Fixed Income Sector

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Fixed Income Sector

• Franz Russler
• Gregory Duperon
• September 29, 2009

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TOC

• What is Fixed Income?
• Bonds Up Close
• Investment Vehicles
• Our Holdings
• General Thoughts

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What is Fixed Income?

• Bonds
• Government
• Corporate
• Certificates of Deposit (CDs)
• Commercial Paper
• Savings Accounts
• Preferred Stock

4
Bonds A Closer Look

• How do they work?
• Par Value Price Earnings
• Maturity length
• Coupon Rates (Computed Yields)
• Government Bonds
• US Treasuries
• Bills, Notes Bonds
• Municipal Bonds
• Are government bonds guaranteed?

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Bonds A Closer Look (2)

• Credit Rating of the Issuer
• Investment Grades
• High-Yield (Junk)

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Bonds A Closer Look (3)

• Factors Affecting Yield
• Current Price
• Market Interest Rates
• Maturity
• Inflation
• Lowers the Par Value

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Investment Vehicles

• Individual Bonds
• Credit Maturity ? Yield
• Bond Funds
• Strategy Style Maps
• Money Markets
• Real Return
• Exchange Traded Funds (ETFs)
• Isolation Strategy

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Our Holdings
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Our Holdings (2)
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Performance v . SP 500
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Commodity Real Return Fund (PCRCX)

• Strategy
• invests in commodity-linked derivative
  instruments
• commodity index-linked notes, swaps, options,
  futures, options on futures!
• backed by a portfolio of inflation-indexed
  securities and other FI instruments
• Risks
• Commodity risk
• Derivatives risk
• Subsidiary risk

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Commodity Real Return Fund (PCRCX)
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Commodity Real Return Fund (PCRCX)
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Commodity Real Return Fund (PCRCX)

• Highlights
• U.S. Agency mortgage-backed securities benefited
  performance as mortgage spreads tightened
• Lowlights
• Commodities declined 44.99 . Energy sector was
  down 62.74 during period.
• TIPS, the funds collateral, underperformed
  benchmark
• Exposure to U.S. corporate bonds in financial
  sector
• Emphasis on inflation-linked bonds in Japan
• Benchmark Dow Jones-AIG Commodity Index Total
  Return

15
Emerging Markets Bond Fund (PEBCX)

• Strategy
• invests at least 80 of assets in instruments
  economically tied to emerging markets
• could be forwards, options, futures, swaps
• investment-grade and high-yield securities (max
  15 below B rating)
• may be denominated non-U.S. currencies
• Risks
• currency risk
• emerging markets risk
• high-yield risk

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Emerging Markets Bond Fund (PEBCX)
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Emerging Markets Bond Fund (PEBCX)
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Emerging Markets Bond Fund (PEBCX)

• Highlight(s)
• Underweighting Ecuador, Venezuela and Pakistan
• Lowlight(s)
• Overweighting Russia
• Underweighting Lebanon and Turkey missed
  opportunities
• Benchmark JPMorgan Emerging Markets Bond Index
  (EMBI) Global

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High Yield C Fund (PHDCX)

• Strategy
• at least 80 in high-yield securities
• can include forwards, options, swaps
• 20, possibly, in securities dominated in foreign
  currencies
• 15, possibly, in emerging market securities
• 10, possibly, in preferred stocks
• Risks
• default risk
• currency risk
• liquidity risk

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High Yield C Fund (PHDCX)
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High Yield C Fund (PHDCX)
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High Yield C Fund (PHDCX)

• Highlight(s)
• Exposure to investment-grade bonds, which
  outperformed high-yields by 15.
• Overweighting healthcare sector, which benefited
  as investors sought defensive plays
• Underweighting gaming sector
• Lowlight(s)
• Overweighting financial sector
• Underweighting environmental sector, which was
  among the top performers in high-yield market
• Overweighting auto-related bonds
• Benchmark Merrill Lynch U.S. high-Yield, BB-B
  Rated, Constrained Index

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Global Bond Fund (USDHedged) (PCIIX)

• Strategy
• invests at least 80 of assets in securities
  economically tied to at least 3 countries
• forwards, options, futures, swaps
• may invest up to 10 in high-yield securities (B
  and higher)
• Risks
• currency risk
• interest rate risk
• default risk

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Global Bond Fund (USDHedged) (PCIIX)
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Global Bond Fund (USDHedged) (PCIIX)
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Global Bond Fund (USDHedged) (PCIIX)

• Highlights
• Underweighting British pound
• Lowlights
• Positions in Agency and non-Agency
  mortgage-backed securities and other asset-backed
  securities
• Japanese inflation-linked bonds, which
  underperformed nominal Japanese government bonds
• Corporate bond holdings of select financial
  companies
• Exposure to short-dated interest rate swaps
• Benchmark JPMorgan GBI Global Hedged in USD

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General Discussion

• Where is the market heading?
• Market Interest Rates
• Inflation
• How do we want to allocate Fixed Income?
• Holistically
• Individually
• Other Considerations?