Corporate Bond Strategy

Transcription

1 Corporate Bond Strategy

2 FIRM OVERVIEW Established more than a decade ago by the former CIO of a major money manager and a research analyst in Buffalo, NY. $650 million in AUM for private clients, foundations, endowments & institutions/401k. Twelve employees. Consistent and disciplined risk management approach. We are asset quality driven. We do all of our own research. Firm is 100% employee owned, profitable, debt-free & financially stable. Registered investment advisor with the Securities & Exchange Commission. 1

3 BOND PORTFOLIO OVERVIEW You get paid to concentrate in stock market; you do not in bond market. We build diversified fixed income portfolios. Two types of risk in the bond market: Credit Risk Interest Rate Risk We mitigate credit risk with diversification and our own research. We mitigate interest rate risk by purchasing (mostly) non-callable corporate bonds with 3-9 year maturities in our portfolios. Highly diversified portfolio; we recommend committing no more than 3% of an account s capital to one bond issue. 2

4 CURRENT BOND PORTFOLIO CHARACTERISTICS Average Duration 4.1 Yield to Maturity 5.2% Current Yield 5.4% Single B to Single A Credit Low turnover; we hold bonds to maturity Short Duration; protection against rising interest rates Not a model based strategy; each bond portfolio built to suit need Implement a diversified approach with careful execution and analysis 3

5 FIXED INCOME OUTLOOK Short term rates will rise; it s a matter of when not if. If interest rates go up, the capital will be re-invested at higher rates as bonds mature. It s important to own individual issues with set maturities rather than bond mutual funds. We prefer to buy bonds with approximately five to seven year maturities. Many bonds in the portfolio are investment grade. We focus on the single B to single A credits. For a good credit, we will go below investment grade. We exploit rating inefficiencies. 4

6 SANDHILL STANDARDS The bond market is very inefficient which creates opportunities. Sandhill s Corporate Bond strategy provides: Diversification of credit risk Ownership of the specific bond issue Mitigation of interest rate risk with short to medium term maturities Each bond is researched for credit quality. Our team based investment process is defined and repeatable. 5

7 PERFORMANCE UPDATE as of 6/30/2016 Net of Fees 2016 YTD 1-Year Trailing 3-Year Trailing Annualized 5-Year Trailing Annualized Sandhill Corporate Bond Strategy B of A Merrill Lynch 3-5yr Corp Bond Index 4.4% 3.2% 3.9% 4.0% 4.4% 4.5% 3.8% 3.9% Past performance is not a guarantee of future performance. Individual investor results will vary. Performance results may be materially affected by market and economic conditions. Performance provided is net of management fees. This is provided as supplemental information to the fully compliant GIPS presentation that accompanies this material. Please see appendix for full performance disclosures. The disclosures provided are considered an integral part of this presentation. 6

8 INVESTMENT TEAM Edwin M. Johnston, III Managing Partner, Co-Founder Years of Investment Experience: 24 BA Yale University MBA Boston University Larry S. Stolzenburg, CPA Partner Years of Investment Experience: 21 BBA Accounting Niagara University Richard W. Ryskalczyk, CFA Chief Equity Analyst, Partner Years of Investment Experience: 6 BS Economics & Finance Canisius College Mark J. Larry, CFA Equity Analyst Years of Investment Experience: 3 BBA Finance, MBA St. Bonaventure University 7

