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Attribution Report Returns by Industry, Sector and Asset Classes. Prabhu Ramamoorthy Feb 21, 2010. Federated Total Return Bond Series. Benchmark – Barclays Capital US Aggregate Weighted Average Effective Maturity 6.1 Yrs Weighted Average Effective Duration 4.3 Yrs. - PowerPoint PPT Presentation
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Prabhu RamamoorthyFeb 21, 2010
Federated Total Return Bond SeriesFederated Total Return Bond Series
Benchmark – Barclays Capital US AggregateWeighted Average Effective Maturity 6.1 YrsWeighted Average Effective Duration 4.3 Yrs.Weighted Average Coupon 5.32%Weighted Average YTM 4 .31%Weighted Average Quality AA-, A2
Source: http://www.nesteggu.com/common/FundSheets/FTRBX.pdfSource: http://www.federatedinvestors.com/ffw/funds/fundoverview.do?basketid=1022&fundshareid=1347&link=products&ut=unregistered_webuserCan also be calculated from historical prices http://www.andreassteiner.net/performanceanalysis/?download=SingleIndexModelCalcs.xls
Alpha 0.05Alpha 0.05R Square 0.77R Square 0.77Beta 9.7Beta 9.7
Source: https://www2.blackrock.com/webcore/litService/search/getDocument.seam?venue=PUB_INS&source=CONTENT&ServiceName=PublicServiceView&ContentID=44788Source: http://feg-research.com/pdfs/December%20Research%20Review.pdf
Source: http://www.loomissayles.com/internet/internet.nsf/($DocumentID)/E03D1D1D94B95D1B8525753600784A12/$FILE/BondMarketReview.pdfSource: https://www.deferralselect.com/System/exb/exb_includes/Q4'09%20Market%20Update.pdf
High Yield> CMBS>Corporate IG >ABS>MBS>Agencies>Treasuries in 4Q 2009High Yield> CMBS>ABS>Corporate IG> Municipals>MBS>Agencies>Treasuries in 1 year
Source: http://www.loomissayles.com/internet/internet.nsf/($DocumentID)/E03D1D1D94B95D1B8525753600784A12/$FILE/BondMarketReview.pdfSource: https://www.deferralselect.com/System/exb/exb_includes/Q4'09%20Market%20Update.pdf
Lower the Credit Rating, Higher the Returns. Increasing Risk appetite and stabilizationHigh Yields most attractive, Less Default and tightening credit spreads
Bond Market ReviewBond Market ReviewIndustry – Investment Grade Option adjusted Industry – Investment Grade Option adjusted spreadsspreads
2006 2007 2008Q4 2009Q2 9-NovAerospace and Defense 93 153 375 237 181
Bank 79 208 524 387 257
Brokerage 74 213 539 404 274
Capital Goods 112 168 397 231 175
Consumer Products 112 177 534 381 194
CPEG 138 201 463 270 263
Forest Products & Building Materials 174 261 834 543 378
Healthcare 104 160 351 191 146
High Technology 118 201 558 273 193
Source: http://www.scribd.com/doc/24163763/S-P-Capital-IQ-s-Monthly-Market-Observations-December-2009Source: http://feg-research.com/pdfs/December%20Research%20Review.pdf
Spreads started to tighten due to stabilization and economic recoveryNote: Spreads highest during 2008Q4 during financial crisis
As on Nov 9, 2009
Bond Market ReviewBond Market Review Industry – Investment Grade Option adjusted Industry – Investment Grade Option adjusted spreads spreads
2006 2007 2008Q4 2009Q2 9-NovHome Builders and Real Estate 112 245 663 595 399
Insurance 118 240 706 486 327
Integrated Oil and Gas 109 155 479 266 206
Media and Entertainment 181 255 675 448 294
Metals Mining and Steel 152 201 753 484 315Oil Gas Exploration and Production 133 201 537 299 223
Retail and Restaurants 124 229 597 234 176
Telecommunication 187 243 555 327 266
Transportation 114 214 544 316 223
Utility 117 207 486 272 196
Source: http://www.scribd.com/doc/24163763/S-P-Capital-IQ-s-Monthly-Market-Observations-December-2009
As on Nov 9, 2009
Bond Market ReviewBond Market Review Industry – Investment Grade Option adjusted Industry – Investment Grade Option adjusted spreads spreads
Source: http://www.scribd.com/doc/24163763/S-P-Capital-IQ-s-Monthly-Market-Observations-December-2009
Even though Spreads have started to tighten, Spreads as on Nov 9,2009 are still not at 2006 levels
Sample Spread Time Plot for Select Industries
Source: http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield_historical_2009.shtml
Yield Curve became steep due to Fed support. Fed discount and reserve rate kept lowOnce Fed pulls back and stops monetary easing, interest rates expected to rise
Source: http://www.federatedinvestors.com/ffw/funds/fundoverview.do?basketid=1022&fundshareid=1347&link=products&ut=unregistered_webuser
Core Plus Strategy – In addition to Benchmark, FTRB has High Yield Securities in portfolio holdings
Source: http://www.federatedinvestors.com/ffw/funds/fundoverview.do?basketid=1022&fundshareid=1347&link=products&ut=unregistered_webuserSource: http://www.lordabbett.com/institutional/resources/pdfs/productpdfs/LA_PdtProfile_CoreFixedInc.pdf
No Municipal Bonds. BBB and lower - zero
