Intermediate

Fixed Income

Investment Strategy

Denver Investments’ Intermediate strategy is based on the belief that consistently strong risk-adjusted returns are best achieved through an emphasis on income rather than short-term market timing. Using a relative value strategy, the team seeks to deliver alpha primarily through security and sector selection and, secondarily, through portfolio level decisions. Using a collaborative approach grounded in proprietary research, the team constructs a diversified portfolio while adhering to its risk control measures.

Portfolio Management

We believe that an emphasis on income and security selection rather than market timing of interest rates is the best way to consistently deliver strong risk-adjusted returns for our clients. – Kenneth A. Harris, CFA

Kenneth A. Harris, CFA

Kenneth A. Harris, CFA

Partner, Director of Fixed Income Portfolio Management, Portfolio Manager, Analyst

Troy A. Johnson, CFA

Troy A. Johnson, CFA

Partner, Director of Fixed Income Research, Portfolio Manager, Credit Research Analyst

Darren G. Hewitson, CFA

Darren G. Hewitson, CFA

Partner, Portfolio Manager, Credit Research Analyst

Portfolio Construction Guidelines:

  • Approximately 100-150 securities
  • Duration: +/- .5 years of benchmark
  • Typically less than 10% in non-investment grade securities, based on client guidelines
  • Typical initial position size of 1% and maximum position size of less than 5% (non-Treasury/Agency)
  • Diversified by sector, based on relative value assessment
Benchmark:

Barclays Intermediate U.S. Government/Credit Index

Investment Minimum:

$10,000,000

See composite descriptions and index descriptions. The guidelines listed are representative of the product but are not considered restrictions. Specific client guidelines may differ.

Investment Team

Kenneth A. Harris, CFA
Kenneth A. Harris, CFA

Partner, Director of Fixed Income Portfolio Management, Portfolio Manager, Analyst

2000 to Present: Denver Investments
1985 to 1999: Blue Cross and Blue Shield of Colorado, Treasurer
Education:

BBA – University of Arizona; MBA – University of Colorado at Denver
Member of CFA Institute and CFA Society Colorado

Troy A. Johnson, CFA
Troy A. Johnson, CFA

Partner, Director of Fixed Income Research, Portfolio Manager, Credit Research Analyst

2007 to Present: Denver Investments
2002 to 2007: Quixote Capital Management, Portfolio Manager and Analyst
1993 to 2002: Invesco Funds Group, Inc., Senior Fixed Income Analyst
Education:

BS – Montana State University; MS – University of Wisconsin
Member of CFA Institute and CFA Society of Colorado

Darren G. Hewitson, CFA
Darren G. Hewitson, CFA

Partner, Portfolio Manager, Credit Research Analyst

2008 to Present: Denver Investments
2008: 180 Connect, Accountant
2007: Munro & Noble Solicitors and Estate Agents, Accountant
2004 to 2005: Clydesdale Bank PLC., Bank Teller/Customer Services Representative
Education:

BAcc – University of Glasgow, Scotland
Member of CFA Institute and CFA Society Colorado

Nicholas J. Foley
Nicholas J. Foley

Vice President, Portfolio Manager, Municipal Credit Analyst/Trader

2012 to Present: Denver Investments
2010 to 2011: Bank of the West/BNP Paribas Group, Associate Portfolio Manager and Lead Fixed Income Trader
2009 to 2010: Janus Capital Group, Financial Analyst
2004 to 2008: Washington Mutual Bank, Senior Analyst
Education:

BA - Gonzaga University

Steven G. Kindred, CFA, CPA
Steven G. Kindred, CFA, CPA

Vice President, Credit Research Analyst

2009 to Present: Denver Investments
2008 to 2009: Janus Capital Group, Equity Research Analyst
2007: Wasatch Advisors, Equity Analyst Intern
2003 to 2006: Deloitte & Touche LLP, Senior Auditor
Education:

BS and MAcc – Utah State University; MBA - Dartmouth College
Member of CFA Institute and CFA Society Colorado

