Fixed income securities are utilized to generate income while limiting portfolio volatility.  We implement our macroeconomic outlook for interest rates by adjusting the maturity of the portfolio. Generally, we are reluctant to extend maturities beyond intermediate term issues due to the volatility of longer instruments.  We continually assess the yield differentials between classes of bonds (e.g., governments versus high-grade corporates) in an attempt to take advantage of yield differentials when we anticipate a significant widening or narrowing of quality spreads.  We do not invest in junk bonds.  The combination of high quality issues and intermediate maturities tends to result in substantial price stability while maintaining a significant current income stream.

Maturity selection is a function of our macroeconomic analysis, which is primarily qualitative in nature. Client risk profiles and income needs also contribute to the maturity selection process, since a large number of our fixed income and balanced portfolio clients are endowments and foundations.  Portfolio maturities are typically laddered with the longest issues ranging from 3-4 years during periods in which we anticipate rising interest rates to a range of 5-10 years when we believe rates could decline.

We use corporate bonds when spreads appear historically attractive.  Our understanding of the equity market has in the past allowed us to avoid many bonds which had the potential for significant event risk.  Most new and complex fixed income products have been avoided in favor of traditional Treasury, Agency and corporate issues.

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