Source: http://www.federatedinvestors.com/ffw/funds/fundoverview.do?basketid=1022&fundshareid=1347&link=products&ut=unregistered_webuserSource: http://www.lordabbett.com/institutional/resources/pdfs/productpdfs/LA_PdtProfile_CoreFixedInc.pdf
Treasuries, Agencies – Underweight, Corporate, High Yield - Overweight
Source: http://www.federatedinvestors.com/ffw/funds/fundoverview.do?basketid=1022&fundshareid=1347&link=products&ut=unregistered_webuserSource: http://www.lordabbett.com/institutional/resources/pdfs/productpdfs/LA_PdtProfile_CoreFixedInc.pdf
Treasuries, Agencies – Underweight, AA and Below - Overweight
FTRB Return attribution white paper strategy athttp://www.thefirma.org/2008_conference/aboutfederated/White%20Paper-%20Alpha%20Strategies.pdf
Return is attributed and split intoSector Allocation –Treasuries, MBS, CMBS, ABS, Corporate High YieldSecurity Selection – Bottom up analysis considering sector alsoDuration – Interest Rate RiskYield Curve – Maturity, Barbell, Ladder, BulletCurrency – Currency risk, Investing in dollar denominated foreign instruments
Source: http://www.federatedinvestors.com/ffw/funds/fundoverview.do?basketid=1022&fundshareid=1347&link=products&ut=unregistered_webuser
Active Returns due to Sector Allocation is significantAsset Allocation (a(i)p – a(i)b)Multiplied ByBenchmark Sector Return r(i)b=Active Asset Allocation Return for Sector(i)Total Asset Allocation Return ∑iєS(a(i)-a(i)b)*r(i)bExplains most of the excess returns over benchmark
Source: http://www.federatedinvestors.com/ffw/funds/fundoverview.do?basketid=1022&fundshareid=1347&link=products&ut=unregistered_webuser
Source: http://www.federatedinvestors.com/daf/pdf/portfolio_attribution/41115.pdfSource: Annual Report http://www.federatedinvestors.com/daf/pdf/sai/G01722-02.pdf
Asset Allocation by sector – Summation of ∑iєS(a(i)-a(i)b)*r(i)b almost explains 97 bp return
Return vs. Benchmark Comments
DurationPositive in 4Q 2009 and provided 22 bp of return vs. benchmark .
Fund Set to lower duration than that of Benchmark in expectation of Rising Interest Rate. But early on in year, duration effect was detracting with respect to BCAB as interest rates fell during summer with Fed support in market.
Sector Allocation
Provided 97 bp of return. Significant contribution relative to Benchmark over the year
Underweight in TreasuriesOverweight in High Yields, Corporate
Yield Curve 1 basis point in 4Q 2009. Positive. During Summer 2009, Interest rates declined across all maturities. Fund held lesser long term maturity when compared to Barclays Aggregate Bond Index. Hence impact here was lesser and could have been more.
Security Selection
Negative for 4th Quarter. Selection was positive over a longer year horizon.
Holdings in High Quality MBS. Over the year ,Core Mortgage Holdings Outperformed Barclays MBS and led to positive returns. Other security selection in other sectors contributed relatively little to total performance.
Source: http://www.federatedinvestors.com/daf/pdf/portfolio_attribution/41115.pdfSource: http://www.federatedinvestors.com/daf/pdf/sai/G01722-02.pdf
Treasury Underweight Rising Interest Rate and sensitivity. Short term rates expected to rise once Fed takes action and pulls out
MBS Underweight Rising Rates and End of Fed MBS Purchase program. Higher Interest rates may bring extension risk and higher duration with slower prepayment, variability and default risk
High Yield, Corporate
Overweight Tightening Credit Spread, Lower Defaults
Emerging Market Debt
Overweight Emerging countries have better economic fundamentals, Lower Debt as percent of GDP
Duration 85% of Benchmark Duration Management with respect to Benchmark expecting rising rates
Source: http://www.federatedinvestors.com/sc?cid=54385&link=commentary&templ=commentaryLeaf&ut=unregistered_webuserSource: http://www.federatedinvestors.com/daf/pdf/sai/G01722-02.pdf
For all fixed income research material and outlook used for the analysis, go to http://www.raghavendraprabhu.com/node/73. The page has compiled the link to all materials and is very helpful for market outlook and review of past returnsFor Attribution Strategy of FTBR go to http://www.thefirma.org/2008_conference/aboutfederated/White%20Paper-%20Alpha%20Strategies.pdfFor FTBR, go to http://www.federatedinvestors.com/ffw/funds/fundoverview.do?basketid=1022&fundshareid=1347&link=products&ut=unregistered_webuser. The data from Annual reports and other public available information has been used. Approximate Portfolio holdings in Excel sheetOther Web Sites -Yahoo finance, Treasury yield curve, References to data and reports from publicly available sources have been usedBenchmark data was collected from different sources including other prospectuses, fund reports. Detailed Benchmark data not available for extensive sector and security analysis
Source: http://www.federatedinvestors.com/ffw/funds/fundoverview.do?basketid=1022&fundshareid=1347&link=products&ut=unregistered_webuser