July 2024 - Outperforming the Bond Market

Dear Investors and Friends,

Every month Mike and I put out a newsletter where we try to inform our readers not only about financial topics that are timely and relevant but also endeavor to provide our perspective on those topics and how that perspective informs our investment decisions.  Occasionally, we believe it is also important to provide an update on the impact those decisions are having on our absolute and relative performance.  After all, our clients ultimately care about how we perform on their behalf. The chart below provides the since inception returns for RCM’s four fixed-income bond composites versus the Bloomberg US Aggregate Index.

How RCM Has Beaten the Bond Market

RCM has utilized a four-step repeatable process in each of its composites to beat the bond market. To appreciate and understand these steps, one must first comprehend a simple yet fundamental concept about bonds: unlike an equity, barring a default the buyer of a bond knows the return they will receive before deploying capital. This truth permeates the four steps below:

• Sector Allocation: RCM deploys capital in those sectors that are poised to outperform the market.
• Security Selection. RCM deploys capital in those securities that we expect to outperform the market.
• Portfolio Construction: Most bond allocations are plagued by “de-worsification”. Deworsification is the problem of directly or indirectly owning hundreds, if not thousands, of bonds, at the cost of unnecessarily diluting returns. RCM constructs portfolios to achieve an appropriate level of diversification in light of client risk constraints without sacrificing returns.
• Portfolio Optimization: If one can sell a bond that they currently own to buy a bond of equivalent risk and generate a higher return, they should. RCM’s processes and systems constantly scour the market for opportunities to do this.

RCM’s Approach for Clients

The bond market is large and complex, and each sector has its own unique characteristics. A key consideration for each client should be how they balance various risks including liquidity, default, interest rate, and re-investment risk, to name a few, along with expected returns. RCM helps clients navigate these risks, expected returns and the markets, in light of their objective and constraints.

Please don't hesitate to reach out with any questions or comments. Thank you for entrusting RCM with your capital; it's a privilege to serve you.

Warm Regards,

David and Mike

Footnotes

¹Annualized returns from 11/1/09 through 6/30/24.  RCM adjusted for a 40.8% income tax rate less 50 bps fee.
²Annualized returns from 5/1/10 through 6/30/24.  RCM less 75 bps fee.
³Unannualized returns from 2/1/24 through 6/30/24.  RCM less 50 bps fee.
⁴ Annualized returns from 9/1/22 through 6/30/24.  RCM less 25 bps fee.

Disclaimer

Roosevelt Capital Management LLC is a registered investment adviser. The information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. 

Past performance is not indicative of future performance. Principal value and investment return will fluctuate. No guarantees or assurances that the target returns will be achieved, or objectives will be met are implied. Future returns may differ significantly from past returns due to many different factors. Investments involve risk and the possibility of loss of principal.

While all the values used in this report were obtained from sources believed to be reliable, all calculations that underly numbers shown in this report believed to be accurate, and all assumptions made in this report believed to be reasonable, Roosevelt Capital Management LLC neither represents nor warrants the values, calculations or assumptions and encourages each prospective investor to conduct their own review of the audits, values, calculations and assumptions.