Skip to main content
pilogo-NEW
Subscribe
  • Subscribe
  • My Account
  • login
  • NEWS
    • Alternatives
    • Consultants
    • Defined Contribution
    • Frontlines
    • Hedge Funds
    • Investing / Portfolio Strategies
    • Money Management
    • Pension Funds
    • People Moves
    • Private Equity
    • Real Estate
    • Searches & Hires News
    • Special Reports
    • H.I.G. Capital promotes 2 to co-president
      Pantheon hires global head for private debt
      Silver Lake reorganizes leadership
      Hamilton Lane promotes 3 to global investment team
    • Mercer appoints global alternatives leader for wealth business
      KPMG offloads pension advisory unit to private equity firm
      Ascensus snaps up Nyhart in latest deal
      Willis Towers Watson exec promoted to lead retirement unit
    • No uptick in hardship withdrawals seen in wake of IRS rule revamp
      Michael Hadley
      IRS hardship rules force change to plan documents
      Nancy Ross
      Sponsors take steps to reduce company-stock litigation risk
      Mike Francis
      Plan sponsors jump to meet changes over withdrawals
    • McGill Challenge winners
      HEC students win C$25,000 for sustainable investment strategy
      Warrick Dunn
      Former professional athletes want to make a different kind of impact
      Nareit diversity winners
      Nareit award winners stress diversity work isn't done yet
      Brian Collins
      Illinois Muni pension fund wins Baldrige quality award
    • Macro hedge fund Stone Milliner shutting down
      James Medeiros
      Hedge fund managers are warming up to custom funds
      Louis Bacon
      Moore Capital's Louis Bacon to quit money management business
      James Yeh
      Citadel promotes James Yeh to president and co-CIO
    • CalPERS slashes equity emerging managers program
      Canadian multiemployer plan invests in cannabis company WeedMD
      Franklin Regional Retirement launches small-cap equity search
      To cheap large-caps go the spoils
    • Investor checks on manager sexual harassment are improving, but still too low
      Apollo Global taps Bain Capital veteran to lead its Japan business
      Managers struggle to understand blockchain technology
      BlackRock's Mark Wiseman departs after failing to disclose relationship
    • CalPERS slashes equity emerging managers program
      Canadian multiemployer plan invests in cannabis company WeedMD
      South African state pension fund looks to expand unlisted assets
      Church of England Pensions Board CIO resigns
    • Mercer appoints global alternatives leader for wealth business
      Apollo Global taps Bain Capital veteran to lead its Japan business
      Realdania picks new CIO
      BlackRock's Mark Wiseman departs after failing to disclose relationship
    • Investindustrial raises €3.75 billion with seventh European buyout fund
      Sightway Capital closes first fund with $1.2 billion
      Private equity practices aired at House hearing
      Asia-focused NewQuest closes fourth dedicated secondaries fund at $1 billion
    • Schroders appoints real estate capital partners head
      CBRE acquires U.K. real estate debt investment business Laxfield Capital
      USAA to sell controlling interest in real estate unit
      Cold storage
      A hot time for those seeking the cold
    • Westfield Contributory looks to allocate to private equity, real estate funds
      Franklin Regional Retirement launches small-cap equity search
      Texas Muni assigns $50 million to private equity
      Northfield Bancorp taps Principal as record keeper for 401(k) plan
    • Investment Consultants
      The 2019 Excellence & Innovation Awards
      Top-performing managers Q3 2019
      The world's largest asset managers
  • Data
    • Research Center
    • Searches & Hires Database
    • Searches & Hires News
    • RFPs
    • Charts / Infographics
    • Sponsored Research
    • Trackers
    • Q3 2019 money manager M&A activity summary
      Q3 2019 legal overview report
      Q3 2019 searches and hires overview report
      P&I resources can give a leg up in winning new business
    • Westfield Contributory looks to allocate to private equity, real estate funds
      Franklin Regional Retirement launches small-cap equity search
      Texas Muni assigns $50 million to private equity
