Prepared for use by “Advisor Name” with “Client Name” FIXED INCOME PROPOSAL September 30, 2014 Prepared For:
Apr 07, 2016
Prepared for use by “Advisor Name” with “Client Name”
FIXED INCOME PROPOSAL September 30, 2014
Prepared For:
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Presented by:
Advisor Name
Advisor Title
Advisor Firm
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Page 3 of 21
Founded in 1987, Capstone is in its 27th year of
providing investment management services.
Capstone is an independent investment advisor
headquartered in Houston, Texas.
Capstone manages $4.4 billion in equity, bond and
balanced accounts with clients nationwide.
Capstone provides proven disciplined investment
processes that have been in place since inception
of the firm.
Capstone employs a team approach to
management which results in consistency among
client accounts.
Profile Portfolio Solutions
Fixed Income
Balanced
Theta Growth (Income Oriented Equity)
Current Income Portfolio (Current Income Focus)
Global Equity Income
Large Cap Core Equity Growth
Non-Taxable Fixed Income
Clients Include:
• Corporations • Individuals
• Foundations • Health Care Organizations
• Pension Plans • Public Funds
• Unions • Insurance Companies
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Fixed Income Investment Team
EDWARD L. JAROSKI
President & Founder, CEO
Fixed Income Portfolio Manager
VICTORIA L. FERNANDEZ
Senior Vice President - Investments
Fixed Income Portfolio Manager
GINA M. GARCIA
Assistant Vice President - Investments
CLAUDE C. CODY IV, CFA
Senior Vice President - Investments
Fixed Income Portfolio Manager
PATRICK N. GARBODEN
Vice President - Investments
Fixed Income Portfolio Manager,
Municipal Bonds
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Separately Managed Account
Dedicated Team
Personalized Reporting
• Designated Portfolio Management Team
• Portfolio Manager Available for In-Person Meetings
& Conference Calls
• Dedicated Regional Vice President Representative
• Dedicated In House Partner Service Team
• Quarterly Economic Commentary
• Quarterly Portfolio & Performance Reports
Available
• Custom Reports as Needed
• Individual Portfolio Review & Analysis
Separately managed accounts offer an enhanced investment experience through direct ownership,
personalized performance and the flexibility to customize investment portfolios.
• Direct Ownership – portfolio consists of individual securities vs. units or shares of a fund and
assets are never pooled
• Performance – expenses and performance are not affected by the activities of other investors
• Flexibility – modifications to the current portfolio can be made or custom portfolios can be built
based on the investor’s needs
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Fixed Income Investment Management
We believe that fixed income investors fall into three distinct categories:
• Total Return Investors/asset allocators
• Absolute Return Investors/income-oriented investors
• Interest Rate Speculators/market timers
At Capstone, we have developed products and services to meet the needs of the “total return” and
“income-oriented” investors via the following products and services:
• Fixed Income
• Current Income Portfolio “CIP”
• Tax Exempt Fixed Income (National or State Specific Municipal Bonds)
Additional Customizations Available:
• We have the ability to apply restrictions based on portfolio characteristics such as sector, maturity and quality.
• For clients with social and cultural restrictions, we provide portfolios screens for these sectors, including but
not limited to, tobacco, alcohol, gambling and weapons industries.
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Fixed Income - Investment Profile
The Fixed Income strategy seeks to outperform the bond market over a market cycle while providing positive returns on
an annual basis. Our Philosophy is predicated on the belief that superior long-term results can be achieved with less
than market risk. To obtain those results, we focus our portfolios in high quality, primarily intermediate maturity
securities and add value through duration management and the selective rotation of market sectors and the securities
within those sectors.
Barclays Government/Credit Index Returns: 12/31/89 – 09/30/14
-50%
0%
50%
100%
150%
200%
250%
300%
350%
400%
12/3
1/1
99
1
12/3
1/1
99
2
12/3
1/1
99
3
12/3
1/1
99
4
12/3
1/1
99
5
12/3
1/1
99
6
12/3
1/1
99
7
12/3
1/1
99
8
12/3
1/1
99
9
12/3
1/2
00
0
12/3
1/2
00
1
12/3
1/2
00
2
12/3
1/2
00
3
12/3
1/2
00
4
12/3
1/2
00
5
12/3
1/2
00
6
12/3
1/2
00
7
12/3
1/2
00
8
12/3
1/2
00
9
12/3
1/2
01
0
12/3
1/2
01
1
12/3
1/2
01
2
12/3
1/2
01
3
9/3
0/2
01
4
Price Appreciation Interest Total Return
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Page 8 of 20
Fixed Income Investment Process
Capstone employs a disciplined 4 step process in the management of Fixed Income accounts.
This process has produced above market returns with lower than market risk for over 20 years, while
providing clients with reliable levels of current income.