William Oh, CFA, FRM
William Oh, CFA, FRM

Vice President, Mortgage-Backed Securities Analyst/Trader

2011 to Present: Denver Investments
2010 to 2011: Nationwide Insurance, Finance Leadership Rotation Program
2009 to 2010: AEGON USA Investment Management, Corporate Credit Strategy Intern
2004 to 2008: One West Bank (Formerly Indymac Bank), Assistant Vice President, Buy-Side MBS & Whole Loan Trader
2002 to 2004: Bear Stearns Residential Mortgage, Business Development Analyst
2001 to 2002: Wells Fargo Bank, Premier Banking Officer and Trust Account Manager
Education:

BA – Claremont McKenna College; MBA – The University of Chicago
Member of CFA Institute and CFA Society Colorado

Daniel T. Schniedwind, CFA
Daniel T. Schniedwind, CFA

Vice President, Credit Research Analyst

2014 to Present: Denver Investments
2011 to 2014: AMI Asset Management, Credit Analyst
2010 to 2011: Mars Hill Partners, Analyst
2009: Oppenheimer & Co., Sales and Trading Intern
Education:

BA – Whittier College; MS – Indiana University
Member of CFA Institute and CFA Society Colorado

Greg G. Seals, CFA
Greg G. Seals, CFA

Vice President, Portfolio Manager

2017 to Present: Denver Investments
2013 to 2017: Braddock Financial Corporation, Portfolio Specialist
2012: University of Colorado Burridge Center for Securities Analysis, Director
2008 to 2010: CFA Institute, Director of Fixed Income and Behavioral Finance
1994 to 2008: Smith Breeden Associates, Senior Portfolio Manager
Education:

BS and MBA – California State University Chico
Member of CFA Institute and CFA Society Colorado

Gregory M. Shea, CFA
Gregory M. Shea, CFA

Partner, Portfolio Manager, Credit Research Analyst

2008 to Present: Denver Investments
2004 to 2008: Lehman Brothers Asset Management, High Yield Credit Analyst
2003 to 2004: Banc of America Securities, Investment Banking Analyst
2001 to 2003: Bank of America, Bank Credit Analyst
Education:

BS & MSBA – Washington University
Member of CFA Institute and CFA Society Colorado

Daofu (Nick) Yu, CFA
Daofu (Nick) Yu, CFA

Vice President, Credit Research Analyst

2016 to Present: Denver Investments
2013 to 2016: Great West Financial, Credit Analyst/Portfolio Manager
2012 to 2013: Western Union, Foreign Exchange Trader
2011 to 2012: D.A. Davidson and Company, Research Associate
2006 to 2009: Oppenheimer Funds, Business Analyst-Operations
Education:

BS – University of Colorado; MS and MBA - University of Colorado at Denver
Member of CFA Institute and CFA Society Colorado

Drew D. Conrad, CFA
Drew D. Conrad, CFA

Vice President, Fixed Income Trader

2010 to Present: Denver Investments
2006 to 2008: SCM Advisors, High Yield and Leveraged Loan Trader and Analyst
2001 to 2006: AIG Investment Management, Fixed Income Analyst and High Yield Trader
Education:

BA – Rice University
Member of CFA Institute and CFA Society Colorado

Anthony B. Finissi, CPA
Anthony B. Finissi, CPA

Fixed Income Portfolio Administrator

2015 to Present: Denver Investments
2014 to 2015: Crowe GHP Horwath, Audit Associate
Education:

BS –University of Denver, MAcc – University of Denver

Nicole J. Foote
Nicole J. Foote

Fixed Income Portfolio Administrator

2015 to Present: Denver Investments
2009 to 2014: Shenkman Capital Management, Client Service Associate, Portfolio Administrator
2008 to 2009: GE Asset Management, Trade Operations Specialist
2008: Evaluation Associates, Performance Analyst
2004 to 2008: Clayton Holdings, Senior Operations Analyst
Education:

BS – Colorado State University; MBA – University of Connecticut

Performance (%)

