03.11.2010 / Posting by the First National Investment Team

Fixed income markets historically provide less volatility and more stable returns for investors compared to equity or commodity markets. Over the last two years, however, even fixed income investments have been subject to increased volatility and many investors have been disappointed by less-than-stable returns. In 2008, many fixed income portfolios generated negative returns in spite of a very accommodating interest rate environment. After roaring back in 2009, the bond market has again provided relatively poor results for the first few weeks of 2010.

"In such highly volatile markets, it is easy for investors, even portfolio managers, to lose sight of longer-term trends and become unanchored from their core investment philosophy."

Investors and portfolio managers moved from extreme risk aversion during the height of the financial crisis, to a pursuit of increased yields in riskier assets as the crisis abated. Now we are back to a focus on risk aversion as concerns over sovereign debt levels, weak real estate markets and continuing high levels of unemployment reassert themselves. In such highly volatile markets, it is easy for investors, even portfolio managers, to lose sight of longer-term trends and become unanchored from their core investment philosophy.

Throughout this unstable period in the market, we believe our fixed income team’s consistent and disciplined approach to managing portfolios has provided more stable risk-adjusted returns as compared to our peers. Our philosophy of combining a top-down review of current economic conditions, relative value analysis among and within sectors, and a rigorous, bottom-up review of individual securities allows us to construct portfolios which provide stable performance through entire interest rate cycles. We believe our long-term view of investing enables us to take advantage of market opportunities that become available when investors overreact to market news and events. 

Comments are provided as general market commentary and should not be considered investment advice or predictive of any future market performance. Past performance does not guarantee future results.

Investments are: Not FDIC Insured • May Go Down in Value • Not a Deposit • Not Guaranteed By the Bank • Not Insured By Any Federal Government Agency

Posted at 01:13 PM | Permalink
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