High Grade Core Intermediate 2nd Quarter 2010

Greece and stocks – did anything else matter in the second quarter of 2010? Fears of a default by Greece surged, stocks fell sharply, and Treasury yields fell to their lowest levels since the first weeks of 2009.  This was a favorable environment for our value oriented conservative style.  As we will discuss further, this was an environment of spread widening and we added to spread positions opportunistically, but, given the concerns that gripped the market, we decided to refrain from moving aggressively into corporates and found more conservative opportunities to add value.

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1st Quarter 2010

The first quarter of 2010 was a challenging time  for a value manager oriented towards high quality investments.  We continue to generate a healthy positive return highly correlated with the broad investment grade market.  Yet, our purchasing power protection focus (with a bias towards owning TIPS) and our emphasis on quality and risk aversion underperformed the broader benchmarks during a time when risk taking was back in favor and inflation concerns were falling. The data to the right highlights the challenges we faced as a conservative bond manager.  The best performing segments of the investment grade universe were the lower quality, structured securities we do not buy: BBB’s and Commercial Mortgage Backed Securities.  Furthermore, corporate bonds (which we view as overvalued) continue to perform better than expected as many investors reach for yield at the expense of quality.

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4th Quarter 2009

During 2009, Samson’s high grade strategy achieved its goal of delivering a stable market return without exposure to the low quality and volatile sectors that can cause conservative investors concern.  Just a casual glance at returns shows that 2009 was truly the mirror image of 2008.  The market was certain that the world would collapse in 2008 and Treasuries surged.  In 2009, the market was certain that the world had healed and Corporates surged.  Is it truly possible that the fundamental economical health of the world’s economy and financial system could truly swing from near collapse to all better in months?  Or, is it more likely the truth of the condition of the world is somewhere in between?

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3rd Quarter 2009

In many ways, the U.S. economy remains on life support.  Though the worst moments of the financial and economic crisis appear to be behind us, our banking system remains dependent on lifelines to the Federal Reserve and the Department of Treasury.  Unemployment is at the highest levels in decades.  Consumer spending remains tepid at best and those lucky enough to still have jobs are working to rebuild their battered balance sheets.  The Federal Reserve has remained steadfast in its historic policy of quantitative easing, maintaining the Federal Fund rate near zero.  The U.S. Dollar has resumed its fall as investors around the world worry about the uncertain role of the greenback in the world currency reserve system of the future.  

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2nd Quarter 2009

Over the past 12 months, capital markets have been shaken to their core.  A cascading series of financial crises, interrupted by bouts of optimism that this financial nightmare might finally be over, has caused volatile swings in prices.  This has been our operating environment. It has also been the economic reality of the foundations and endowments we serve.  During this period of crisis and uncertainty, we have sought to be stewards of the fixed income portfolios we manage.  We have used the risk management disciplines we have discussed in prior commentaries to generate healthy returns, but with less volatility, less credit risk, and greater transparency than the overall market as represented by our benchmark.

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1st Quarter 2009

In large measure, the foundation for our out-performance during the 1st quarter was built in the last weeks of 2008 as our TIPS positions and municipal allocations generated strong relative returns in the first weeks of the year.  We had built these positions late in 2008 as a way to enhance the overall quality of our clients’ portfolios during a period of great credit deterioration.  Though these high quality allocations were a drag on performance in late 2008, they generated healthy returns in the first quarter.

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4th Quarter 2008

2008 was a year of great turmoil in all financial markets, and investment grade fixed income was not immune to the financial crisis contagion.

Since the inception of our High Grade Core Intermediate Strategy, we have managed it with a focus first and foremost on capital preservation and purchasing power protection.  Our goal in strategy design and implementation is to deliver returns consistent with our benchmark, by using instruments that emphasize the higher quality, more transparent and liquid components of the benchmark.  From the very start, we decided not to sacrifice quality or liquidity for yield.  Furthermore, we sought to achieve the conservative goals of our strategy by focusing on sector rotation, using a value-oriented decision making process as our guide.

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3rd Quarter 2008

In the financial maelstrom that engulfed the U.S. markets during the 3^rd quarter, no sector was immune.  Even conservative, intermediate maturity fixed income instruments were buffeted by severe dislocations and bouts of illiquidity.

For the first nine months of the year ending September 30^th, the Lehman Intermediate Aggregate Index posted a 1.24% return.  While the benchmark’s positive return may seem a soothing number in the context of severely negative returns from equities, commodities, and many formerly absolute return strategies, there was severe turbulence beneath the surface.

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