Monday, January 9, 2017

AIM Fixed Income Strategy Paying Off for Class of 2017

AIM Fixed Income Fund Positioned for Moderate Growth, Moderate Inflation in 2017

The Marquette AIM Fixed Income Fund has existed since January 30, 2006 and has provided the students with experiences beyond just the equities market. Utilizing Exchange Traded Funds (ETFs) since the Fixed Income Fund's inception, the AIM students have produced returns in excess of the benchmark (Bloomberg Barclays US Aggregate Bond Index) and peer groups.  

[Click on the graphics to enlarge].

AIM Fixed Income Funds Total Returns Across Various Periods

The AIM Class of 2017 has been managing the Fixed Income Fund since April 1, 2016, and has slightly outperformed the benchmark over that period; however, the performance has been especially strong recently since there was a change in strategy in October. 

Anticipating a rise in long-term interest rates - and a narrowing corporate spreads and an increase in the rate of inflation - the AIM students strategy of .short duration / long corporate bonds resulted in strong excess returns. In late November - following the US elections - the students again made a strategic change by moving the Fund's duration closer to the benchmark (5.20 vs. 5.51).

The following graph shows the 2016 performance of the Bloomberg Barclays US Aggregate Bond Index, which highlights the impact of rising interest rates in November and December 2016.

The November rise in interest rates resulted in one of the largest 
drops in bond prices in decades.

Current strategy is duration neutral

The AIM Fixed Income Fund remains overweight corporate bonds / underweight Treasuries / neutral mortgage-backed securities. The students remain confident that there will be only two Federal Reserve rate increased during 2017 and that corporate profits and balance sheets will remain strong.They anticipate inflation will average about 2.5% in 2017.

Underweight Treasuries / Overweight Corporate Bonds

The following table shows the current AIM Fixed Income Fund holdings as of 12/31/2016. The Convertible Bond ETF (ticker: ICVT) has been an especially strong performer since mid-November.

AIM Fixed Income Fund holdings are all ETFs

Overall, the AIM students do not have any major convexity play; however, the Fund tends to hold lower maturity corporate bonds and longer maturity US Treasuries as they anticipate a slight flattening of the US Government yield curve in early 2017.

Longer Treasury maturities

The AIM students in the Class of 2017 will turn the three portfolios over to the junior class at the end of March; however, they are hopeful that the Fixed Income Fund's performance will continue to exceed the benchmark - in fact, the AIM Fixed Income Fund is already up 12 basis points over the benchmark in the first week of 2017 (+0.31% vs. +0.19%)

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