Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Special Report: Top-Performing Managers
November 11, 2019 12:00 AM

Long-duration strategies again reign supreme among bond strategies

James Comtois
  • Tweet
  • Share
  • Share
  • Email
  • More
    Print
    Getty Images

    Long-duration bond strategies once again dominated the list of top-performing fixed-income strategies for the year ended Sept. 30, filling all of the top 10 spots as they did during the 12 months ended June 30, according to Morningstar Inc.'s separate account/collective investment trust database.

    Lower rates, a strong U.S. dollar and volatile markets led to long-duration strategies, particularly U.S. Treasuries, doing well for the period.

    "This was another quarter of positive returns," said Gabriel Denis, associate analyst, fixed-income strategies at Morningstar in Chicago. "Treasuries did very well this quarter."

    Mr. Denis added that the third quarter experienced increased volatility due to a "general anxiety over how the global economy is doing," which led to investors being more cautious. This anxiety — driven by trade war fears, rate cuts from the Federal Open Market Committee and the attack on state-owned Saudi Aramco oil processing facilities on Sept. 14 — led to an increased demand for safe-haven assets, which in turn led to a high demand for Treasuries during the quarter, he said.

    Treasury yields also saw significant lows, according to the Morningstar analyst, with the 30-year Treasury bond hitting an all-time low when it reached 2.09% in August. But due to the Fed cutting rates on Sept. 18, Treasury yields went up slightly toward the end of the quarter, bringing returns back down a little bit.

    The dollar performed well during the quarter, which, when combined with the demand for safe-haven assets, also increased investor appetite for U.S. Treasuries.

    "I wouldn't say there's causation, but anything that had exposure to the long end of the curve did well," Mr. Denis said.

    STRIPS strategies shine

    For the year ended Sept. 30, the median return for long-duration domestic strategies in Morningstar's universe was 20.97%, the median return for domestic high-yield fixed income was 6.44%, and the median for Morningstar's entire domestic fixed-income universe was 7.87%.

    The Bloomberg Barclays U.S. Long-Duration Government/Credit index returned 21.88% for the 12 months ended Sept. 30, the Bloomberg Barclays U.S. Aggregate Bond index returned 10.3%, and the Bloomberg Barclays U.S. Corporate High-Yield index returned 6.36% for the year.

    Aegon USA Investment Management LLC's Long U.S. Treasury STRIPS strategy topped Morningstar's list of top performers for the year ended Sept. 30, posting a gross return of 34.35%.

    Calvin Norris, portfolio manager for the strategy, Cedar Rapids, Iowa, said in a phone interview that the strategy is "a pure STRIPS portfolio" that doesn't use derivatives.

    "It's a portfolio primarily designed for pension clients that need long duration," Mr. Norris said. "It's designed to perform comparably with the Bloomberg Barclays (U.S. Treasury) 20-Plus Year index, which has a duration of approximately 25 years."

    He added that managers of the strategy are mindful of how expensive it is to trade STRIPS, so they try to keep the level of turnover within the portfolio low.

    "We understand how important it is to minimize transaction costs," Mr. Norris said. "It's not that we don't trade within the portfolio, we do, but we try to limit trading within the portfolio, keeping the long-term strategic goals of our clients in mind and avoiding unnecessary transaction costs as much as possible."

    Mr. Norris noted that the slowing economy led to a decline in inflation expectations, which has "been a theme that's been in place largely in the last 12 months, but it hit its apex in the third quarter."

    NISA Investment Advisors LLC's 15+ STRIPS fixed-income composite was in second place on the year, posting a gross return of 33.02%. It also ranked second for the five years ended Sept. 30, returning an annualized gross 9.15%.

    Joseph A. Murphy, director, portfolio management at NISA Investment Advisors, St. Louis, attributed the strong return to the "significant drop in long-duration Treasury yields."

    "Long-duration Treasury securities have significant positive returns when you have a significant interest rate drop like that," Mr. Murphy said.

    He added that many of the firm's clients have used long-duration STRIPS as an allocation to hedge that interest rate exposure.

    Another reason why STRIPS strategies did so well was due to the "trillions of dollars of sovereign debt trading at a negative yield."

    "So, rates in the U.S. didn't look that low relative to other parts of the world," Mr. Murphy said.

