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Strategy – Duration Targeting and Relative Value
Question was raised during the last quarterly board meeting held May 29 on management’s interest rate outlook. Several statements within the quarterly presentation materials are relevant to this question. 1. Duration Targeted reserves maintain consistent structures and management does not attempt to time market rate changes. 2. The longer duration strategies employed in certain reserves generate higher return volatility with expected higher average annual returns over multiyear periods. 3. Chosen strategies and benchmark indices represent a reasonable and prudent compromise between long-term, multiyear return/income focus and tolerance for return volatility. Consistent Duration Targeted Approach – Exploits Term Structure of Interest Rates Management recognizes that markets and rates are unpredictable, but a consistent duration targeted approach exploits the positive yield curve slope to improve multiyear average annual returns. Duration Neutral Relative Value Swaps Swaps of similar duration and credit risk securities for higher yielding securities are a means to improve investment returns without making rate bets or altering the interest rate volatility profile of the portfolio.
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