  Monthly Returns (%)
Periods Ended: 2/28/2017
Annualized Returns (%)
Periods Ended: 12/31/2016
1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years
Intermediate (gross) 0.55 0.97 0.84 2.92 2.61 2.54 4.38
Intermediate (net) 0.52 0.89 0.79 2.59 2.20 2.11 3.95
Barclays US Intermediate Gov/Credit 0.46 0.81 0.74 2.08 2.09 1.85 3.84
Intermediate
Monthly Returns(%) as of 2/28/2017 Gross Net
1 Month 0.55 0.52
3 Months 0.97 0.89
YTD 0.84 0.79
Annualized Returns(%) as of 2/28/2017 Gross Net
1 Year 2.30 1.99
3 Years 2.35 1.94
5 Years 2.45 2.03
10 Years 4.31 4.03
Barclays US Intermediate Gov/Credit
Monthly Returns(%) as of2/28/2017 Gross Net
1 Month 0.46 -
3 Months 0.81 -
YTD 0.74 -
Annualized Returns(%) as of 2/28/2017 Gross Net
1 Year 1.10 -
3 Years 1.90 -
5 Years 1.80 -
10 Years 3.77

Calendar Year Performance (%)

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Intermediate (Gross) 2.92 1.01 3.93 -0.12 5.06 6.47 6.90 7.72 3.40 6.80
Intermediate (Net) 2.59 0.55 3.47 -0.57 4.61 6.00 6.42 7.23 2.93 6.52
Barclays US Intermediate Gov/Credit 2.08 1.07 3.11 -0.86 3.89 5.80 5.89 5.24 5.07 7.40
Intermediate
Year Gross Net
2016 2.92 2.59
2015 1.01 0.55
2014 3.93 3.47
2013 -0.12 -0.57
2012 5.06 4.61
2011 6.47 6.00
2010 6.90 6.42
2009 7.72 7.23
2008 3.40 2.93
2007 6.80 6.52
Barclays US Intermediate Gov/Credit
Year Gross Net
2016 2.08 -
2015 1.07 -
2014 3.11 -
2013 -0.86 -
2012 3.89 -
2011 5.80 -
2010 5.89 -
2009 5.24 -
2008 5.07 -
2007 7.40 -

Data is based on the firm’s composite for this strategy. Past performance does not guarantee future results and future performance may be lower or higher than the performance presented, including the possibility of loss of principal. Composite returns for one year or greater are annualized.

Returns are computed and stated in U.S. dollars. Performance is calculated net of withholding taxes on foreign dividends and interest, if any, and reflect the reinvestment of dividends and other earnings.

Gross of fee returns are calculated gross of management and custodial fees and net of transaction costs. Net of fee returns are calculated net of management fees and transaction costs and gross of custodian fees. As of 1/1/15, net of fee returns were calculated by deducting the maximum applicable advisory fee in effect, pro-rated on a monthly basis. From 1/1/08 to 12/31/14, net of fee returns were calculated by deducting the maximum applicable advisory fee in effect, pro-rated on a quarterly basis. Prior to this date, net of fees returns were calculated using actual annual client fees, pro-rated on a quarterly basis.

The Barclays Intermediate US Govt/Credit Index benchmark is an unmanaged index that includes fixed rate debt issues rated investment grade or higher by Moody’s Investors Services, Standard & Poor’s Corporation or Fitch Investor’s Service. Barclays is the source and owner of the Barclays Index data. See Terms of Use for additional disclosure.

Index returns are provided to represent the investment environment existing during the time periods shown. For comparison purposes, the index is fully invested, which includes the reinvestment of dividends and capital gains. The returns for the index do not include any transaction costs, management fees or other costs. Composition of each individual portfolio may differ from securities in the corresponding benchmark index. The index is used as a performance benchmark only, as Denver Investments does not attempt to replicate an index. See composite descriptions.

Denver Investment Advisors LLC (dba Denver Investments) claims compliance with the Global Investment Performance Standards (GIPS®). Denver Investments provides fundamental investment management services to various institutional and private investors and mutual funds.

Denver Investments is an independent investment advisor registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

See performance disclosure for a presentation that complies with the requirements of the GIPS standards. Please contact us to request a complete list and description of all firm composites.

Manager Commentary as of 12/31/2016

 

Market Overview

Treasury rates moved sharply higher following the surprising election results on November 8 as hopes for tax reform and fiscal stimulus added to the recent upbeat economic news. After the Federal Reserve’s December rate hike, longer-term interest rates took another bump higher. As the job market tightened, the unemployment rate fell to 4.6% which was a new low in this cycle, and inflation crept closer to the Fed’s target of 2%. Given this, the Fed seemed more willing to continue its rate increases slowly, but surely, in 2017. Global economic concerns also waned as China’s growth accelerated modestly, Japan expanded its stimulus efforts, and southern Europe gained strength despite its ongoing structural issues. The year 2016 was neatly divided into two distinct market cycles. The first half of the year produced economic weakness in the United States which was compounded by fears of Brexit, a slowdown in China which pushed the global economy closer to recession, and an interest rate collapse to historic lows in early July. The second half, as described above, pushed interest rates back very close to where the year started.

