At Johnson Investment Counsel, our fixed income investment philosophy begins with a desire to offer customized solutions to each client’s unique investment challenges. By taking an academic mindset, we educate clients on how the bond market can best work for them to achieve their investment goals, and we then build a fixed income portfolio accordingly.
Our approach to fixed income portfolio management is built on the historical observation that superior investment results are achievable in the bond market without accepting high levels of risk. At Johnson Investment Counsel, our results are achieved through a focus on the quality sectors of the bond market and within the context of risk management. We add value within bond portfolios in two ways:
| Intermediate-Term Gov't Bonds |
5.4% |
5.7% |
| Long-Term Gov't Bonds |
5.7% |
9.4% |
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Source: Ibbotson & Associates
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| As of December 31, 2008 |
Intermediate maturity bonds offer a superior combination of risk and return to either short or long-maturity securities. Intermediate maturities are able to capture a majority of available yield with only a fraction of the volatility. Specific bond portfolio maturity structure is driven by top-down strategy utilizing secular trends in interest rate levels and yield curve shifts.
The non-government sectors of the bond market, namely corporate bonds and mortgage-backed securities, offer superior yield to government bonds. In the long-run, yield drives bond returns and a portfolio comprised of these high quality, higher yielding securities should out perform government bonds. Every investment is accompanied by thorough, fundamental credit analysis.
In addition to a focus on intermediate maturities and non-government bonds, our approach to fixed income management adds incremental value through sector allocation and individual security selection. Each investment is made with conscientious attention to a client’s investment objectives and risk tolerance. All portfolios adhere to strict diversification guidelines regarding maturity, sector and issuer, and we never speculate on interest rates.
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Note: Average annual yield over Lehman
Intermediate Treasury Index (1976-2008) |
| As of December 31, 2008 |
Our approach to municipal bond management is similar to our investment management style within the taxable bond market. We apply the same focus on intermediate maturities and yield orientation to the tax-free bond market. However, one unique aspect of the municipal bond market is its lack of efficiency. Our dedicated bond trader uses our institutional prowess and multiple bond underwriters and providers to scour the marketplace for relative value. Through bidding directly on municipal bonds from other managers, investing in new issue municipal bonds and pitting multiple broker-dealers against one another while competing for our business, we are able to garner superior investment opportunities for our clients. As with all our bond portfolios, creating a customized municipal portfolio structured around each client’s unique tax situation is imperative to optimizing after-tax returns.