      Northfield Bancorp taps Principal as record keeper for 401(k) plan
    • Westfield Contributory looks to allocate to private equity, real estate funds
      Franklin Regional Retirement launches small-cap equity search
      Texas Muni assigns $50 million to private equity
      Northfield Bancorp taps Principal as record keeper for 401(k) plan
    • In-Kind Distribution Management Services (Private Markets) Provider Search
      Defined Contribution Consultant
      Consulting Services
      Technology Firms
    • To cheap large-caps go the spoils
      Only place to go is ... down
      Equity leads DC exodus amid rising markets
      Hedge fund performance fees down 11% in 2019
    • Institutional Investors: Shared Expectations, Divergent Paths
      Global Investor Study 2016
      Workplace Financial Wellness
    • U.S. Endowment Returns Tracker
      Pension Fund Returns Tracker
      Earnings Tracker
      Corporate Pension Contribution Tracker
  • Insights
    • Opinion
    • White Papers
    • Industry Voices
    • Other Views
    • Partner Content
    • Publisher's Update
    • SEC cartoon
      SEC rules need measured response
      High hopes for consistency and guidance from Scalia
      DC West poster
      Financial wellness gets spot at the table
      Times change, and that's a good thing
    • Strengthen Your Core: Flexible Multi-Sector Strategies for a Low-Yield World
      WisdomTree Yield Enhanced U.S. Aggregate Bond Fund
      Automation, lower fees driving institutional interest in factor investing and smart beta strategies
      A Great Time to Be Agnostic?
    • Gerald Cooper
      Commentary: Single-asset deals – a structure benefiting GPs and LPs alike
      Gordon Latter, Timur Kaya Yontar and Frank Benham
      Commentary: Plan sponsors, do you know your credit risk?
      Timothy Boomer
      Commentary: For plan sponsors, derivatives shouldn’t be a dirty word
      Martin Vogt
      Commentary: Renewables investing makes inroads in the Caribbean, Central America
    • Commentary: Revised statement on corporate purpose misses the mark
      Commentary: Stronger partnership needed between shareholders, managers
      Commentary: The associated costs of DB terminations
      Commentary: Support the Butch Lewis Act
    • P&I Content Solutions
      The Changing Face of Emerging Markets Investing
      P&I Content Solutions
      How ICMA-RC Creates Diversity and Investment Talent
      P&I Content Solutions
      Three conversations DC plan sponsors need to have in 2020
      P&I Content Solutions
      Automation, lower fees driving institutional interest in factor investing and smart beta strategies
    • Everything Must Change
      Tomatoes & Investments
      Baby, it’s hot outside!
  • Multimedia
    • Videos
    • Webinars
    • Polls
    • Slideshows
    • Charts / Infographics
    • Excellence & Innovation Awards 2019: Laura Mittelstaedt
      DC West 2019
      Excellence & Innovation Awards 2019: Lisa Joe
      DC West 2019: Empower Retirement's Doug Peterson on cybersecurity
    • Finding the Positive in Negative Interest Rates
      How to Position Institutional Portfolios to Capitalize on China’s Growth
      Financial Wellness: Gaining an edge with plan sponsors
      Trends in Hedge Fund Investing
    • POLL: Shared values between money managers and plan sponsors
      POLL: Climate change's impact on investing
      POLL: Ultralong-term U.S. Treasury bonds
      POLL: The best benchmark for private equity
    • view gallery
      21 photos
      The world's 20 largest retirement funds
      view gallery
      11 photos
      Top 10 DC money managers
      Top 15 managers by worldwide institutional AUM
      The 1,000 Largest Retirement Funds
    • To cheap large-caps go the spoils
      Only place to go is ... down
  • Events
    • Conferences
    • Webinars
    • East Coast DC Conference
      Fixed Income & Credit
      DC Investment Lineup
      ESG Investing
    • Finding the Positive in Negative Interest Rates
      How to Position Institutional Portfolios to Capitalize on China’s Growth
      Financial Wellness: Gaining an edge with plan sponsors
      Trends in Hedge Fund Investing
  • Careers
  • Research Center
MENU
Breadcrumb
  1. Home
  2. INVESTING & PORTFOLIO STRATEGIES
August 08, 2016 01:00 AM

