09-3-11 SEI Sample Muni Bond Ladder by Totus44669999

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									Laddering with Municipal Bonds
Customized for John & Jane Sample Presented by John Anderson SEI Investments

What Is a Bond Ladder?

Laddering involves building a portfolio of bonds with staggered maturities so that a portion of the portfolio will mature each year.

Laddering tends to outperform other bond strategies because it simultaneously accomplishes two goals:

• Captures price appreciation as the bonds age and their remaining life shortens. • Reinvests principal from maturing limited-term bonds (low yielding bonds) into new longer-term bonds (high yielding bonds).

Goal: To achieve a total return over all interest rate cycles that compares favorably to the total return of a long-term bond

…but with less market price and reinvestment risk

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Sample of a Laddered Bond Portfolio

Today

End of Year One

YTM = 6 Yrs
2013

$200,000
2014
2012

YTM = 6 Yrs

$200,000 $200,000
2013

The goal of a laddered bond portfolio is: • • • To protect principal Reduce reinvestment risk Reduce volatility in all interest rate cycle

$200,000
2011

$200,000
2010

$200,000
2012

$200,000
2009

$200,000
2011

$200,000
2008

$200,000
YTM = 1 Yr

2010

•
$200,000
2009

Create certainty of cash flows

YTM = 1 Yr

$200,000

$200,000

2008

Reinvest the principal (2008 Bond Matures @ 200K) into new bond with a maturity date 6 Yrs out (2014)

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Benefits of Laddering with SEI

Stability • Preservation of Capital • Low volatility • Minimal Turnover and Call Risk

Risk Management and Research • Continuous security management • Pre-trade compliance • Implement a broad diversification strategy • Increased Control over Paper (i.e. no AMT Bonds)

Customized Solution • Investor owns bonds • Potential for state focused/specific

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Institutional vs. Retail Pricing
The True Cost of Retail Bonds

Consider the Following Example

When fixed income needs are implemented through SEI’s Fixed Income Desk, it’s like buying the bonds right from the wholesaler, before the heavy markups begin.

TYPICAL BOND LADDER Provides bonds to broker/firm for inventory. Broker marks up the price of the bonds. Bonds are sold to investor from the firm's inventory. The investor purchases bonds that have markup fees included in the price of the bond, which may not be disclosed. Markups also result in lower yields.

Institutional Market

Broker/Firm

Investor

SEI BOND LADDER: NO BROKER INTERMEDIARY WITH SEI Bonds purchased by SEI in institutional market for you. Fee based on assets deducted from your account annually

Institutional Market

Investor

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SEI Institutional vs. Retail Bond Pricing:

Impact on Yield to Maturity

• Retail Market Imposes Markups on Individual Bonds

• SEI Institutional Pricing Adds Value by Delivering a Higher Yield To Maturity

This example is for illustrative purposes only. It does not take into account any management fees charged by SEI. The management fees would decrease the yield.

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What is the Yield Impact to You?

What does 46 bps in additional yield on your portfolio equate to in real dollars?

• The current yield on a 10 year Municipal ladder is approximately 3.01%. (1) • $1 million dollar municipal portfolio generates about $30k per year in income. $2,500 per month. • The SEI management fee for a $1 million dollar municipal bond portfolio is 28.50 bps • The 17.50 bps difference equals $1,750 in additional income per year.

This example is for illustrative purposes only. It does not take into account any management fees charged by SEI. The management fees would decrease the yield.

(1) Yields as of 1/8/09

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Portfolio Review & Recommendations
Structure, Cash Flow & Quality

Portfolio Overview and Comments

I.

Overview of Portfolio

•

Portfolio consists of approximately $1,000,000 in cash that will ultimately be invested entirely into a fixed income solution. The portfolio will be 100% Municipal Bond issues.

•

The maturity structure will be from 0-5 years.

Portfolio Overview and Comments

I.

Structural Recommendations

Use $1,000,000 to purchase notes that fit the structure of the proposed portfolio. The proposed ladder will consist of 100% Municipal Bond Issues.

As is typically the case, our ability to purchase bonds which meet the appropriate structural, quality, and maturity constraints could be impacted by market conditions, however, construction will likely be implemented within 1 month.

II.

Additional Comments

A passive laddered bond portfolio is the optimal strategy for a fixed income investor who desires a high level of certainty surrounding to principal and cash flow.

When investing in a laddered bond strategy the concept of income versus return must be understood. Although both actively managed and passive strategies consist of income and capital gains, the focus within each strategy is different. The key focus of a laddered strategy is the income aspect of a return. With the emphasis on income and not total return, the portfolios turnover is lower reducing capital gains.

Non-Taxable Fixed Income Strategies
Current Portfolio N/A 3.13 yrs 1.81% 2.78% 30 bps AAA N/A N/A N/A N/A Proposed Portfolio

Average Maturity

Yield to Maturity

Tax Equivalent Yield

Fees

Average Quality

*Assumes 35% tax bracket

Your SEI Fixed Income Team
Focused Insight. Specialized Experience. Strong Teamwork.

