Unique circumstances require custom portfolios
- Duration alone is only adequate for parallel rate shifts.
- The yield curve often shifts and twists making Key Rate Duration immunization an important component of building LDI portfolios.
LDI Portfolio Construction
- Discount liabilities using appropriate discount rate
- Model discounted liabilities
- Analyze key rate duration profile to properly immunize twists in the yield curve
Construct Custom Benchmark
- Select a benchmark that best meets LDI objective – full immunization, partial immunization, core portfolio with hedge overlay
- Match credit quality with liability discount curve
- Match duration and key rate duration profile to liabilities
Manage for Alpha
- Emphasize high quality investment grade corporate bonds to enhance yield
- Use long duration government bonds as a hedge
- Emphasize off the run maturities to capture additional liquidity premium
LDI sample investment process
- Funded as a $60mm Core bond mandate
- Ongoing discussion with client on how to better match liability of assets with the client’s plan
- Discussions led to shift to customized long duration mandate
- Worked closely with client to develop a custom blended benchmark to meet their goals of A rated average quality and duration of 10 years
- Client funded an additional $500mm as a result of successful customized long duration transition
- Continuing discussions with the client led to transition to fully immunized LDI mandate
- Modeled liabilities on behalf of the client
- Created a new custom benchmark that fully immunized key rate duration sensitivity of liabilities
Research and Trading Team
Let's Talk Strategy.
Johnson Asset Management is a division of Johnson Investment Counsel, Inc. (“JIC”), an independent and privately owned Midwestern based investment advisory firm registered with the Securities and Exchange Commission. Johnson Asset Management manages institutional separate account portfolios for a wide variety of for-profit and nonprofit organizations, public agencies, public and private retirement plans, and personal trusts of all sizes. It may also serve as sub-adviser for mutual funds. JIC’s fees are available upon request and may be found in our Form ADV Part 2A. Performance data quoted herein represents past performance. Past performance does not guarantee or indicate future results. All data is current as of December 31, 2018 unless otherwise noted. Returns and net asset value will fluctuate. To determine if this strategy is appropriate for you, carefully consider the investment objectives, risk factors, and expenses before investing. Individual account management and construction will vary depending on each client's investment needs and objectives. Investments employing JIC’s strategies are NOT insured by the FDIC or by any other Federal Government Agency, are NOT Bank deposits, are NOT guaranteed by any Bank or any Bank affiliate, and MAY lose value, including possible loss of principal.
Johnson Asset Management claims compliance with the Global Investment Performance Standards.
The Institutional Long Credit Fixed Income composite includes all fee paying, fully discretionary, actively managed institutional fixed income portfolios with a minimum of $500,000 and an investment objective of long duration, U.S. credit securities. The benchmark for this composite is a combination of Merrill Lynch Indices: 34% ML 10+ year AAA-A Corporate, 34% ML 10+ year Government & Corporate, 12% ML 1-10 year Government & Corporate, 10% ML 10-15 year Corporate, and 10% 5-10 year AAA-A Corporate. The blended benchmark was changed January 1, 2016. Previously the benchmark for this composite was an equal weighted combination of Merrill Lynch credit indices, consisting of the AA rated 10-15 year, the A rated 10-15 year, the AA rated 10+ year, and the A rated 10+ year.
JAM’s policies for valuing portfolios, calculating performance and preparing compliant presentations, as well as a complete list of composite descriptions are available upon request. Please contact our office at 513.389.2770 or 3777 West Fork Road, Cincinnati, OH 45247. All returns reflect the reinvestment of investment income (dividends and/or interest) and capital gains. Valuations and returns are stated in U.S. dollars. Trade date accounting is used. Portfolio returns are calculated using time weighed return methodology on a monthly basis. Net returns shown reflect gross performance less the highest fee schedule for this strategy.
Actual client returns would also be reduced by brokerage commissions, custodial fees, and other client paid expenses detailed in JIC’s Form ADV Part 2A.