Duration Selection
•Step I
•Interest Rate Outlook
•Risk/Return Analysis
Yield Curve Selection
•Step II
•Identify Optimal Position Along Yield Curve
Sector Selection
•Step III
•Measure Current vs. Historical Sector Spreads
Issue Selection
•Step IV
•Credit/Quality
•Security Structure
CLIENT PORTFOLIO
CLIENT OBJECTIVES
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Step I – Duration Selection
Analyze Current and Projected Economic and Market conditions
• Economic Indicators
• Monetary Policy Indicators
• Fiscal Policy Indicates
• Geo-Political Events
Establish Portfolio Duration
• Identify Market Duration
• Establish Variation Range from Market
• Establish Target Portfolio Duration
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Step II – Yield Curve Selection
Analyze Current Yield Curve vs. Expected Yield Curve Structure and Identify Opportunities Along the Yield Curve
%
1 Year 30 Years
Upward Sloping Yield Curve Flat Yield Curve
1 Year 30 Years
%
%
Modified Ladder
1 Year 30 Years Maturity
Inverted Yield Curve
1 Year 30 Years
%
%
Barbell Structure
1 Year 30 Years
Maturity
%
Bullet Structure
1 Year 30 Years Maturity
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Page 11 of 20
Step III – Sector Selection
Sectors:
• U.S. Treasuries
• U.S. Government Agencies
• Mortgage Backed Securities
• U.S. Corporate Bonds
• Banks
• Finance
• Electric Utilities
• Gas Utilities
• Consumer Products
• Industrial
• Manufacturing
• Energy
• Transportation
• Retail
• Healthcare
• Automobile Manufacturing
• Telephones/Communication Systems
Corporate Spreads - as of 9/30/14
Rating Current* Qtr Ago Year Ago
AA +70 +70 +83
A +98 +94 +113
BBB +148 +137 +181
BB +314 +267 +333
B +384 +323 +402
• For optimal diversification, invest in minimum of 5 different sectors.
• Maximum sector allocation double that of index, not including Government sectors.
• Achieve diversification by allocating amongst multiple industries in the corporate sector.
0
100
200
300
400
500
AA A BBB BBB B
Current*
Qtr Ago
Year Ago
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Step III – Sector Selection
Source: Bloomberg
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Step IV – Issue Selection
Credit analysis
• Quality Guidelines
• Monitor Existing Holdings
• Identify Potential Upgrade Candidates
Issue Size and Trading Activity
• Maintain Adequate Liquidity
Special Features
• Call Provisions
• Step-Up Provisions
• Floating Rate Features
• Put Provisions
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Page 14 of 20
Fixed Income Model Portfolio Characteristics – 9/30/2014
Portfolio Characteristics Sector Distribution
• Yield to Effective Maturity ** Yield to Worst
This information is supplemental to a full disclosure presentation found on page 18 & 19.
Fixed Income Barclays Capital
Gov/Credit
Yield To Maturity 1.89%* 2.14%**
Duration 4.04 5.94
Years To Maturity 5.15 8.11
Current Yield 3.45% 2.90%
Average Coupon 3.79% 3.04%
Portfolio Quality AA GOVS
Average Price $107.39 $104.85
# of holdings 32 6,856
3%
21% 18%
27% 28%
3%
0% 0%
11%
52%
5%
20%
3%
9%
0%
10%
20%
30%
40%
50%
60%
Fixed Income Barclays Capital Gov/Credit
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Fixed Income Model Portfolio Characteristics – 9/30/2014
Maturity Distribution Quality Distribution
This information is supplemental to a full disclosure presentation found on page 18 & 19.
3%
66%
18% 13%
0%
55%
26%
19%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Less than 1 Year 1 - 5 Years 5 - 10 Years Over 10 Years
Fixed Income Barclays Capital Gov/Credit
18%
27%
0%
8%
22% 25%
52%
5% 4%
5%
17% 17%
0%
10%
20%
30%
40%
50%
60%
70%
80%
U.S.Treasuries
Agencies AAA AA A BAA
Fixed Income Barclays Capital Gov/Credit
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Page 16 of 20
Fixed Income Wrap Composite Performance – 9/30/2014
Growth of $1 Million – 10 Year(a)(b)
Trailing Returns(a)(b)
(a) Source: Zephyr StyleADVISOR.
(b) The current quarter’s returns are preliminary
(c) Annualized
This information is supplemental to a full disclosure presentation found on page 18 & 19
$1,566,989 $1,570,553
-0.0
3%
3.9
6%
3.1
0%
4.2
9%
5.1
0%
4.6
2%
0.1
7%
4.0
8%
2.5
4%
4.2
7%
5.0
0%
4.5
9%
-4%
-2%
0%
2%
4%
6%
8%
Q3 2014 1 Year 3 Years (c) 5 Years (c) 7 Years (c) 10 Years (c)
Fixed Income Barclays Capital Gov/Credit
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Fixed Income Wrap Composite Performance – 9/30/2014
Risk vs. Return – 10 Year(a)(b)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
Annual R
etu
rn
Risk (Standard Deviation)
Barclays Capital Gov/Credit
Fixed Income
(a) Source: Zephyr StyleADVISOR.
