indicators. The neutral level of the indices is zero. A positive reading means that economic data has been better than expected.
The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas.
Long Credit Custom Index. The benchmark for this composite is a custom index of the weighted average of the Bloomberg US Long Credit Index (75%) and the Bloomberg US Long Government Index (25%), rebalanced monthly. The Bloomberg US Long Credit Index (75%) measures the performance of investment grade, US dollar-denominated, fixed-rate, taxable corporate and government-related debt with at least ten years to maturity. It is composed of a corporate and a non-corporate component that includes non-US agencies, sovereigns, supranationals and local authorities. The Bloomberg US Long Government Bond Index (25%) is comprised of the Long US Treasury and US Agency Indices. The index includes US dollar-denominated, fixed-rate, nominal US Treasuries and US agency debentures with 10 or more years to maturity.
The returns for this custom benchmark are calculated using the underlying monthly index return components of 75% Bloomberg US Long Credit Index and 25% Bloomberg US Government Long Bond Index which are linked together to form annual returns.
S&P 500 Index. This unmanaged index is generally considered representative of the stock market as a whole. The index focuses on the Large-Cap segment of the US equities market. S&P is a registered trademark of Standard & Poor’s Financial Services LLC (“S&P”), a subsidiary of The McGraw Hill Companies, Inc.
ABS: Asset Backed Securities. ABS bonds are securities created from car loan payments, credit card payments or other loans. As with mortgage-backed securities, receivables and loans are bundled together and packaged into securities that are sold to investors. Asset-backed securities are usually “tranched,” meaning that principal and interest are directed to specific classes in a predetermined order. ABS contain risks, including credit risk and cash flow timing uncertainty.
Alpha: The extra return due to nonmarket factors. This risk-adjusted factor takes into account both the performance of the market as a whole and the volatility of the manager’s performance. A positive alpha indicates that a manager has produced returns above the expected amount at that risk level, and vice versa for a negative alpha.
Average Life: The length of time the principal of a debt issue is expected to be outstanding. Average life is an average period before a debt is repaid through amortization or sinking fund payments.
Average (Credit) Quality: The weighted average of all the bond credit ratings in a bond portfolio.
BABs: Build America Bonds. These bonds are taxable municipal bonds that feature tax credits and/or federal subsidies for bondholders and state and local government bond issuers.
Batting Average: A measure of the frequency of success. This ratio is calculated by taking the number of periods in which the manager’s return equals or outperforms the return of the selected benchmark, divided by the total number of periods. This measure indicates a manager’s frequency of success, without regard to the degree of outperformance.
Beta: Is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected return of an asset based on its beta and expected market returns. Also known as “beta coefficient.“
bps: basis points. A basis point is a unit equal to one hundredth of a percentage point (1/10000 or 0.01%).
Bullet bonds. A bullet bond is a debt instrument whose entire principal value is paid in one lump sum on the maturity date, as opposed to amortizing the bond over its lifetime.
CMBS: Commercial Mortgage Backed Securities. CMBS bonds are backed by mortgages on commercial rather than residential real estate.
Core PCE: US Personal Consumption Expenditure Core Price Index YoY. Source: Bureau of Economic Analysis.
Convexity: A measure of the curvature in the relationship between bond prices and bond yields that demonstrates how the duration of a bond changes as the interest rate changes.
CBO: Congressional Budget Office. It is a federal agency within the legislative branch of the U.S. Government that provides budget and economic information to Congress.
CPI: Consumer Price Index. It is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living.
Credit Index Excess Return: A monthly excess return is the difference between total returns of the security and an implied Treasury portfolio matching the term-structure profile of that security. Total returns can be compounded. By separately compounding these two series of monthly total returns, we arrive at the two periodic total returns. The difference between them is the periodic excess return.
Credit Risk: Risk of loss of principal or loss of a financial reward stemming from a borrower’s failure to repay a loan or otherwise meet a contractual obligation.
Duration Times Spread (DTS): DTS is calculated on an individual bond level by multiplying the percent market value, the duration, and the spread of the bond. It has been shown to be a very strong predictor of excess return volatility.
Duration Risk: The risk of a fixed-income investment’s price sensitivity to a change in interest rates.
Earnings per share (EPS): is the portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company’s profitability.
Effective Duration: A calculation used to approximate the actual, modified duration of a callable bond.
European Central Bank (ECB): is the central bank for the euro and administers monetary policy of the Eurozone, which consists of 19 European Union member states and is one of the largest currency areas in the world.
European Union (EU): is a political and economic union of 28 member states that are located primarily in Europe.
Global Financial Crisis (GFC): The financial crisis of 2007–2008, caused by the bursting of the U.S. Housing bubble which peaked in 2006/2007.
Federal Open Market Committee (FOMC): A committee within the Federal Reserve System, is charged under the United States law with overseeing the nations open market operations. They make key decisions about interest rates and the growth of the United States money supply.
Gross Domestic Product (GDP): is a monetary measure of the market value of all the final goods and services produced in a period of time, often annually or quarterly. Nominal GDP estimates are commonly used to determine the economic performance of a whole country or region
High Yield: a high-paying bond with a lower credit rating than Investment-grade corporate bonds, treasuries, and municipal bonds. High yield securities with lower credit ratings involve greater risk than higher-rated securities.
Investment Grade or High Grade: a bond credit rating (BBB- or higher by standard market convention) that indicates a relatively low risk of default.
Information Ratio: A ratio of portfolio returns above the returns of a benchmark (usually an index) to the volatility of those returns. The information ratio (IR) measures a portfolio manager’s ability to generate excess returns relative to a benchmark, but also attempts to identify the consistency of the investor. This ratio will identify if a manager has beaten the benchmark by a lot in a few months or a little every month. The higher the IR the more consistent a manager is and consistency is an ideal trait.
Non-farm Payrolls: measures the change in the number of people employed during the previous month, excluding the farming industry. Job creation is the foremost indicator of consumer spending, which accounts for the majority of economic activity.
Option Adjusted Spread (OAS): A measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is adjusted to take into account an embedded option. Typically, an analyst would use the Treasury
securities yield for the risk-free rate.
Risk on is defined as periods when credit excess returns are positive. Risk off is defined as periods when credit excess returns are negative.
Z-Score: Is a statistical measurement of a score’s relationship to the mean in a group of scores. A Z-score of 0 means the score is the same as the mean. A Z-score can also be positive or negative, indicating whether it is above or below the mean and by how many standard deviations.
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