Short Duration Bonds

The Short Duration Bond Strategy

For Investors who want a shorter maturity allocation to their bond portfolio (or for investors who prefer a ladder structure for short maturity exposure) this strategy may provide the solution.  For the 12 months ended September 30, 2011, Barclays Intermediate High Yield Index was up 1.56%, and the Barclays Corporate Intermediate Index was up 2.92%, resulting in a benchmark gain of 1.81%.  Our Strategy returned 2.29% for the twelve months.

Profile Short Duration Strategy.pdf

Composite Statistics 9/30/11

No Market Timing: No Interest Rate Forecasting

The average duration target is fixed at 3 and typically does not fall below 2.5.  The constant nature of the duration is in keeping with our belief that interest rate anticipation strategies (market timing) are counterproductive.  We feel it is as difficult to time the bond market as it is to time the stock markets.  Many bond managers engage in market timing by changing the duration and maturity of their bond portfolios.  The opinion that interest rate forecasting has never been successfully implemented in portfolio management is supported by studies by the Society of Financial Analysts (CFA’s) .  A recent article in the Wall Street Journal (WSJ) by bond expert James Grant expands on this historical fact.

We believe that better return potential is realized from a consistent, long-term commitment to the market concentrated in that sector which has provided some of the best yields and returns, corporate bonds. 

The portfolio’s duration was 3.5 as of 9/30/11.  For comparison, on September 30, 2011, the duration of the Weighted Intermediate Indexes* = 3.01; 3-year Treasury = 3.0 with a yield of 0.42% 
(*Barclays 1-5 year Intermediate = 2.99 years maturity; 2.79 duration and yield = 2.26%.
Barclays HY Corp Intermediate = 5.92 years maturity; 4.22 duration and yield = 9.57%.)