2013 08-02-presentation-fixed income investing in the current environment

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  • 1. Fixed Income Investing in the Current Environment CITYWIRE MIAMI October 16 -18, 2013

2. Overview Founded in 1986, Clark Capital Management Group, Inc. is an independent, mostly employee owned investment advisory firm, managing over $2.8* billion in client assets and based in Philadelphia, PA. Clark Capital is focused on both long only and liquid alternatives risk management strategies, with a goal of successful capital preservation. Clark Capital tailors its Navigator Investment Solutions to the unique requirements of high net worth individuals, corporations, trusts, endowments, foundations, and retirement plans.* As of 6/30/2013 (includes sub-advised assets)2 3. Overview Fixed Income Challenges Low yield environment Inflation risk Interest rate risk Liquidity riskFixed Income Opportunities Opportunities in low quality debt space Flexible approach Disciplined research process Focus on risk management3 4. Long Term Government Yield L o n g Te r m G o v e r n m e n t Y ie ld 16.001/1/1954 to 12/31/1982 S&P 500 S&P 500 Inflation Adjusted .S. erm G overnment 12.00 U Long T U Long T G .S. erm overnment Inflation Adjusted 10.00 U Inflation .S. 14.001/1/1983 to 12/31/2012 S&P 500 S&P 500 Inflation Adjusted U Long T G .S. erm overnment U Long T G .S. erm overnment Inflation Adjusted U Inflation .S.10.38 5.58 3.45 -1.05 4.5510.81 7.69 9.90 6.81 2.898.00 6.00 4.00 2.00 0.00556065707580859095000510For illustrative purposes only. The information is not intended to be a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Returns reflect reinvestment of capital gains and dividends, if any. Indices are unmanaged and do not incur fees. It is not possible to invest in an index. Stocks are represented by the S&P 500 Index. Bonds are represented by the Ibbotson Associates U.S. Long-Term Government Index. Inflation-adjusted returns are based on the average Consumer Price Index (CPI) through the referenced period.Source: Morningstar Direct4 5. Periodic Table of Sector Rotation Bonds Annual Returns for Selected Bond Sectors 200320042005200620072008200920102011High Yield Corporates 28.97Unhedged Foreign Bonds 12.06High Yield Municipals 8.58High Yield Corporates 11.85TIPS 11.64Treasuries 13.74High Yield Corporates 58.21High Yield Corporates 15.12TIPS 13.56Unhedged Foreign Bonds 18.21High Yield Corporates 11.13Investment Grade Municipals 3.51High Yield Municipals 10.75Unhedged Foreign Bonds 10.94Unhedged Foreign Bonds 9.43High Yield Municipals 32.74Investment Grade Corporates 9.00TIPS 8.40High Yield Municipals 10.52T-Bills 3.00Unhedged Foreign Bonds 7.28Treasuries 9.01Mortgages 8.34Investment Grade Corporates 18.68Investment Grade Corporates 8.24TIPS 8.46TIPS 2.84Mortgages 5.22Aggregate Bond Index 6.97Aggregate Bond Index 5.24High Yield Municipals 6.13Investment Grade Corporates 5.39Treasuries 2.79Investment Grade Municipals 4.84Mortgages 6.90Investment Grade Municipals 5.31Mortgages 4.70High Yield Corporates 2.74T-Bills 4.76Aggregate Bond Index 4.10Investment Grade Municipals 4.48Mortgages 2.61Mortgages 3.07Aggregate Bond Index 4.34Treasuries 2.2410-Year Annualize d Return2012 BEST10-Year Standar d Deviatio nHIGHESTHigh Yield PERFORMA High Yield Municipals Corporates NCE 18.14 10.62High Yield CorporatesVOLATILITY 10.59Investment Grade Municipals 10.70High Yield Corporates 15.81TIPS 6.65Unhedged Foreign Bonds 8.32High Yield Municipals 7.79Treasuries 9.81Investment Grade Corporates 9.82Unhedged Foreign Bonds 6.44High Yield Municipals 7.68Investment Grade Municipals 12.91Aggregate Bond Index 6.54High Yield Municipals 9.25TIPS 6.98High Yield Municipals 6.39TIPS 6.66T-Bills 1.80TIPS 11.41TIPS 6.31Investment Grade Corporates 8.15Investment Grade Municipals 6.78Investment Grade Corporates 6.33Investment Grade Corporates 6.25T-Bills 4.74TIPS 2.35Aggregate Bond Index 5.93Unhedged Foreign Bonds 6.12Aggregate Bond Index 7.84Aggregate Bond Index 4.21Aggregate Bond Index 5.18Treasuries 4.71Aggregate Bond Index 4.33Investment Grade Corporates 4.56Investment Grade Municipals 2.47Mortgages 5.89Treasuries 5.87Mortgages 6.23Mortgages 2.59Investment Grade Municipals 5.10Investment Grade Municipals 4.53Aggregate Bond Index 2.43Investment Grade Corporates 4.30Investment Grade Municipals 3.36Investment Grade Corporates 4.94Unhedged Foreign Bonds 4.35Mortgages 5.37Unhedged Foreign Bonds 5.24Treasuries 1.99Mortgages 5.08Aggregate Bond Index 3.55Treasuries 3.54Investment Grade Corporates 1.68Treasuries 3.08High Yield Corporates 1.87High Yield Corporates 26.16T-Bills 0.16Investment Grade Municipals 2.38High Yield Corporates 4.98Unhedged Foreign Bonds 1.77Treasuries 4.75Mortgages 2.62T-Bills 1.07T-Bills 1.24Unhedged Foreign Bonds 8.79TIPS 0.41High Yield Municipals 2.28High Yield Municipals 27.01Treasuries 3.57T-Bills 0.13T-Bills 0.08T-Bills 0.07T-Bills 1.69T-Bills 0.51Year-End Fed 1.9% Funds Rate3.3%3.4%2.5%4.1%0.1%2.7%1.5%3.0%1.7%1.00%2.25%Annual Inflation