Long Term

Fixed Income

Investment Strategy

Denver Investments’ Long-Term 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

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

Portfolio Construction Guidelines:

  • Approximately 70-85 securities
  • Investment grade securities
  • 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 U.S. Long 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

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

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, 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: 4/30/2017
Annualized Returns (%)
Periods Ended: 3/31/2017
1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years
Long-Term (gross) 1.53 2.76 3.21 2.10 5.53 4.95 6.98
Long-Term (net) 1.51 2.69 3.11 1.80 5.12 4.52 6.52
Barclays US Long Gov/Credit Index 1.55 2.83 3.15 0.98 5.47 4.84 6.92
Long-Term
Monthly Returns(%) as of 4/30/2017 Gross Net
1 Month 1.53 1.51
3 Months 2.76 2.69
YTD 3.21 3.11
Annualized Returns(%) as of 4/30/2017 Gross Net
1 Year 1.90 1.59
3 Years 5.34 4.93
5 Years 4.63 4.19
10 Years 7.04 6.68
Barclays US Long Gov/Credit Index
Monthly Returns(%) as of4/30/2017 Gross Net
1 Month 1.55 -
3 Months 2.83 -
YTD 3.15 -
Annualized Returns(%) as of 4/30/2017 Gross Net
1 Year 1.31 -
3 Years 5.25 -
5 Years 4.50 -
10 Years 6.97

Calendar Year Performance (%)

2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Long-Term (Gross) 7.52 -3.13 17.99 -8.05 8.03 20.59 12.80 7.30 3.92 5.80
Long-Term (Net) 7.17 -3.57 17.47 -8.47 7.53 20.08 12.30 6.81 3.46 5.33
Barclays US Long Gov/Credit Index 6.67 -3.30 19.31 -8.83 8.78 22.49 10.16 1.92 8.44 6.60
Long-Term
Year Gross Net
2016 7.52 7.17
2015 -3.13 -3.57
2014 17.99 17.47
2013 -8.05 -8.47
2012 8.03 7.53
2011 20.59 20.08
2010 12.80 12.30
2009 7.30 6.81
2008 3.92 3.46
2007 5.80 5.33
Barclays US Long Gov/Credit Index
Year Gross Net
2016 6.67 -
2015 -3.30 -
2014 19.31 -
2013 -8.83 -
2012 8.78 -
2011 22.49 -
2010 10.16 -
2009 1.92 -
2008 8.44 -
2007 6.60 -

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 U.S. Long Government/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. Long-term indices include bonds with maturities of ten years or longer. 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 is an independent investment advisor registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. Denver Investments provides fundamental investment management services to various institutional and private investors and mutual funds.

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 3/31/2017

 

Market Overview

The more things change the more they seem to stay the same; while interest rates have moved within a well-defined post-election range there has been very little change in long-term Treasury yields since mid-November. Short-term rates, of less than one year, jumped up in early March after repeated comments by Federal Open Market Committee members foretold the March 15 rate increase of 25 basis points. With unemployment trending lower, inflation moving slowly higher, and stock prices at all-time highs, the committee expressed the potential for further rate increases in 2017 and 2018, which pushed short-term rates higher. The optimism reflected by the Federal Reserve action was tempered later in March by the political defeat of the new administration’s first major legislative effort, its attempt to enact the American Health Care Act to repeal and replace the Affordable Care Act, or “ObamaCare”. This defeat called into question the ability of the administration to work with Congress on other vital growth initiatives, such as tax reform and infrastructure spending. The economic news swung full circle while interest rates nearly returned to their starting point. In this environment of stable, range-bound Treasury rates, corporate bonds generated strong excess returns that were particularly impactful for high-yield securities. We believe corporate credit currently fits into a sweet spot for investors looking for income as solid corporate profits, low inflation, and no imminent recession generally result in continued strong corporate credit quality.

Outlook and Positioning

Political uncertainty dominates the economic outlook with the ambitious growth plans of the Trump administration at risk due to infighting among Republicans and alienation of Democrats which is likely to exacerbate the difficulty of passing any legislation. Markets remain hopeful that tax and regulatory reform will ultimately become reality thus boosting consumer spending, business investment, productivity, and corporate profits and in turn propelling the economy out of the meager 1 to 2% growth rate of the past several years. Badly needed infrastructure spending would likewise significantly improve long-term growth potential. Compounding the fiscal uncertainty is a more assertive Federal Reserve that seems likely to raise rates two or three more times in 2017 and again in 2018 given the growth outlook described above. Beyond this political uncertainty we are seeing a global economy that has shown improvement in Europe, Asia, and here in the United States. With potential long-term gains from fiscal policy realized in 2018 and beyond being offset by monetary tightening, we see only modest positive growth and low inflation with little chance of a recession over the next 12 to 24 months.

U.S. fixed income securities continue to look attractive versus those available elsewhere in today’s global marketplace, particularly the significantly lower and even negative rates offered in European and Japanese bond markets. We believe our portfolios are positioned to perform well in the likely volatile environment of the coming year. We have constructed the portfolios with larger positions in shorter maturity “spread” sectors and 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 modest 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 mortgage-backed securities and 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 short-term rates, we are not convinced the market is quickly headed to significantly higher long-term 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.

April 2017
Fixed Income
Market Update

Read the latest insights on the fixed income market.

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Denver Investments’ strengthens Fixed Income with new hires.

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