Key Personnel

Sean P. Simko, Head of SEI Global Fixed Income Management

Mr. Simko has responsibilities and oversight of the Department’s overall Investment process and management of daily trading. Prior to joining SEI, Mr. Simko was Vice President – Portfolio Manager for Weiss Peck & Greer Investments and responsible for managing over $6 billion in assets through various strategies including TIPS, Short Duration, Currencies, Futures and Structured Products. Mr. Simko earned a MBA from The Pennsylvania State University and a B.S. degree in Business Management from Slippery Rock University. He also holds the Chartered Financial Consultant designation (ChFC).

Daisy Lac, Portfolio Manager

Ms. Lac is a Portfolio Manager with primary responsibilities of trading and management of client portfolios that focus on money market and short term taxable strategies. Prior to joining SEI, Ms. Lac was a senior Trader at Investors Bank and Trust Company with responsibilities that include management and trading of $14-billion in cash collateral generated by the securities lending program. Ms. Lac graduated Summa Cum Laude; earned a Bachelor of Arts, International Relations with focus on Economics from Tufts University, Medford, Massachusetts.

Peter J. Bednarek, Portfolio Manager

Mr. Bednarek serves as a Portfolio Manager responsible for trading and management of client portfolios that focus on tax-exempt strategies. Mr. Bednarek is responsible for short and intermediate investments in both the national and state specific markets. Before joining SEI in 1997, Mr. Bednarek worked as an accountant at Prudential Insurance Company. Mr. Bednarek earned a B.A. degree from King’s College, PA.

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Key Personnel

Mark C. Fair, Portfolio Manager

Mr. Fair is currently a Portfolio Manager within SEI Fixed Income Management. In this capacity he is responsible for trading and management of taxable strategies. Mr. Fair is responsible for short and intermediate investments in Inflation Linked and Non Dollar securities. He is also responsible for executing Treasury Strip trades for various programs. Prior to joining SEI Fixed Income Management Mr. Fair spent one year as a supervisor on the Portfolio Accounting Team and was directly responsible for 21 funds and co-lead a team of 10 analysts. Mr. Fair joined SEI in 2003 upon graduating from York College of Pennsylvania with a B.S. in Economics and Finance. He is currently a candidate for Level II of the CFA exam.

Matt Manning, Portfolio Manager

Mr. Manning is currently a Portfolio Manger within SEI Fixed Income Management. In this capacity he is responsible for trading and management of taxable laddered strategies. Mr. Manning is responsible for short and intermediate investments in Treasury and Agency securities. Prior to joining SEI Fixed Income Management Mr. Manning spent one year as a supervisor on the Alternatives Portfolio Accounting Team and was directly responsible for 26 funds and co-lead a team of 10 analysts. Mr. Manning earned his Bachelor of Science degree in Economics from Saint Joseph’s University.

Lauren S. Woo, Head of Global Credit Strategy & Research

Ms. Woo has oversight of SEI Global Fixed Income Management’s Credit Process. Ms. Woo is also responsible for reviewing and monitoring new and existing credits and making investment recommendations for the Fixed Income Management Team. Prior to joining SEI, Ms. Woo was a Senior Credit Analyst with John Hancock Money Market Group focusing on investment grade and asset-backed securities and as Senior Business Analyst within Liberty Mutual Group’s Strategy and Planning Group for Corporate Real Estate and Administration. Ms. Woo graduated Magna Cum Laude; earned a Bachelor of Science degree in Accounting and her MBA from Weatherhead School of Management at Case Western Reserve University.
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Key Personnel

Vivian Han, Credit Analyst

Ms. Han conducts investment grade credit and sector research and analysis. She also manages the proprietary credit system,which serves as an interface between credit and portfolio management. Prior to joining SEI Fixed Income Management, Ms. Han worked as a Project Coordinator at Carolyn Grisko & Associates Inc. in Chicago. Ms. Han earned a Bachelor of Science in Education and Social Policy and a Minor in Economics from Northwestern University.

Marina Bitar, Credit Research Analyst

Ms. Bitar is a Credit Research Analyst within SEI Fixed Income Management. She is responsible for daily research of country and credit specific data. Prior to joining SEI Fixed Income Management Ms. Bitar was an Analyst within Mutual Fund Accounting. Ms. Bitar earned her Bachelor of Arts degree in Business, Economics and International Relations from Ursinus College. She is currently a candidate for Level II of the CFA exam.

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Disclosures

SEI Investments Management Corp. (SIMC) acts as investment advisor for SEI Fixed Income Management. There is no guarantee that the goals of the strategies discussed will be met. SIMC is a wholly owned subsidiary of SEI Investments Company.

The information provided is preliminary and for informational purposes only. Any actual implementation would require a written advisory agreement between SIMC and the client. In the absence of such an agreement, SIMC will not be liable for any actions taken by the client in response to recommendations in this material.

There are risks involved with investing, including loss of principal. Bonds and bond funds generally decrease in value as interest rates rise. There is no guarantee that the goals of the strategies discussed will be met.

SEI Investments Management Corp(SIMC) serves as the advisor for SEI's Fixed Income Desk. SIMC is a wholly owned subsidiary of SEI Investments Company. Neither SEI nor its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein: and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.

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