The commentary reviews the previous quarter and discusses our outlook and investment approach for the coming year for our high quality taxable fixed income strategies for endowments, foundations and other non-taxable entities.
- US interest rates were caught in a tug of war between positive domestic news, and a deteriorating global environment. Higher US employment encouraged the Fed to finally raise rates, while a strong dollar and deteriorating global environment exerted downward pressure on rates.
- There were notable differences in spread movement and performance among corporate sectors, with commodity-dependent sectors under significant stress and financials demonstrating relative strength, trends which we expect to continue in 2016.
- Outperformance within our strategies was generated through our continued overweight to the corporate sector, our underweight in US Treasuries through most of the year, and our emphasis on high-quality, liquid bonds in a market economy hostile to lower quality issuers and less liquid securities.
- Although we remain positive on corporate bonds, we have increased our Treasury exposure not only because the sector has cheapened, but because we are concerned that the deteriorating overseas environment may hamper US economic growth and the pricing of risk assets in US markets.