Madison Investment Advisors LLC

Transcription

1 Madison Investment Advisors LLC Intermediate Fixed Income SELECT ROSTER Firm Information: Location: Year Founded: Total Employees: Assets ($mil): Accounts: Key Personnel: Matt Hayner, CFA Vice President Jay Sekelsky, CFA Executive Director Rich Eisinger, JD Managing Director Paul Lefurgey, CFA Managing Director Randy Johnson, CFA Vice President Portfolio Characteristics Avg Maturity: Avg Duration: YTM: Coupon Rate: Firm 15,823 21,53 Madison, WI Product 3,991 7,815 Overview Madison Investment Advisors LLC (Madison) was founded in December 1973 as an independent investment management organization. The firm's main office is located in Madison, WI, with its insurance company asset management affiliate located in Scottsdale, AZ. Madison Investment Advisors is employee-controlled and independent. As Madison's goal has always been obtaining the best risk-adjusted return, the firm focuses on the shorter end of the yield curve. Process Madison's investment process is founded on the belief that it is possible to outperform the market over a market cycle with less risk and portfolio volatility using detailed investment guidelines, a sound investment process, good people, and by maintaining convictions. The firm's overall goal is to perform consistently well in up markets while preserving capital in down markets relative to the fixed income market. Madison employs a proprietary fixed income model to analyze bond market catalysts such as sentiment, value/inflation, supply/demand, liquidity, monetary changes, and credit to determine the firms' interest rate outlook and desired portfolio duration. In addition, using both historical and forecasted data, Madison attempts to determine the probability of individual sectors outperforming, as well as the appropriate quality level. The firm seeks to adjust corporate bond exposure depending on relative corporate vs. government bond attractiveness. During periods of declining interest rates (bullish bond markets), Madison tends to invest in intermediate bonds, seeking to capture the majority of returns. When interest rates rise, making the bond market riskier, the firm seeks to shorten the portfolio's duration and maturity structure by selling the intermediate bonds and purchasing short-term bonds. Factors that would trigger a sale include the following: (a) The overall duration of the portfolio needs to be reduced, (b) Madison elects to swap among sectors, (c) the issue becomes a weakening credit, or (d) a more attractive alternative becomes available. Madison typically constructs its Intermediate Fixed Income portfolio using U.S. government, agency and investment-grade corporate securities. Governments and agency holdings typically make up a minimum of % of the portfolio and up to 7% of the portfolio may be invested in investment-grade corporate securities. Single positions will typically not exceed 12% of the total portfolio. Turnover has historically averaged approximately -4% annually. There are no guarantees that these objectives will be met. Summary Madison is a risk-averse fixed income manager whose primary investment objective is to preserve capital while achieving solid, consistent performance over a complete market cycle. Madison will attempt to limit short-term volatility while outperforming the Barclays Capital Intermediate Government Corporate by seeking to construct a portfolio in the short-to-intermediate maturity range, typically utilizing government and investment-grade corporate bonds. Asset Allocation Fixed Income 69.69% Cash Alternatives.31% Credit Quality Weightings AAA 56.26% AA 6.34% A 37.31% BBB.9% BB.% B.% Below B.% Unrated.% Page 1 of 5

2 : Barclays Capital Intermediate U.S. Government/Credit The Barclays Capital U.S. Intermediate Government/Credit Bond measures the performance of United States dollar-denominated United States Treasuries, government-related and investment-grade United States credit securities that have a remaining maturity of greater than or equal to 1 year and less than years. Securities have $25 million or more of outstanding face value, and must be fixed-rate and non-convertible securities. It is not possible to invest directly in the index. Gross Net Quarter YTD 1 Yr 3 Yr 5 Yr Yr Trailing s Trailing s: Total return for different time frames ending with a common date. s for periods longer than one year are annualized Calendar Year s Gross Net Calendar Year s: s for individual calendar years. Annualized Rolling Analysis Growth of $, Range of s Periods High Low Avg Qtr 1 Yr 3 Yr 5 Yr Yr Annualized Rolling Analysis Chart: A graphical representation of the range of a manager s before-fee returns across rolling time periods. This chart analyzes all of the possible holding periods (based on quarterly data) for each time frame and displays the highest, lowest and average returns. Standard Deviation $16, $14, $1, $, $8, $6, $4, $, $ 9//3 9//4 9//5 9//6 9//7 9//8 9//9 9// 9//11 9//12 Mgr Gross Mgr Net T-Bills $146,489 $126,227 $148,439 $117,452 Growth of $, Chart: A graphical representation of the performance of a $, investment in the manager's composite, beginning ten years ago or at the inception of the product. The above graph is for illustrative purposes only. Past performance is not indicative of future results. The performance numbers in the "Net of Fees" section represent performance returns after the deduction of the maximum proposed management fee of 1.75%. Gross performance numbers represent returns before the deduction of any investment management fees. Sharpe Ratio 3 Yr 5 Yr Yr 3 Yr 5 Yr Yr Standard Deviation: A statistical measure of the historical volatility of a portfolio. s with higher standard deviations will tend to experience larger swings in portfolio value, both in up and down markets Sharpe Ratio: A ratio to measure risk-adjusted performance. It is calculated by subtracting the risk-free rate (usually the 91-day US -TBill rate) from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. A higher Sharpe ratio suggests that the manager has achieved a higher return than would have been expected by the amount of risk (as measured by the standard deviation) incurred. : Barclays Capital Intermediate U.S. Government/Credit Page 2 of 5

