Long Duration Corporate (A and Above) | Capital Group

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LIABILITY-DRIVEN INVESTING

Long Duration Corporate (A and Above)

Vehicle: Separate Account

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Overview

Objective: Seeks to provide a portfolio of primarily long duration corporate bonds, rated A– and above, to reduce client-specific asset/liability volatility.

  • Strategy inception date: 2012
  • Total long duration assets (billions): $6.6
  • Benchmark: Bloomberg Barclays U.S. Long Corporate A- or Better Index, 1% Issuer Cap
  • Tracking error estimate (bps)*: 75-150
  • Duration extension/Curve management:
    • Long duration corporate bonds
    • Long duration U.S. Treasuries and STRIPS
    • U.S. Treasury futures
    • Interest rate swaps
  • Duration range: +/– two years of benchmark duration
  • Currency (%)
    • USD allocation: 80-100
  • Excess return estimate (bps)*: 50-100
  • Minimum account size (millions):
    • Separate account: $200
  • Invests in:
    • U.S. corporate bonds: 80-100
    • U.S. government securities: 0-20
  • Sources of excess return estimates (%):
    • Sector/industry allocation: 20
    • Security selection: 80

Assets in strategy as of June 30, 2017.


Approach
  • Our approach is to build long duration portfolios that seek to provide excess return and liability hedging primarily from industry selection and research-based corporate bond selection, as well as duration and yield curve management
  • The fund seeks to provide a portfolio of high-grade long duration U.S. corporate bonds to reduce client-specific asset/liability volatility
  • Although the strategy is return seeking, the fund’s focus on liability hedging is designed to outweigh the need for excess return. Duration and curve management are achieved partly through the use of long duration U.S. Treasuries and STRIPS, U.S. Treasury futures and interest rate swaps
  • Our investment process incorporates top-down and bottom-up decisions. We manage duration and sector allocation into corporates at the team level. Portfolio managers make individual decisions on industry allocation, credit quality distribution and issuer selection
  • Research is the cornerstone of our investment process. We construct portfolios by combining broad macroeconomic analysis with specific industry and credit evaluation from both fixed-income and equity perspectives
  • Eighteen credit analysts, with insights from their equity counterparts, support portfolio managers by providing their best insights for industry allocation and issuer selection
  • The combination of equity and fixed-income perspectives allows us to evaluate the entire capital structure of companies, enabling us to make what we believe is the optimal selection of issuers and securities. In addition, a macro team is dedicated to providing macro insights in areas including U.S. economic research, duration and yield curve expectations, relative value comparisons among industries and on credit quality. This team also provides broad political, quantitative and regulatory insights
  • Our portfolio managers work closely with a team of dedicated corporate traders to identify technical market anomalies, inefficiencies and capital flows — factors that we believe can be exploited for more efficient trade execution
  • Capital’s research process is our best risk control
    • The Capital System℠ naturally creates diversification within the portfolio
    • Our independent global investment control group monitors compliance with portfolio guidelines
    • Our legal and compliance team helps make certain we adhere to regulations in the markets in which we invest

History of Fixed Income at Capital Group

We began managing fixed-income assets for institutional clients in 1973, and Capital Fixed Income Investors has $284.3 billion in assets under management as of June 30, 2017.

 


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This material is designed for use solely by Qualified Purchasers, institutional investors and consultants. It may not be disseminated to or used by individual plan participants or retail investors.

The Capital Group companies manage equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.

This information supplements or enhances required or recommended disclosure and presentation provisions of the GIPS® standards, which if not included herein, are available upon request. GIPS is a trademark owned by CFA Institute.

All data as of June 30, 2017, unless otherwise specified.

Returns are in USD. Periods greater than one year are annualized. Returns reflect the reinvestment of dividends, interest and other earnings.

Composite returns reflect the Capital Group Long Duration High-Grade Corporate Composite.

Composite returns are preliminary and net of withholding taxes on dividends, interest and capital gains. Actual withholding tax rates vary according to the country of denomination and tax status of each portfolio.

Composite net returns are calculated using the current highest management fees for institutional investors. Actual investment returns net of management fees may differ depending on, among other things, the applicable fee schedule and portfolio size.

Portfolio reflects Capital Group Representative Long Duration Corporate (A & Above) Portfolio.

Cash & equivalents include short-term securities, accrued income and other assets less liabilities.

Long Duration High Grade Corporate Index reflects the Bloomberg Barclays U.S. Long Corporate A- or Better, 1% Issuer Cap to March 31, 2016, and Bloomberg Barclays U.S. Long Corporate 30% BBB Cap, 1% Issuer Cap thereafter. Source: Bloomberg Index Services Ltd.

Each index is unmanaged.

Portfolio characteristics index values reflect PolyPaths analytics. Data for the portfolio and index use PolyPaths analytics engine calculation assumptions.

Totals may not reconcile due to rounding.

Securities offered through American Funds Distributors, Inc.

*Capital is an “active manager” that creates portfolios by selecting securities using fundamental research. The estimated excess return and tracking error numbers, shown gross of management fees, are based on a number of factors including our investment process, historical results and historical market conditions. We cannot provide any guarantee with respect to results or preservation of assets. The estimates provided should not be considered an assurance or guarantee of the risk or return of any portfolio or impose any liability on Capital.


Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing.