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Investment
Managers:
David
A. Furfine, CFA
Partner, Fixed Income Portfolio Manager
24 Years of Investment Experience
Andrew
M. Cantor, CFA
Principal, Director of Fixed Income Investments
33 Years of Investment Experience
Phone: (904)
493-5500
Fax: (904) 493-5524
Philosophy
Sawgrass Asset Management's active short-term fixed income product
has incorporated a defined investment philosophy whose effectiveness
has been proven since its inception in 1992. This strategy focuses
primarily on controlled duration management of investment grade
securities and secondarily on strategic sector valuations and specific
security analysis. This portfolio has an effective duration that
ranges from 2-3 years and an average maturity that ranges from 2-4
years. There currently are no sector constraints. The investable
universe consists of U.S. dollar-denominated government, high quality
corporate and mortgage-backed securities. The goal of this product
is to generate investment returns which exceed 1-year Treasury Bills
by 100 basis points over a market cycle. The current benchmark is
the Merrill Lynch 1-5 Year Gov't/Corp. Index. Sawgrass also manages
this product to a customized short-term index when appropriate.
 Process
We begin by identifying
a universe of securities consistent with our client's objectives
and policies. For corporate issues, we further screen based on measures
of credit worthiness.
Our next step
focuses on the maturity structure decision. We base this decision
on our interest rate forecast, the resulting yield curve configuration,
and our confidence in these two predictions.
In forecasting
the direction of interest rates, we evaluate five distinct factors:
economic growth rates, fiscal policy, monetary policy, inflation
and international events. With this interest rate forecast, we then
analyze the current yield curve configuration, which tells us which
maturities, relative to the benchmark, are most likely to provide
additional returns.
We will then
structure the portfolio's effective duration within a range of +/-20%
from the appropriate benchmark.
Sawgrass also
seeks to add value for clients through our evaluation of the relative
attractiveness of market sectors. We evaluate sectors according
to the stage of the economic cycle, yield relationships and performance
simulations.
Having established
a maturity, sector, and quality framework, we analyze the structure
of specific fixed income securities. The process considers such
items as redemption features and uses rich/cheap analysis to find
undervalued issues. Before the final selection of a security, we
run a performance scenario analysis to better understand how the
specific issue will perform given various changes in the market.
Our sell discipline
considers market conditions, portfolio re-balancing and specific
issue fundamentals. When a portfolio change in duration or sector
allocation is implemented, sell candidates are evaluated so as to
accomplish the portfolio adjustment as efficiently as possible.
Why Fixed
Income?
The Fixed Income Market in the United States is comprised of debt
securities issued by the U.S. Government and Federal Agencies, Corporations
and political subdivisions. Interest rates are typically, but not
always, fixed for a defined period of time and principal is typically
due at maturity. A significant and growing segment of the fixed
income market is made up of mortgage and other asset backed securities,
which typically pay principal back over the life of the security.
Corporate debt securities may be subdivided by creditworthiness
(investment grade/non-investment grade) and often have prepayment
provisions such as calls, puts or sinking fund features. The total
return of fixed income securities is largely (but not exclusively)
a function of interest rates as bond values tend to rise in falling
rate environments and fall in rising rate environments. The sensitivity
of fixed income securities to changes in interest rates is measured
by a security's duration, which, in turn is related to its maturity.
Generally speaking, fixed income securities, as an asset class,
have provided lower returns, on average than have common stocks
but typically experience less volatility and can produce more certainty
of return for a given time period.
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