
Bond Performance Analysis - Part Two
Service Description
This course digs more deeply into the process of evaluating a bond portfolio’s performance relative to its market benchmark. By taking a hierarchical approach to this analysis, you will learn how to “peel the onion” and understand the drivers of the investment portfolio’s return and excess return. This will enable you to create a thorough commentary of the investment decision process and to explain these results to clients in understandable language. We begin with the “Four Factors” of bond performance that we introduced in the first session: Income, Treasury Return, Spread Return and Selection. We apply these to the portfolio and its benchmark at this highest level. Then we examine how each major sector contributed to these results. (Our major sectors are Governments, Corporates, Mortgages and High Yield.) After looking at each sector’s contribution to the portfolio’s excess return, we dig into the sub-sectors within each major sector to uncover an additional level of investment allocations. By understanding these differences in “style” between the portfolio and the benchmark, we find additional insights into the investment decision process, along with an understanding of the role that these stylistic differences played in the portfolio’s success. This analysis is robust and rigorous, yet easily understood and communicated. While this is a multi-step process, it is not complex, as we demonstrate through a realistic example. This will provide the expertise you need to answer the client’s important questions, such as: • How was my portfolio positioned relative to the investment markets? • What was my portfolio’s relative exposure to changes in interest rates? • Did the portfolio behave as expected? • What was the benefit of allocating differently to the major asset groupings? • How did my stylistic differences benefit the portfolio in terms of risk and return? • How aggressive were the portfolio manager’s bets? Did these pay off?

