The new commingled fixed-income fund is available for tax-exempt Catholic institutions and was created to help investors navigate a potentially volatile interest-rate environment.
The fund attempts to mitigate potential interest-rate risk by utilizing more flexible investment strategies and following a shorter-duration benchmark. The fund, which provides daily liquidity and net asset value, launched with $77 million in assets under management on May 1, 2013. As with all CBIS funds, the OBF adheres to CBIS’ socially responsible investing criteria.
“While we cannot predict exactly when interest rates will begin to rise from today’s low absolute levels, a rate increase brought on by inflation appears to be a likely outcome of the ongoing sovereign and private debt burdens,” said Frank D. Haines, CFA, vice president and chief investment officer of CBIS. “The CUIT Opportunistic Bond Fund is a valuable option because we believe it allows investors to maintain their fixed-income allocation without sacrificing performance if current interest-rate levels remain in effect for an extended period of time, while providing protection if and when rates start to rise.”
The OBF’s sub-advisers, Longfellow Investment Management and Reams Asset Management, will look to achieve the fund’s objectives by primarily investing in U.S. government, agency, corporate, and mortgage- and asset-backed securities. Below-investment-grade debt securities may compose up to 20% of the OBF portfolio, allowing the sub-advisers to augment returns through high-yield investments. OBF’s investment strategy also involves use of derivatives, which can reduce trading costs and capitalize on potential changes in investment-grade and high-yield bond credit spreads and the yield curve.
The fund will utilize the Barclays Capital U.S. 1-5 Year Government Credit Index, which has a relatively short duration (approximately two-and-a-half to three years). The shorter benchmark duration reduces OBF’s negative price sensitivity to rising interest rates, and has a more stable duration than benchmarks that incorporate the mortgage-backed securities sector.
“The fact that we raised $77 million for OBF since January of this year shows that Catholic institutions are concerned about the effect of potential hikes in interest rates on their portfolios,” said Haines. “We are confident that the proven strategies utilized by Longfellow and Reams, which emphasize credit analysis and capturing opportunities through tactical trading, will help to shelter fixed-income portfolios from the downside of any future interest-rate hikes without sacrificing returns in the current environment.”
Christian Brothers Investment Services, Inc. is a leader in Catholic socially responsible investing with approximately $4.7 billion in assets under management for Catholic institutions worldwide, including dioceses, religious institutes, educational institutions and health care organizations.