Sunday, June 12, 2016

A Table of Fixed Income Performance by Sector Over the Past Decade

In preparation for the Fixed Income course (FINA 4065) at Marquette, I came across this useful historical information from  Ziegler Capital Management on the historical returns of fixed income securities.

Not surprisingly, high yield bonds (the riskiest of the fixed income securities included in the analysis) had an average annual return of 6.81% during the ten year period ended in 2015. What I didn't expect was to see that Municipal bonds were the strongest 3- and 5-year performer (with munis in 2014 and 2015 being the top performer). REITs were the second strongest performer throughout the 3-, 5- and 10-year periods - these have equity and fixed-income like characteristics. Asset-backed securities were the weakest performers.

Periodic Table:

Fixed Income Sector Performance Analysis

Click on chart to access report
(Sector definitions below)
The chart provides a detailed look at Fixed Income performance over the past decade, broken down by 13 sectors. This visual presentation of the performance helps point out the dynamic nature of the space and some of the sector trends in performance that have developed over the past decade.
  • Asset-Backed-Securities (ABS) have been a consistent longer term underperformer with 5-year and 10-year returns second to last. This asset class generally has a shorter duration, lower yield and is structurally more complex than other sectors.
  • Given its higher quality and yield advantage, investment grade credit has outperformed over the last 5 and 10 years.
  • Municipal Bonds have rebounded since 2014 and have been a top performer when looking at 3-year and 5-year annualized performance. This asset class has rebounded since the 2010 default scare and has benefited from its long duration and perceived safety.
  • Emerging Markets is a volatile sector and generally is either one of the best performers or one of the worst performers in any given year.
  • REITs have been a consistent top performer since 2006 which is reflected in the sector taking second across all annualized time periods. REITs have benefited from their relatively high income and dividend yields during a period of very low interest rates.
  • Global Credit has trended downward since 2012 relative to other fixed income sectors due to the challenging political and economic environment in Europe and Asia.

Ziegler Capital Management, LLC is headquartered in Chicago, IL with additional offices in New York, NY, San Francisco, CA, St. Louis, MO, and Milwaukee, WI. The firm manages portfolios across the fixed income and equity spectrum for a wide range of clients including corporations, mutual fund sub-advisory, municipalities, pension plans, foundations, endowments, senior living and healthcare organizations and high net worth individuals. Ziegler Capital Management was formed in 1991 and has grown significantly in recent years through strategic business combinations with experienced investment teams nationwide. Through these combinations, we have expanded our investment strategy offerings and broadened our portfolio management teams to best serve our expanding client base.
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Fixed Income Sector Descriptions
Asset-Backed Securities (ABS)- A security whose income payments and value are derived from and collateralized (or “backed”) by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets which are unable to be sold individually.
Agency - Debt issued by a federal agency or a government-sponsored enterprise (GSE) for financing purposes. These types of debentures are not backed by collateral, but by the integrity and credit worthiness of the issuer. Officially, agency debentures issued by a Federal Agency are backed by the full faith and credit of the United States government.
CMBS Commercial Mortgage-Backed Securities (CMBS) - A type of mortgage-backed security backed by commercial mortgages rather than residential real estate. CMBS tend to be more complex and volatile than residential mortgage-backed securities due to the unique nature of the underlying property assets.
Emerging Markets - International government bonds issued by emerging market countries that are considered sovereign (issued in something other than local currency) and that meet specific liquidity and structural requirements.
Global Credit  - A global bond may be issued in the domestic currency, but the same issue may be offered in several countries at the same time. Global bonds may be traded either in domestic or foreign markets.
High Yield  - A high-yield corporate or credit bond is a high-income paying bond with a below investment grade rating. Because of the higher risk of default, these bonds pay a higher yield than investment grade bonds.
Investment Grade - Bonds issued by corporations which are rated BBB- or higher by Standard & Poor’s or Baa3 by Moody’s. These corporate bonds have a relatively low risk of default.
Mortgage-Backed Securities (MBS) - A bond secured by a residential mortgage or collection of these mortgages. These bonds can be issued by either GNMA, Fannie Mae or Freddie Mac and have maturities of either15, 20 or 30 years
Muniipal Bonds (Muni)- A municipal bond is a debt security issued by a state, municipality or county to finance its capital expenditures. Municipal bonds are exempt from federal taxes and from most state and local taxes, especially if the holder resides in the state of issue.
Real Estate Investment Trust (REIT)- A REIT is a type of security that invests in real estate through property or mortgages. They receive special tax considerations and typically offer high dividend yields.
Term Loans - A term loan is a loan to a corporation which generally has a floating interest rate, is senior in the capital structure and is secured by a pledge of assets as collateral in the event of default.
Treasury Inflation Protected Securities (TIPS) - A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
Treasury - A treasury instrument is a marketable, fixed-interest U.S. government debt obligation. Treasury securities make interest semi-annually and the income that holders receive is only taxed at the federal level.