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Cincinnati Asset Management, Inc.
BROAD MARKET BOND STRATEGY
~
Blending a high-yield bond strategy
with an investment grade bond
allocation has lowered long-term risk and
increased long-term returns.
~
Long-term
investors have enjoyed benefits by diversifying their
bond portfolios. The efficient frontier series
from 1980-2002 and
1980 - 2004 are statistical proof of the positive
historical results.
~ Historically, through 2002, the optimum mix was achieved at a 35% high yield, 65% investment grade weighting. The performance of the riskier and weaker (CCC and lower rated) credits in 2003 was an anomaly (at least a 2 standard deviation event) which impacted the performance of the high-yield index as a whole. Including 2003 performance in the data series resulted in a significant shift of the point which generates the highest Sharpe ratio from the prior weighting. Due to the low probability of reoccurrence of the high returns in the lowest quality/highest risk sectors and our constant exclusion of those weaker credits, we are maintaining our historical 35% / 65% weighting for the Broad Market Strategy.
~
The average credit rating of the
Broad Market Portfolio exceeds the
average of all of Standard & Poor's rated
industrial bonds.
~ The strategies offers excellent downside protection. The Strategy outperformed Lipper A rated bond funds by 3 1/2% during the worst 12 month period for investment grade bonds (4 quarters ended September 30, 1994) and outperformed Lipper High Yield Mutual Funds by more than 14 1/2% during the worst 12 month period for high yield bonds (4 quarters ended September 30, 1990).
The Efficient Frontier - Investment Grade and High Yield Bonds
1980 - 2007
Investment Grade Index is the Merrill Lynch Corporate Bond Index. The High-Yield Index is the CSFB High-Yield Index
Source: CSFB 3/6/2005 for 1980-2006 data. 2007 estimate 1-yr extension by “CAM.”