9 INVESTMENT TEAM Edwin M. Johnston, III Managing Partner & Co-Founder Edwin received his BA from Yale University in 1982 and MBA from Boston University in 1991, graduating with highest honors. He joined investment advisor and broker-dealer Harold C. Brown in 1995 as Senior Equity Analyst and was promoted to Director of Research in He was named Vice President in 1998 and Portfolio Manager in Edwin was President of investment advisor and brokerdealer O Keefe Shaw & Co. from 2002 to 2004 where his main role was to start and run the investment advisory business. O Keefe Shaw s advisory business was spun off to become Sandhill Investment Management. Edwin serves/has served as a Trustee or Director for many different schools and organizations in Buffalo. Larry S. Stolzenburg, CPA Larry received his BBA in Accounting from Niagara University, graduating Magna Cum Laude. He worked at Main Hurdman CPAs from 1978 to He founded Stolzenburg, Federspiel & Pfeifer in 1983 and ran the firm as Managing partner until Also during that time, Larry founded Ellis Group, Inc., a business valuation firm, which he ran from 1996 to Larry began managing client portfolios in 1994 and joined Sandhill in June 2008 as a Partner. He is a licensed Certified Public Accountant in New York state and a member of the American Institute of CPAs. Richard W. Ryskalczyk, CFA Rick received his BS in Economics and Finance from Canisius College, graduating Summa Cum Laude, and receiving the 2010 Nelson D. Civello Award for Most Outstanding Graduate. While at Canisius, Rick served as Student Fund Manager for the Canisius College Golden Griffin Fund. Rick joined Sandhill as an Associate Analyst in He earned the Chartered Financial Analyst designation in 2013 and currently serves on the board of the CFA Society of Buffalo. Additionally, Rick is a member of Buffalo Niagara 360 and serves as Co-President of the Golden Griffin Alumni Association. Mark J. Larry, CFA Mark earned his Bachelor s degree in Finance in 2009 and his MBA in 2010 from St. Bonaventure University. While at St. Bonaventure, Mark led the University s student run investment fund, known as Students in Money Management (SIMM). From 2010 to 2013, Mark worked for Citigroup in two different roles supporting sales and trading across various product lines within the firm s Institutional Clients Group. He successfully completed the Level III CFA exam in June Mark joined Sandhill as an Associate Analyst in

10 DISCLOSURES 9

11 STATEMENT OF PERFORMANCE: ANNUAL RESULTS CORPORATE BOND Rate of Return Benchmark Year Before deducting management fees After deducting management fees B of A/ML 3-5 yr. Corp. Bond Index (1) Number of portfolios in the Composite Percent of Wrap-Fee Assets Total Composite Assets ($ Millions) Total Firm Assets ($ Millions) % 0.4% 1.5% % % 4.0% 3.1% 40 N/A % 2.5% 1.5% 30 N/A % 7.5% 8.8% 18 N/A % 4.2% 4.0% 8 N/A (1) Sandhill Investment Management has presented this index for comparative purposes. This index was selected because the Corporate Bond Composite contains accounts that hold securities with characteristics similar to those in this index. Past performance is not a guarantee of future performance. Individual investor results will vary. Performance results may be materially affected by market and economic conditions. 10