Portfolio Commentary

For the quarter, the portfolio outperformed, returning -1.95% versus -2.07% for the Barclays Intermediate U.S. G/C Index.  Additional income from an overweighted allocation to non-Treasury bonds was a positive contributor to relative performance. The portfolio’s slightly reduced duration position was a positive contributor, although non-parallel curve moves were negative as rates rose, most notably in the belly of the curve. An overweighted position to non-Treasury securities had a positive impact on relative price performance as credit generated positive excess returns. Credit continued to benefit from strong demand, both domestic and foreign, in what remains a low yield environment despite the recent rise in interest rates. High yield corporate bonds generated greater excess returns than investment grade in the quarter, having a positive impact on relative returns. Security selection was a positive as the credit securities held outperformed their peers in the benchmark, including strong performance in the energy sector.

Outlook and Positioning

he market outlook contains many unknowns as we move into the New Year with a new President, a new balance of power in Washington, and great expectations for positive economic policy changes to be quickly implemented. The post-election euphoria seems a bit overdone in our view. Tax reform is likely to have the greatest benefit quickly, but will probably not be truly impactful until late in the year or even 2018, as Congress debates the intricacies and trade-offs necessary for passage. Infrastructure spending will likely be much harder to get through Congress, and slower to have any effect, as we learned with the American Recovery and Reinvestment Act in 2009-2011. While these policy changes could accelerate growth, there are several potential changes around trade and immigration, which could pose serious challenges to U.S. growth, as well as the global growth outlook. We believe we will still be held back by the debt accumulation of previous decades, slow productivity growth, and slow growth of the working-age population. These three factors will, in our opinion, continue to inhibit the anticipated growth surge well into the future. We are also aware that the Federal Reserve is likely to be much more vigilant about inflation and that signs of further wage or price inflation may cause the Fed to hike short-term rates more quickly than currently anticipated. So while optimism abounds, and stock prices hit all-time highs, we remain cautious in our outlook.

U.S. fixed income securities continue to look attractive versus those available elsewhere in today’s global marketplace, particularly the significantly lower, or negative rates offered in European and Japanese bond markets. We believe our portfolios are positioned to perform well in the volatile environment of the coming year. We have constructed the portfolios with durations that are slightly shorter than their benchmarks in order to capture higher income levels while also being slightly more protective if we do see further interest rate increases. We are also cognizant that a fall in interest rates is plausible if the pendulum of economic data swings back to the weaker side, a flight to quality is caused by another global crisis, or there is a sudden decline in stock prices. We have positioned the portfolios with overweighted positions in carefully selected income-producing securities, including corporate and municipal bonds. These tactics are designed to enable performance over multiple interest rate and economic scenarios. We have increased our focus on quality and liquidity in an effort to mitigate negative credit events and market dislocations that could adversely impact portfolios. Our rigorous credit selection process is aimed at adding incremental relative return through selection of specific bonds that we believe should perform better than those in the benchmarks. While we are concerned about the volatility and the recent spike in rates, we are not convinced the market is quickly headed to significantly higher interest rates.

The performance data quoted represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will vary, and initial investments may be worth more or less than their original investment. To obtain current performance as of the most recent month-end and for important performance disclosures, please view the fact sheet.

The Manager Commentaries contain certain forward-looking statements about the factors that may affect future performance. These statements are based on portfolio management’s predictions and expectations concerning certain future events and their expected impact on the strategy, such as performance of the economy as a whole and of specific industry sectors, changes in the levels of interest rates, the impact of developing world events, and other factors that may influence the future performance of the strategy. Portfolio management believes these forward-looking statements to be reasonable, although they are inherently uncertain and difficult to predict. Actual events may cause adjustments in portfolio management strategies from those currently expected to be employed.

All indices are unmanaged and investors cannot invest directly in an index. View index descriptions.

February 2017
Fixed Income
Market Update

Read the latest insights on the fixed income market.

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