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:

Bloomberg 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, Securitized Debt Analyst/Trader

2012 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

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: 8/31/2017
Annualized Returns (%)
Periods Ended: 6/30/2017
1 Month 3 Months YTD 1 Year 3 Years 5 Years 10 Years
Long-Term (gross) 2.15 3.26 8.85 -0.30 5.47 4.39 7.64
Long-Term (net) 2.13 3.18 8.63 -0.60 5.07 3.96 7.18
Bloomberg Barclays US Long Gov/Credit Index 2.25 3.29 8.70 -1.07 5.28 4.26 7.58
Long-Term
Monthly Returns(%) as of 8/31/2017 Gross Net
1 Month 2.15 2.13
3 Months 3.26 3.18
YTD 8.85 8.63
Annualized Returns(%) as of 8/31/2017 Gross Net
1 Year -0.50 -0.80
3 Years 5.18 4.79
5 Years 4.01 3.59
10 Years 7.64 7.44
Bloomberg Barclays US Long Gov/Credit Index
Monthly Returns(%) as of8/31/2017 Gross Net
1 Month 2.25 -
3 Months 3.29 -
YTD 8.70 -
Annualized Returns(%) as of 8/31/2017 Gross Net
1 Year -1.08 -
3 Years 4.90 -
5 Years 4.02 -
10 Years 7.55

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
Bloomberg 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
Bloomberg 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 Bloomberg 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. Bloomberg Barclays is the source and owner of the Bloomberg 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 6/30/2017

 

Market Overview

While the Federal Reserve was busy raising short-term interest rates in both March and June, the market was equally busy lowering long-term interest rates. The result was a much flatter yield curve and a new bond market conundrum. While we are not yet close to the dreaded inverted yield curve, which would signal an impending recession, it is quite remarkable that long-term rates continued to fall during the initial stages of a Federal Reserve rate-hiking cycle. The Federal Reserve appeared focused on a strengthening economy and the likelihood of rising inflation. Markets, however, remained skeptical as hopes faded that the new administration would produce imminent and meaningful tax reform or the anticipated fiscal stimulus from infrastructure spending. Meanwhile, stocks continued to reach new all-time highs and corporate bonds performed very well as investors embraced additional risk in anticipation of better returns and higher income levels. To us, it is a bit of a conundrum that optimism has led stocks to all-time highs and tighter spreads for high-yield corporate bonds while, at the same time, the interest rate market seems to be forecasting slowing growth and continued low inflation. Investors seem more and more comfortable accepting the longevity of the current low-rate environment, with its minimal volatility that rewards risk takers of all forms. Perhaps we really are in the Goldilocks days where all indicators are “just right” and there is nothing to worry about.

Outlook and Positioning

The prevailing economic outlook is for modest, but positive growth, and slowly rising inflation. At quarter end, unemployment remained at cycle lows even as the labor force increased with displaced workers slowly returning to the workforce. The lack of strong wage increases remains a mystery as a scarcity of skilled workers in specific industries becomes more pronounced and unfilled positions accumulate. The Federal Reserve appears to believe that tight labor markets will imminently lead to rising real wages and then quickly into rising inflation as those cost pressures are pushed through to consumers. This strength in the U.S. economy is also evident in European, Asian and emerging markets, in what many are calling a synchronized global expansion. The appearance of tranquility and calm pervading the markets has us on high alert for the inflection point that would alter this outlook. Much will depend on the actions of central banks as they reduce their support of financial conditions through the unwinding of the unprecedented quantitative easing and bond buying of recent years.

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 over time and within the volatile environments that often arise across financial markets. We have constructed the portfolios with overweighted positions in shorter maturity “spread” sectors and durations that are slightly shorter than their benchmarks. This positioning is intended 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. Recognizing that we are late in an already extended positive credit cycle, we have positioned the portfolios with overweighted positions in carefully selected income-producing securities, including mortgage-backed securities as well as 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. We believe our rigorous credit selection process is particularly valuable at this point in the credit cycle when it is critically important to assess valuations, as well as differentiate creditworthiness and long-term stability of each of our holdings. 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.

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August 2017
Fixed Income
Market Update

Read the latest insights on the fixed income market.

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In The News

Denver Investments’ strengthens Fixed Income with new hires.

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