12 STATEMENT OF PERFORMANCE: ANNUAL RESULTS CORPORATE BOND NOTE A: BASIS OF PRESENTATION Sandhill Capital Partners, LLC officially began doing business as Sandhill Investment Management ( Sandhill ) in June There was no change in ownership or management. Sandhill is defined as a registered investment advisor that is not affiliated with any parent company. The performance statistics disclosed in the accompanying statement are calculated on the rates of return from accounts managed by Sandhill, as defined below. These accounts are managed by Sandhill on a discretionary basis and have no restriction in the manner in which the account can be invested. None of the Company s balanced portfolio segments are included in any single composite. There are no non-fee paying accounts included in the composite. The US dollar is the currency used to express performance. The composite includes accounts under management from the first full month at which the account s capital is fully invested in Sandhill. Closed accounts are included in the composite through the completion of the last full month under management and are not removed from the historical rates of return. Sandhill claims compliance with the Global Investment Performance Standards (GIPS ), and has prepared this report in compliance with GIPS standards. Sandhill has been independently verified for the periods March 1, 2004 through December 31, Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The verification reports are available upon request. The effective date of firm compliance with the GIPS standards in March 1, The inception date of the Corporate Bond Composite is January 5, Accounts with at least 89.5% of their assets (excluding cash and money market deposits) invested in Corporate Bonds will be included in the composite. The Corporate Bonds will generally be rated single B to single A and will have maturities of five to nine years. The primary benchmark for the Corporate Bond Composite is the Bank of America Merrill Lynch 3-5 year Corporate Bond Index. This is a subset of the Bank of America Merrill Lynch US Corporate Master Index tracking the performance of US dollar denominated investment grade rated corporate debt publically issued in the US domestic market. If there is a material change in the duration of the Corporate Bond Composite we will reassess the benchmark to ensure it remains in line with the characteristics of the composite. A complete list and description of firm composites and policies for valuing portfolios, calculating performance and preparing compliant presentations are available upon request by ing info@sandhill-im.com. The performance presentation utilizes the following criteria: a) The rates of return are compiled monthly by calculating the percentage change in the end of the period market values over the beginning of the period market values with all cash flows time-weighted. Cash flows consists principally of contributions, withdrawals and management fees. The monthly results are then geometrically linked to derive the rates of return for the yearly rates of return. Geometric linking is the method used to combine rates of return for multiple periods b) The rates of return reflect realized and unrealized gains and losses and include dividend and ordinary income (interest). c) The calculations are weighted for the size of each client s account as a relationship to the total composite. d) The calculations are shown both net and gross of investment management fees. e) Additional information regarding policies for calculating and reporting returns is available upon request. For purposes of determining market values, securities transactions are recorded on a trade date basis, interest is accrued to the end of the period, and dividends are recorded when received. 11

13 STATEMENT OF PERFORMANCE: ANNUAL RESULTS CORPORATE BOND NOTE B: ANNUAL DISPERSION Composite dispersion represents the consistency of the Company s composite performance results with respect to the individual portfolio returns within the composite. Annual composite dispersion is calculated through the use of an asset weighted standard deviation for portfolios included in a composite for the entire year. Composite dispersion is not require to be presented when there are five or fewer accounts in a composite for the entire year. It is important to note dispersion can be caused by client-specific required trading and constraints. Annual dispersion for the Corporate Bond Composite using the asset weighted standard deviation described above on rates of return before deducting management fees and after deducting management fees is as follows: Dispersion Years ended 12/31 Before deducting management fees After deducting management fees % 0.64% % 1.01% % 0.49% % 0.70% % 0.13% 12

14 STATEMENT OF PERFORMANCE: ANNUAL RESULTS CORPORATE BOND NOTE C: EX-POST STANDARD DEVIATION The three year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. The three year annualized standard deviation is not required for the period prior to The three year annualized ex-post standard deviation of the composite and benchmark as of each year end is as follows: Three Year Ex-Post Standard Deviation Years ended 12/31 Before deducting management fees After deducting management fees B of A/ML 3-5 yr. Corp. Bond Index % 2.25% 2.36% % 1.98% 2.76% % 2.13% 3.08% % 1.88% 3.76% NOTE D: FEES Performance results shown gross of fees do not reflect the deduction of advisory fees. Such fees and costs will reduce the return of the account. Performance results shown net of investment management fees are based on actual investment advisory fees charged to the composite accounts. Sandhill s standard investment management fee for discretionary accounts is 1.0% per annum. 13

15 SANDHILL PRIVACY NOTICE Sandhill Investment Management is committed to protecting the confidentiality and security of your private information. This notice is provided to help you understand how we safeguard your privacy. In order to properly service your account, we must obtain some nonpublic personal information about you. We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. The types of information we may need to obtain fall into the following categories: Information that we receive from you verbally and/or on applications and other forms; such as names, addresses, phone numbers, social security numbers, and investment objectives. Information about your transactions with us. Access to your personal information is restricted to those employees that need to know in order to provide services to you. We maintain physical, electronic and procedural safeguards to comply with federal standards to protect your personal information. 14