3 3 Year Trailing Risk/ 5 Year Trailing Risk/ Risk-Free Risk-Free Risk (Standard Deviation) Risk (Standard Deviation) Trailing Risk/ Charts: A graphical representation of the amount of return the manager and index achieved relative to the amount of risk (standard deviation) they took on. returns are gross of fees. The index is unmanaged. The risk-free rate is the minimum return an investor expects for any investment over a specified period of time. Individual Quarterly s: Three Year Rolling s: Five Year Rolling s: : : # Positive Success Ratios vs. 5.% Three Year Rolling /Risk: 89.66% 55.17% Five Year Rolling /Risk: 66.67% 71.43% Number of Analyzed: 4 Success Ratios vs. Benchmark: In rolling periods analysis (see below), the percentage of time periods when the manager outperformed its benchmark. /Risk Ratio: A measure of risk-adjusted return. This is the return per unit of risk, where risk is represented by the volatility (standard deviation) of quarterly returns. The return/risk ratio is calculated by dividing the before-fee total return over a given time period by the standard deviation over the same time period. A higher return/risk ratio indicates that a manager has achieved more return relative to the amount of risk (volatility) incurred. Up/Down Quarter Comparison # Negative Avg Qtly Avg Pos Avg Neg : : Up Ratio Down Ratio Five Year Downside Risk # Negative 3 4 Worst Quarter Up/Down Market Capture 3 Yr 5 Yr Worst 4 Up/Down Market Capture Ratios: A measure of managers' before-fee performance in up and down markets relative to the market itself. A down market is one in which the index's quarterly return is less than zero. To calculate down-market capture ratio, we link returns for the manager and the market for all down-market quarters over the selected time frame, then divide the manager's return during down-market quarters by the index's return during the same quarters. To calculate up-market capture ratio, this same process is carried out using returns from periods when the index's return was greater than zero. The lower the manager's down-market capture ratio, the better the manager protected capital during a market decline. A value of 9 suggests that a manager's losses were only 9% of the market loss when the market was down. Caution: The up/down capture ratios can be deceiving if the nominal numbers involved are small. For example, if a manager's return during down-market periods was -3%, while the index's return during those same periods was -1%, the manager's down market capture ratio would be...28 Five Year Downside Risk: Measures of before-fee negative performance over the most recent 5 years. Negative : The number of quarters over the past 5 years in which the manager s return was negative. Worst Quarter: The manager s lowest single quarter return over the past 5 years. Worst 4 : The manager s worst 1 year return over the past 5 years (any four consecutive quarters, not necessarily a calendar year) : Barclays Capital Intermediate U.S. Government/Credit Page 3 of 5

