AgdaPkt 2020-01-13 Joint - Laserfiche WebLink

Browse Search

6.113. - Page 7 of 39 REDWOOD CITY Portfolio Recap • Our strategy throughout the quarter included the following elements: For the Quarter Ended September 30, 2019 Portfolio Review • We continued to maintain portfolio durations in line with benchmarks, as we have since the beginning of the year, because of growing certainty that the Fed would cut rates, perhaps multiple times. Maintaining durations—despite the inverted yield curve—was just as vital as in previous quarters as the continued drop in yields drove strong fixed income returns. In fact, longer -duration strategies outperformed shorter ones for the fourth quarter in a row. • Our sector allocation strategy continued to favor broad diversification, including the widest range of permitted investments. Our weighting to corporates and asset-backed securities (ABS) generally offset the negative relative performance of agency MBS for the quarter. • Federal agency and supranational yield spreads have remained unattractive relative to comparable treasuries. Even new issue concessions were less attractive than in prior quarters. While limited supply is partly to blame, insatiable market demand has essentially capped any upside. As a result, we continued to prefer Treasuries over agencies and supranationals, and avoided callable agencies, due to significant early redemptions. • Corporate bonds rallied, pushing yield spreads back to near 12 -month lows during the quarter as a more accommodative Fed and a temporary lull in the trade war offensive mitigated some of the imminent risk to the economy. As a result, investment-grade (IG) corporates generated attractive excess returns for the third quarter, with lower quality issuers outperforming higher quality ones. A bevy of new -issue corporates in September provided many opportunities, albeit at somewhat modest yield spreads. Our strategy in the third quarter was to maintain corporate allocations, make purchases a bit farther out on the yield curve within the sector, and selectively take advantage of new issues. Our focus remained on those issuers with lower leverage and less relative exposure to international trade risks. Increased volume of municipal bond issuance in the quarter, up 18% from the same period last year, caused spreads to widen making some taxable municipal securities attractive relative to corporates. After narrowing in the first half of 2019, yield spreads on short-term negotiable bank CDs gradually increased from multi- year lows. Short-term credit sectors once again offered favorable incremental yield opportunities for ultra -short-term investors. PFM Asset Management LLC 53