Falling rates put long-duration strategies on top

Rob Kozlowski
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    Long-duration strategies accounted for every spot in the top 10 overall domestic fixed-income rankings for the year ended June 30, according to Morningstar Inc.'s separate account/collective investment trust database.

    The domination by long-duration strategies for the year was an abrupt change from the two previous quarters. For the year ended March 31, intermediate-term strategies accounted for six of the top 10 spots.

    Not a single strategy from last quarter's top 10 remains.

    Emory Zink, Chicago-based fixed-income analyst at Morningstar, Chicago, said while many experts thought interest rates would rise in 2016, “they're not going to hike any time soon.”

    That is resulting in many investors choosing longer-duration securities, she said. Plus, yield curves are flattening, she added.

    “Especially given all the political risk and the crazy things that have been happening, a lot of other governments will want” to invest in long-duration Treasuries, Ms. Zink said. “U.S. long-duration Treasuries are very attractive because you can't find yield in a lot of other places.”

    The median return for long-duration strategies was 15.09% and the Barclays U.S. Long Government/Credit Bond index returned 15.72% for the year ended June 30. The median return for the entire domestic fixed-income universe was 4.37% and the Barclays U.S. Aggregate Bond index returned 6.7% for the year.

    Of the top 10 overall domestic fixed-income strategies, NISA Investment Advisors LLC took three spots, including the top two for the 12 months.

    The manager's 15+ STRIPS strategy topped the overall list with a gross return of 28.98% for the year ended June 30.

    Jess B. Yawitz, CEO and chairman at St. Louis-based NISA, said in an e-mail, “The strategic purpose of the 15+ STRIPS portfolios is to use the longest duration physical instruments available (15 and longer maturity zero-coupon STRIPS) to hedge the interest rate risk that is inherent in pension liabilities. Many of our clients prefer STRIPS over coupon-bearing Treasuries because they can hedge a larger portion of the liability without having to increase the allocation to fixed income or use derivatives.”

    The 15+ STRIPS strategy was followed by NISA's Long-Duration Government-Only Consolidated strategy, which returned a gross 24.41%. The two strategies also took the top two spots for the five years ended June 30, with annualized gross returns of 15.95% and 14.54%, respectively.

    For the year ended June 30, NISA's Long-Duration Government/Credit Consolidated strategy ranked 10th with a gross return of 17.03%. That strategy also ranked seventh for the five years ended June 30, with 10.52%. (All returns for periods of more than one year are compound annualized figures.)

    “The overwhelming majority of the return associated with these portfolios is related to their strategic purpose of hedging interest rate risk,” added David Eichhorn, managing director, investment strategies at NISA, in an e-mail. “As such, as rates have fallen generally over this period, the strategies have performed well.”

    Mr. Yawitz noted the overall strength of long-duration strategies as a whole was the result of a number of factors, beginning with the falling of 10-year and longer Treasury rates about 30 basis points in the quarter and the tightening of long-maturity credit spreads of about five to 10 basis points in the three months.

    “Much of the Treasury rate move occurred after the late June U.K. referendum and downward pressure on U.S. rates came from overseas, as yields there fell to historically low levels. With long maturity German and Swiss debt trading with negative yields, long-dated Treasuries looked 'cheap' to some investors,” Mr. Yawitz said.

    Hoisington Investment Management Co.'s macroeconomic fixed-income strategy ranked third, with a gross return of 21.29% in the year ended June 30.

    Lacy Hunt, chief economist and executive vice president at Hoisington in Austin, Texas, said in a telephone interview that “basically, we're duration managers.”

    “We can have duration wherever we want on any of the Treasury curves,” Mr. Hunt said.

    “Our view has been for quite some time the U.S. economy is in a disinflationary pattern and the risk of deflation is greater than inflation,” which is why, Mr. Hunt said, Hoisington works in a “portion of the curve that most people will not touch.”

    “We've been carrying for quite some time now a 20-year duration and I think one of our big themes that has been part of our macro strategy for a very long time is that the U.S. economy is likely to consistently underperform relative to its historic pattern,” Mr. Hunt said.

    Ranked fourth overall was Hillswick Asset Management LLC's long-duration strategy, which returned a gross 20.8% in the year ended June 30.