4 Alpha Relative Statistics 3 Yr 5 Yr Yr 3 Yr 5 Yr Yr R-Squared Beta Tracking Error Alpha - Incremental return generated versus an index after accounting for volatility in the form of beta. A positive alpha suggests risk-adjusted value added by the money manager versus the index. Beta measures the return that is attributable to the market and is a measure of the portfolio's overall volatility. Beta - Measures the risk level of the manager. Beta measures the systematic risk, or the return that is attributable to market movements. In contrast, alpha measures the nonsystematic return of the portfolio, and standard deviation measures the volatility of a portfolio's returns compared to the average return of the portfolio. A beta equal to one indicates a risk level equivalent to the market. Higher betas are associated with higher risk levels, while lower betas are associated with lower risk levels R-Squared- A statistic that measures the reliability of alpha and beta in explaining the return of a manager as a linear function of the market. It is produced by regression analysis. If you are searching for a manager with a particular style, for example a growth manager, you would expect that manager to have an R-Squared that is high relative to a growth index if the manager has a diversified portfolio. If the manager's return is explained perfectly, the R-Squared would equal, while an R-Squared of would indicate that no relationship exists between the manager and the linear function. Higher R-Squared values indicate more reliable alpha and beta statistics and are useful in assessing a manager's investment style. Tracking Error - A measure of how similar the manager s behavior is to the benchmark. A lower tracking error indicates that the manager tracks its benchmark closely. A tracking error of zero would indicate that the manager tracked its benchmark perfectly. This would not necessarily indicate that the manager and index provided the exact same return, just that the direction and magnitude of their returns were perfectly correlated. Security Name 6//13 Top Holdings* Pct of Portfolio WI 8.% 7.% NOTES 9/13 FEDL HOME LOAN MTG CORP FEDERAL NATL MTG ASSN EBAY INC SYSCO CORPORATION GE CAPITAL CORP US BANCORP 5.8% 5.% 5.% 4.% 4.% 3.9% 3.5% 3.5% *The Top Ten Holdings list represents the largest percentage of holdings in a representative account of the style as of the date shown above and is subject to change without notice. The mention of specific securities is not a recommendation or a solicitation for any person to buy, sell or hold a particular security. Portfolio shown is as of 6//13 and subject to change. As portfolios are separately managed the individual client account holdings will vary, perhaps significantly, from those listed on this factsheet. Information, such as industry sector allocation percentages and market capitalization allocation percentages, will also vary from the information listed on this factsheet. A client opening an account today may, or may not, be invested in securities or sectors based upon the percentages shown on this factsheet. For the most recent portfolio composition please contact your Financial Advisor. : Barclays Capital Intermediate U.S. Government/Credit Page 4 of 5

5 Glossary and Disclosures Select Roster: A diversified set of strategies that by asset class have earned our highest recommendation. The evaluation process for consideration of an investment strategy on the Select Roster is focused on both quantitative and qualitative analysis. Expanded Roster: A separate list of reviewed investment strategies. The evaluation process for consideration of an investment strategy on the Expanded Roster is less comprehensive and more quantitatively focused. Portfolio Characteristics: Characteristics that help identify the types of stocks or bonds a manager buys. Average Maturity: Computed by weighting the maturity of each security in the portfolio by the market value of the security, then averaging these weighted figures. Average Duration: A measure of interest-rate sensitivity--the longer the duration, the more sensitive a portfolio is to shifts in interest rates. Duration is determined by a formula that includes coupon rates and bond maturities. Yield-to-Maturity: The rate of interest an investor would have to earn if an investment equal to the price of the bond were capable of generating the semiannual coupon payments and the principal of the bond in exactly the time pattern promised by the issuer. Coupon: The fixed percentage paid out on a fixed-income security on an annual basis. Rolling Periods Analysis: A method of analysis where a quarterly return stream is grouped into rolling periods of a given length (three years, for example). Performance and/or risk statistics are calculated for the three-year period ending with a given quarter, then for the three-year period ending with the next quarter, and so on. This type of analysis helps minimize the arbitrary nature of focusing primarily on calendar years or trailing returns. Investing in fixed income securities: involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in a decline of the value of your investment. Bond ratings, issues by private independent ratings services, are a grade given to bonds which is designed to indicate the credit quality of the bond. Bonds rated Aaa through Baa3 by Moody s and AAA through BBB- by S&P, are typically considered to be investment grade. Investors should note that an investment grade rating does not insure the bond against default and does not guarantee the return of principal. Performance Disclosure: The performance information shown is based on performance data provided by the manager. The performance data provided by the manager is taken from its composite of similarly managed accounts. Performance figures include the reinvestment of dividends and other earnings. Past performance is not indicative of future performance. Client performance may differ from the performance provided in this profile. There are no guarantees objectives will be met. The performance numbers in the "Net of Fees" section represent quarterly performance returns after the deduction of the maximum proposed management fee of 1.5% for the Fixed Income strategies. Gross performance numbers represent returns before the deduction of any investment management fees. The fees include Advisory services, performance measurement, transaction costs, custody services and trading. The fee schedule, which is negotiable, is based on account size and an assumed active equity portfolio. Advisory programs are not designed for excessively traded or inactive accounts and may not be suitable for all investors. Please carefully review the Wells Fargo Advisors advisory disclosure document for a full description of our services, including fees and expenses. 9 Day Treasury Bill: Treasury bills are guaranteed by the U.S. government and, if held to maturity, offer a fixed rate of return and fixed principal value. Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors, LLC and Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, non-bank affiliates of Wells Fargo & Company. Wells Fargo Bank, N.A. is an affiliate of Wells Fargo Advisors and a subsidiary of Wells Fargo and Company. First Clearing, LLC is registered broker-dealer and non-bank affiliate of Wells Fargo & Company. 12 Wells Fargo Advisors, LLC. All rights reserved. CAR# : Barclays Capital Intermediate U.S. Government/Credit Page 5 of 5