(b) The current quarter’s returns are preliminary
This information is supplemental to a full disclosure presentation found on page 18 & 19
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Page 18 of 20
Capstone Asset Management Company
Fixed Income Wrap Composite
Full Disclosure Presentation (continued on page 19) Year
Firm Assets (millions)
Composite Assets Performance Results
USD
(millions)
Number of Portfolios
Composite Gross Net
Barclays Capital
Gov/Credit
Composite Dispersion
Composite 3 Yr St. Dev.
Benchmark 3 Yr St. Dev.
YTD 9/30/2014* 4,312 161 420 3.15% 0.87% 4.12% 0.32% n/a n/a
3Q14* 4,312 161 420 -0.03% -0.78% 0.17% 0.06% n/a n/a
2Q14 4,372 161 421 1.75% 1.00% 1.92% 0.18% n/a n/a
1Q14 4,519 167 441 1.41% 0.66% 1.98% 0.15% n/a n/a
2013 4,764 166 431 -0.87% -3.81% -2.35% 0.31% 2.85% 3.17%
2012 5,041 194 494 5.92% 2.83% 4.82% 0.68% 2.60% 2.96%
2011 3,502 186 482 6.58% 3.46% 8.74% 0.61% 2.98% 3.42%
2010 3,702 184 452 6.80% 3.69% 6.59% 0.51%
2009 3,280 144 348 7.67% 4.54% 4.52% 1.33%
2008 2,725 146 305 3.69% 0.64% 5.70% 1.80%
2007 2,894 145 333 6.44% 3.33% 7.23% 0.56%
2006 2,734 178 383 4.25% 1.19% 3.78% 0.24%
2005 2,629 200 456 1.95% -1.06% 2.37% 0.38%
2004 2,595 187 424 3.85% 0.79% 4.20% 0.29%
2003 2,754 163 402 4.41% 1.35% 4.67% 0.39%
2002 2,245 146 296 12.09% 8.85% 11.04% 1.10%
2001 2,756 96 168 9.03% 5.86% 8.50% 0.77%
* The current quarter’s returns are preliminary.
Capstone Fixed Income Wrap Composite contains fully discretionary wrap fixed income accounts. Fixed Income portfolios are invested in bonds of primarily intermediate maturity to provide high income
and preservation of capital. For comparison purpose the composite is measured against Barclays Capital Government/Credit Index.
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Page 19 of 20
Capstone Asset Management Company
Fixed Income Wrap Composite
Full Disclosure Presentation
Capstone Asset Management Company claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards.
Capstone Asset Management Company has been independently verified for the periods January 1, 1995 through June 30, 2014.
Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed
to calculate and present performance in compliance with the GIPS standards. The Fixed Income Wrap composite has been examined for the periods January 1, 1998 through June 30, 2014. The
verification and performance examination reports are available upon request.
Capstone Asset Management Company is an investment advisor registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940. The firm maintains a complete list
and description of composites, which is available upon request. Effective December 31, 2012, all contracts for CF Solutions and Roger H. Jenswold and Company were transferred to Capstone Asset
Management Company. Firm assets beginning on 12/31/12 include the transferred contracts. Prior to 12/31/12, the Firm did not include any RHJ or CF Solutions assets. Roger H. Jenswold and CF
Solutions are no longer operating companies.
Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. Past performance is not indicative of future results.
The U.S. Dollar is the currency used to express performance. Returns include the reinvestment of all income. Gross returns are shown as supplemental information and are stated as gross of all fees and
have not been reduced by transaction costs. Net performance was calculated using the highest annual all inclusive wrap fee of 3.00% applied quarterly. Wrap accounts make up 100% of the composite for
all periods shown. Wrap fees include Capstone’s portfolio management as well as all charges for trading costs, custody, and other administrative fees. The composite dispersion presented is an asset
weighted standard deviation calculated for the accounts in the composite for the entire period shown. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are
available upon request. The three year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36 month period. The 3 year standard
deviation was not required for periods prior to 2011.
The management fee schedule is as follows: 1.00% maximum on all assets. Wrap fee schedules are provided by independent wrap sponsors and are available upon request from the respective wrap
sponsor. Actual returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. Investment advisory fees incurred by clients may vary. For
information on management fees, Capstone Asset Management Company’s Form ADV Part 2 is available upon request.
The Capstone Fixed Income Wrap Composite was created January 1, 1998.
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Capstone Asset Management Company
3700 West Sam Houston Parkway South #250
Houston, Texas 77042
Phone: 713.260.9000 Toll Free: 800.262.6631
Fax: 713.260.9050
E-mail: [email protected]
www.capstonefinancial.com