Better safe than sorry seemed to be the theme in the second quarter, as many of the top bond managers in the Pensions and Investments' Performance Evaluation Report seem to be taking a conservative approach to investing through U.S. government-backed securities, asset-backed issues and wraps.
Following in the footsteps of the first-quarter winners, short-duration fixed-income managers topped the list.
The medians for both managed and commingled overall fixed-income accounts were -0.7% for the quarter, 3.5% for the year and an annualized 7.1% for the three years ended June 30. The Salomon Broad Bond index returned -0.9%, 3.1% and an annualized 7.2% for the respective periods.
The top-performing managed fixed-income account for the second quarter was Noddings Investment Group's Neutral Hedge Strategy, Oakbrook Terrace, Ill., with a 2.5% return. The group's strategy came in third for the 12 months at 7.1%.
Rounding out the top five managed fixed-income accounts for the second quarter were: F.X.C. Investors Corp., Glendale, N.Y., with 2.5% in its fixed-income account; First Pacific Advisors, Los Angeles, with 2.2% in its intermediate bond portfolio; and, at 1.9% each, Eaton Vance Management, Boston, for its Senior Secured Floating strategy and Sporl & Co., Greenbrae, Calif., for its Enhanced Short/International Government approach.
The F.X.C. bond strategy returned 4.7% for the year ended June 30 and an annualized 11.8% for the three years, putting it at sixth for that period. One of the reasons F.X.C. outperformed was that it included securities such as Wendy's International preferred stock at a 4.8% yield, said Frank Curzio, president of the New York-based company.
"We think the long-term rate will be in the 6% range for the next quarter, but we feel that next year we'll have 7.25% on the long-term rate," he said. "We see the short-term at 5.5% for the quarter and 6% to 6.5% for the year."
The remaining top five managed accounts for the year ended June 30 were:
* Bridgewater Associates Inc., Westport, Conn. Extra Long Duration Bond account, 11.1%, which also ranked first for the three-year period ended June 30 with an annualized return of 32.9%, but ranked second from the bottom for the quarter with -4.6%;
* Dwight Asset Management, Burlington, Vt., stable-value account, 6.9%; and
* Capital Consultants Inc., Portland, Ore., short-term fixed income, 6.8%.
Several of the accounts making the top five for the three years ended June 30 appeared near the bottom overall for the quarter and year (all returns for periods of more than one year are compound annualized):
* Dallas-based Barrow, Hanley, Mewhinney & Strauss Inc.'s long-duration fixed-income account returned 12.9% in the three years, but ranked last overall for the quarter with -6.9% and second-to-last for the year with -9.2%;
* The long-duration fixed-income account of NISA Investment Advisors, St. Louis, returned 12.8% in the three years, but was third from last for the quarter with -3.8% and fifth from the bottom for the year with -2.6%; and
* Western Asset Management, Pasadena, Calif., whose long-duration account returned 12.4% for the three years, ranked fourth from the bottom for the quarter with -3.4% and 11th from the bottom for the year with -0.6%.
The U.S. Treasury Bond Management account of Lara Group, Vienna, Va., ranked fifth for the three years, returning 11.9%.
Chris Scibelli, director of marketing at Metropolitan West Asset Management, whose Intermediate and Total Return accounts ranked eighth and 10th for the year, respectively, with returns of 6.5% and 5.9%, said, "We use a diversified set of strategies such as duration management, yield curve sectors, securities selection, execution and saving to add value in climactic ways."
The strategies were the same for the two accounts, but they have different durations.
But as short-duration, conservative strategies soared for the quarter, long-duration approaches sank. Ten of the bottom 12 funds overall for the quarter were long-duration.
Arun Lyng, vice president, J.P. Morgan Investment Management, New York, whose long-duration account ranked sixth from the bottom for the quarter with -3.3% and eighth from the bottom for the year with -1.4%, said the reason is that the account invests on a leaner scale.
The company holds bonds with high AA or low AAA ratings and average durations of 10.5 years in the $3.5 billion portfolio.
Leading the managers among PIPER's overall commingled fixed-income universe for the second quarter was Pacific Century Trust, Honolulu, whose Defensive GIC Fixed-Income account ranked first for the quarter and the year, returning 1.58% and 6.6%, respectively.
The Minneapolis-based American Express Financial Corp. AMEX Trust Stable Capital fund ranked second for the quarter with 1.57% and its Trust Income Fund ranked fourth at 1.54%. The funds held the third and fourth positions with returns of 6.42% and 6.37%, respectively, for the year.
The other top five commingled performers for the second quarter were Caterpillar Investment Management, Peoria, Ill., and Norwest Bank, now Wells Fargo, Minneapolis. Caterpillar's stable principle fund returned 1.56% for the quarter and was second for the year with 6.5%. Norwest's Stable Return Fund returned 1.5% in the quarter and was sixth for the year with 6.3%.
Ranking fifth among the commingled funds for the 12 months ended June 30 is the Cleveland-based Key Asset Management Inc. MaGIC Fund with 6.4%. The fund ranked sixth for the quarter, with 1.5%.
The top commingled funds for the three years ended June 30 were: Second National Bank, Warren, Ohio, EB Fixed Income Fund, 11.8%; Lipper & Co. LP, New York, Intermediate Bond Portfolio, 11.1%; St. Paul Trust Co., Oak Lawn, Ill., Bond Fund, 10.0%; Barclays Global Investors, San Francisco, 20+ Treasury Bond Index Fund, 9.5%; and Northern Trust Global Investments, Chicago, NTQA Long-Term Government Bond Index Fund, 9.1%.