    Mark McDonnell, president, chief operating officer and senior portfolio manager of Stamford, Conn.-based Hillswick, said in a telephone interview that the firm takes a macroeconomic approach.

    “If you wanted to identify what worked, what we would attribute to the performance, it was taking a top-down view and deciding that the world is not quite as healthy as the markets were pricing,” Mr. McDonnell said

    Mr. McDonnell said that decision was made in mid-2015.

    “One key driver ... in terms of the technical would be that central banks are taking out on the order of $200 billion a month in duration and what that means to us is that the U.S. can have growth expectations, have different inflation expectations than some of the less healthy countries of the developed world; while it still yields more, it's not going to yield significantly more than those countries,” Mr. McDonnell said.

    Rounding out the top five for the year ended June 30 was the long-duration Treasury strategy of Pacific Investment Management Co., with a gross return of 19.52%.

    Overall for the five years ended June 30, the rest of the top five strategies following NISA's 15+ STRIPS and long government-only strategies, were: TCW Group's AlphaTrak strategy, which had an annualized gross return of 12.92%; Hoisington's macroeconomic fixed-income strategy, at 12.86%; and Hillswick's long-duration government strategy, at 11.71%.

    In the domestic collective investment trust universe, BlackRock Inc. led the top five, with its 20+ Treasury bond CIT returning a net 20.41% in the year ended June 30, followed by State Street Global Advisors' long U.S. government index CIT, with a net 19.05%.

    The median for overall domestic fixed-income managers in the CIT universe was 4.84% for the year ended June 30.

    The rest of the top five were: BlackRock's long-term government bond index CIT, which returned a net 19.02% in the year ended June 30; BNY Mellon Investment Management's long-term government bond index CIT, which returned a net 18.92%; and Fidelity Institutional Asset Management's long corporate pool CIT, which returned a net 16.05%.

    Related Articles
    Top Performing Managers of Stable Value Fixed Income, 2nd Quarter 2016
    Top Performing Managers of Domestic High-Yield Fixed Income, 2nd Quarter 2016
    Real estate overthrows large-cap equities as top-performing strategy
    Real estate overthrows large-cap equities as top-performing strategy
    San Francisco City & County Employees nets BlackRock for passive fixed income
    BlackRock cuts Treasuries exposure on hedging cost as bonds fall
    Index managers are dealing with negative yields
    Recommended for You
    sponsored content
    Events
     
     
    Advertisement
    White Papers
    A Great Time to Be Agnostic?
    Shedding the Home-Country Bias
    Automation, lower fees driving institutional interest in factor investing and s…
    WisdomTree Yield Enhanced U.S. Aggregate Bond Fund
    Strengthen Your Core: Flexible Multi-Sector Strategies for a Low-Yield World
    View More
    Sponsored Content
    Partner Content
    How Big Data Delivers Solutions to ESG Investors
    How a Multisector Credit Approach Can Lower Risk, Increase Diversification
    ESG Investing Supplement
    Know Your DB Plan’s ‘Persona’ to Help Make the Right Strategy Choices
    Leveling the playing field for public employee retirement security
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    pilogo-NEW
    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    150 N. Michigan Ave.
    Chicago, IL 60601

    Contact Us

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    Pensions & Investments
    Copyright © 1996-2019. Crain Communications, Inc. All Rights Reserved.
    • NEWS
      • Alternatives
      • Consultants
      • Defined Contribution
      • Frontlines
      • Hedge Funds
      • Investing / Portfolio Strategies
      • Money Management
      • Pension Funds
      • People Moves
      • Private Equity
      • Real Estate
      • Searches & Hires News
      • Special Reports
    • Data
      • Research Center
      • Searches & Hires Database
      • Searches & Hires News
      • RFPs
      • Charts / Infographics
      • Sponsored Research
      • Trackers
    • Insights
      • Opinion
      • White Papers
      • Industry Voices
      • Other Views
      • Partner Content
      • Publisher's Update
    • Multimedia
      • Videos
      • Webinars
      • Polls
      • Slideshows
      • Charts / Infographics
    • Events
      • Conferences
      • Webinars
    • Careers
    • Research Center