Insights From David Sand
People always say that the bond market should be boring but that doesn’t seem to keep it off the front pages. Everyone has an opinion about quantitative easing, tapering and a rising rate environment ahead. However the markets have a few opinions of their own and investors should consider a few realities that pundits keep overlooking:
- Nominal rates have gone down every time the “experts” say they are going up.
- Real rates are still very attractive by historical standards. Inflation is so low that deflation seems to be lurking in the shadows.
- A 10-year U.S. Treasury yield at 2.3% seems crazy until one looks at 10-year governments in France at 1.2%, Germany at 0.89%, Japan at 0.50% and Switzerland at 0.41%. [data as of October 10, 2014]
- The Federal Reserve has many tools at their disposal to slow things down when they think the time has come. Disposing of some of the assets on the Fed balance sheet can have many of the same effects as raising rates without having to actually jack up Fed Funds.
Despite what appears to be a vast improvement in the U.S. job market, there appears to be no sense of urgency for the Federal Reserve to raise interest rates. In looking at the firm’s strategy, do you believe bond investors should be focused on shorter duration or will the bet on the long duration continue to pay off?
Our strategy is designed to be competitive regardless of the rate environment. We look to manage our duration to be less than that of the Barclay’s Agg index and our income to be higher.
We would like to switch focus and look at the new CCM Alternative Income (CCMNX) fund, which seems to have a broad mix of numerous investment strategies. Can you tell us more about the fund? What type of investor are you targeting?
In deciding to enter the liquid alternatives market, CCM looked for client needs that were not being served by existing providers. We saw a gap and an opportunity in a vehicle that was focused on income generation and capital preservation. We manage the Fund with an eye toward capturing income from any forms of identifiable cash flows available in the capital markets. From equities we look for dividends, share repurchases, short sales and from bonds we look for coupons and mispriced securities.
The Fund is about 18 months old and so far, investor interest has come from those attracted to our dividend (which has been achieved without excessive correlations to stock or bond markets). The Fund is managed with a keen awareness of risks associated with environmental, social & governance (ESG) issues that may not be fully recognized by the markets. Clients looking to add a liquid alternative fund to an all impact or socially responsible portfolio have invested in the Fund.
In covering both bond and alternative investing strategies, you have covered a broad approach for investors that purchase your firm’s funds. Do you see further offerings to come, and what area of investing will you be targeting?
We are quite busy with our current business lines: managing our flagship Fund, the CRA Qualified Investment Fund, our separate accounts in impact fixed income and tax-exempt, and our new Fund, the CCM Alternative Income Fund. Growing these areas will be our focus for 2015.
The Bottom Line
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of MutualFunds.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.