Bonds have traditionally been used in portfolios to
provide income and stability. Because there has been no global monetary
standard since 1969, the bond market can be as volatile as the stock market.
As an example, the price of a 30-year bond will decline by 10% when interest
rates go up by 1%.
We return bonds to their traditional role by building
portfolios with an average maturity of 6 years or less. Prices of these
shorter-term bonds are much more stable when interest rates fluctuate. We
also look constantly for opportunities to improve the overall return of bond
portfolios.
Investors need to be concerned about credit quality. We purchase
"investment grade" bonds only. We carefully analyze the financial statements
of the issuing entities (corporations, municipalities, school districts,
etc.) and regularly monitor their progress.
We also monitor the interest rate
differentials between the various segments of the bond market. They fluctuate
over time. Periodically, opportunities arise to increase the portfolio return
by focusing on an undervalued sector. The grid below displays the location of
our portfolios in the universe of fixed income securities.