Rate4.25%5.25%4.25%0.00-0.25%0.00-0.25%0.00-0.25%Source: Morningstar Direct. Past performance not indicative of future results. Please see attached disclosures.0.00-0.25%0.00-0.25%WORST PERFORMA NCELOWEST VOLATILITYSources: U.S. Bureau of Labor Statistics; Federal Reserve; Barclays; Morningstar; Russell Investments5 6. Interest Rate Rise How Each Type of Bond Could Perform Based on Historical DataType of BondEconomy Does WellEconomy StagnatesEconomy Does PoorlyTreasury BillsPoorlyMediocreWell (Nominally)Treasury BondsPoorlyMediocreWell (Nominally)Investment Grade Corporate Short DurationMediocreMediocreMediocreInvestment Grade Corporate Long DurationPoorlyPoorlyPoorlyHigh YieldWellPoorlyPoorlyFloating RateWellMediocrePoorlySource: The Armstrong Advisory Group6 7. 10-Year Treasury YieldsSource: Morningstar Direct. Past performance not indicative of future results. Please see attached disclosures.7 8. Rising Rate PeriodsSource: Morningstar Direct. Past performance not indicative of future results. Please see attached disclosures.8 9. Rising Rate PeriodsSource: Morningstar Direct. Past performance not indicative of future results. Please see attached disclosures.9 10. Finding Securities with a Negative Correlation with U.S. Treasuries Fixed-Income Sectors to 7-10 Year Treasuries (10 years ended December 31, 2012) 1 .0 0 0 .8 00 .8 8 0 .6 80 .6 00 .5 2Cor r elat ion0 .4 10 .4 0 0 .2 00 .0 90 .0 70 .0 0 0 .2 00 .1 80 .2 30 .4 0 0 .4 00 .6 0 Bar clays Capit al BofA M er r ill U.S. Aggr egat e Lynch U.S. Index Inflat ion-Linked Tr easur y IndexSource: Ned Davis ResearchBofA M er r ill Lynch U.S. Cor por at e IndexBofA M er r ill Lynch M unicipal M ast er IndexJP M or gan BofA M er r ill BofA M er r ill Cr edit Suisse BofA M er r ill Gover nment Lynch All U.S. Lynch Fixed Lever age Loan Lynch U.S. Bond Index Conver t ibles Rat e Pr efer r ed Index High Yield Emer ging Index Secur it ies Index M ast er II Index M ar ket s Global Diver sified10 11. High Yield SpreadsSource: Ned Davis Research. Past performance not indicative of future results. Please see attached disclosures.11 12. Historical High Yield Spreads and Default Rates 2 ,0 0 0 1 ,8 0 0 12 1 ,6 0 0 101 ,4 0 0 1 ,2 0 081 ,0 0 0 6800 6004400 2 200 09899000102High yield bonds Source: Barclays Capital, J.P. Morgan0304050607Bank loans08091011Opt ion adjust ed spr ead ( OAS) (bps)Par -weight ed default r at es (% )140OAS 12 13. Credit Defaults Appear Likely to Remain Low The U.S. high-yield bond default rate has, historically, tracked the federal funds rate closely, with a lag of approximately two years. Given the Federal Reserves efforts to maintain a low interest rate environment for an extended period of time, high-yield default rates should remain depressed, which is supportive of credit spreads.Source: Credit Suisse, Bloomberg, Guggenheim Investments. Data as of 1/31/201313 14. How Does Clark Capital Manage Fixed Income?14 15. Overview: Navigator Fixed Income Total Return Goals: Total return, current income, beta management, risk/reward analysis We believe Flexibility is the key to alpha and that a disciplined quantitative research process may lead to consistent longterm performance Proper risk management takes into consideration both the strengths and weaknesses of diversification Our prudent, flexible and highly adaptable approach enables us to constantly balance risk while pursuing alpha15 16. Portfolio Characteristics & Allocation History as of 6/30/2013 Blackrock High Yield BondTicker BRHYX% 10.0%# of Positions 874Current Yield* 5.90%Pioneer High Yield YTYHYX10.0%3964.74%JP Morgan High Yield Bond SelectOHYFX10.0%9966.06%HoldingsPortfolio Characteristics*Total Holdings Exposure3028Estimated 12 Month Yield3.05%Average Maturity3.19Neuberger Berman High Income Inst'lNHILX10.0%3087.19%Average Duration2.03Eaton Vance Income Fund of Boston CashEIBIX10.0%4546.60%Cash50.0%Average Credit QualityB100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 01.01.200501.01.200601.01.200701.01.2008Low Quality Debt01.01.200901.01.2010High Quality Debt01.01.201101.01.201201.01.2013Short Term TreasuriesThis is not a recommendation to buy or sell a particular security. There is no assurance that any securities discussed herein will remain in an account's portfolio at the time you receive this report.* Source: Morningstar Direct16 17. Fixed Income Total Return Portfolio Objective: The Fixed Income Total Return strategy is designed to deliver excess alpha over a full market cycle measured against Barclays Capital U.S. High Yield Bond Index and Barclays Capital U.S. Aggregate Bond Index. The strategy seeks total return with a secondary goal of current income.Low Quality DebtFixed Income Total ReturnShort-Term TreasuriesHigh Quality Debt17 18. Fixed Income Total Return Low Quality Debt Portfolio Objective: The Fixed Income Total Return strategy is designed to deliver excess alpha over a full market cycle measured against Barclays Capital U.S. High Yield B


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