    Coming in at No. 3 on the one-year list was Hoisington Investment Management Co.'s macroeconomic fixed-income composite, returning a gross 29.02% for the 12 months ended Sept. 30.

    "We're duration managers," Lacy Hunt, chief economist at Hoisington in Austin, said. "We take a multiyear view and develop a longer-term strategy."

     

    Active adding value

    Fourth on the list was Optimum Quantvest Corp.'s (formerly Hillswick Asset Management LLC's) long-duration government bond fund, returning 25.66%. It also ranked fourth for the five-year list, returning a gross 8.1%.

    "We're macro-driven investors that try to add value with a number of levers, one of which is active duration management," said Mark McDonnell, senior portfolio manager for fixed-income strategies at Optimum Quantvest. "In a lower-rate environment, active management is needed to add value."

    Mr. McDonnell echoed the sentiment that other fixed-income managers said, which is that, "as global growth slowed, the demand for safe assets grew as well."

    Hillswick Asset Management was acquired in May.

    Rounding out the top five fixed-income strategies for the year ended Sept. 30 was Pacific Investment Management Co. LLC's Long-Duration Treasury strategy, returning a gross 23.81%.

    Miami Beach, Fla.-based Thomas J. Herzfeld Advisors Inc.'s fixed-income composite topped the list for the five-year period for the fifth quarter in a row, posting a gross annualized return of 9.33%. All multiyear returns are annualized.

    The median return for long-duration bond strategies in Morningstar's universe was 7.04% for the five years ended Sept. 30, domestic high-yield strategies returned 5.08%, and the entire Morningstar domestic fixed-income universe returned a median 3.54% for the five-year period.

    The Bloomberg Barclays U.S. Long-Duration Government/Credit index returned 6.81% for the five-year period, the Bloomberg Barclays' U.S. Corporate High-Yield index returned 5.37%, and the Bloomberg Barclays U.S. Aggregate Bond index returned 3.38% for the five years ended Sept. 30.

    PIMCO's Long Term Bond-Long Credit strategy followed the NISA strategy in third, at 8.29%; and Logan Circle Partners LP's Long Credit strategy ranked fifth, with a gross annualized 8.02% for the five years ended Sept. 30.

    Fidelity Institutional Asset Management's Long U.S. Treasury STRIPS Pool Index topped Morningstar's domestic collective investment trust universe for the one and five years ended Sept. 30, with a net 36.23% and 9.66%, respectively.

    BlackRock Inc.'s 20+ Treasury Bond Fund ranked second for the one-year list, with a net 25.28%, and fourth on the five-year list with a net annualized 7.11%.

    FIAM's Target Date Long-Term Treasury Index Commingled Pool came in third place, returning a net 25.05% for the year ended Sept. 30. T. Rowe Price Group Inc. rounded out the top five CIT list, with its U.S. Treasury Long-Term Index Trust and U.S. Treasury Long-Term Index Trust-Z both returning 24.9%.

    Wellington Management Co. LLP's CIF II U.S. Investment Grade Corporate Long Bond ranked second on Morningstar's domestic CIT universe for the five years ended Sept. 30, with a net 7.36%, while Wellington's CIF II Long Bond strategy came in third place, with a net 7.29% return. Closing out the top five for the five-year list is BNY Mellon Investment Management's DB NSL High-Quality Long Corporate CIT, returning a net 7.1%.

    All data for Pensions & Investments' top-performing managers report are provided from Morningstar's global separate account/collective investment trust database. The data for the rankings on which this story is based were pulled Nov. 1.

    Related Articles
    REIT strategies take top-performing mantle in third quarter
    Markets drag down AUM for world's largest firms
    ESG, fixed-income indexes lead growth in 2019 – survey
    Recommended for You
    Michael Roomberg
    Energy, natural resources strategies take over amid broad market drops
    Arthur Laffer Jar.
    Inflation-focused bond strategies rise to top in difficult year
    Tammira Philippe
    Managers target ESG integration, but find disclosure challenges with smaller firms
    ESG: Sustainability - Gaining Momentum
    Sponsored Content: ESG: Sustainability - Gaining Momentum

    Reader Poll

    June 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    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
    June 20, 2022 page one

    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.

    About Us

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

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    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
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit