7. Other business b. SSI Investment Portfolio Report, June 30, 2011

Transcription

1 7. Other business b. SSI Investment Portfolio Report, June 30, 2011

2 QUARTERLY REVIEW SECOND QUARTER 2011 The second quarter of 2011 exhibited renewed defensiveness by investors in light of fears over a slowdown in global growth and ongoing concerns over European sovereign debt. SSI s Outright Discretionary Convertible Strategy underperformed during the quarter due to its positioning for continued global economic recovery with overweights in Consumer Discretionary, Industrials, Materials and Technology. This positioning benefitted the strategy in April, but detracted from performance from May through mid-june, resulting in a gross quarter return of -1.82% versus the BofA Merrill Lynch All Convertible Index return of -0.62%. However, as of late June, these sectors have recovered strongly and we have found particularly compelling valuations and attractive fundamentals. Our overweights in the Industrial and Technology sectors have the best exposure to continued strong growth in emerging markets, where we expect the slowdown to be temporary. The portfolio has also benefitted from the boost to exports provided by the weak dollar. Credit markets display no signs of stress and equities look attractive. The S&P 500 components are expected to generate combined earnings of $99.34 for the year, up from $60.59 in At current levels, the index is trading at a 13.3x multiple, well below its historical average of 14.7x. As concerns subside and earnings growth is underscored by increased economic activity, we expect equity markets to continue on a trajectory of economic recovery and stabilization. The convertible asset class is likely to continue exhibiting attractive upside participation with equities on markedly lower volatility. SSI Performance Summary as of June 30, 2011 (gross of fee) Annualized Performance Return 26% 24% 22% 20% 18% 16% 14% 12% 10% BofA ML All Convert. Index (VXA0)** Benefits of convertible bonds: Typically higher current income than that represented by dividends issued to owners of the underlying company s common stock A claim on the issuer s assets senior to that of the holders of the common stock in the event that the company files for bankruptcy Less volatility than common stock Convertibles capture a sizable portion of the appreciation of common stocks Convertibles provide downside protection and the ability to collect the interest & principle if the stock declines Product Information Strategy inception: January 1, 1983 Upside participation should the stock price increase Downside protection should the stock price decline Selects asymmetrical/convex securities in the convertible universe Focus on issues with positive credit momentum & strong equity fundamentals 8% 6% 4% 2% 0% Yearly Performance Return 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% 1 YEAR 3 YEARS 5 YEARS 7 YEARS 10 YEARS Since Inception BofA ML All Convert. Index (VXA0)** -40% YTD 2011* *: January 1, Preliminary performance results as of June 30, **Source: BofA Merrill Lynch Convertible Research About SSI Headquartered in Los Angeles, California Registered Investment Advisor since % Employee Owned $1.5 Billion AUM 34 Employees 16 Investment Professionals 9440 Santa Monica Boulevard 8th Floor Beverly Hills, CA Phone: Fax:

3 QUARTERLY REVIEW SECOND QUARTER 2011 Key Portfolio Attributes Number of Positions 102 Current Yield 2.91% Delta 71.45% Avg. Conversion Premium 31.49% Median Issue Size $770 million Bond Quality BB Characteristics Security Type SSI Outright Discretionary Strategy BofA ML All Convert. Index (VXA0) Convertible Bonds 72.67% 77.97% Convertible Preferreds 22.71% 20.00% Lyons 2.63% 2.03% Common Stock 1.04% - Cash/Accrued Income 0.95% - Delta Representative Portfolio Ten Largest Holdings Company % of Portfolio GENERAL MOTORS MAND CVT PFD 2.66% CITIGROUP MAND CVT PFD(T-DECS) 2.53% PRICELINE.COM CVT SR NTS 144A 2.14% METLIFE MAND CVT EQUITY UNITS 2.04% INTEL CORP JR SUB CVT DEB 1.65% PIONEER NAT RESOURCES CVT NTS 1.60% MASTEC INC CVT SR NOTES (II 1.59% ENDO PHARMA CVT SR NOTES 1.58% WELLS FARGO CO NON CUM CVT PFD 1.57% MYLAN INC CVT SR NOTES 1.49% Yield Alternatives - Delta < % 33.18% Total Return Alternatives - Delta % 43.02% Equity Alternatives - Delta > % 23.79% Cash/Accrued Income 0.95% - Ratings Implied Ratings AAA % AA % A 10.96% 9.40% BBB 23.24% 17.35% BB 31.69% 20.65% B 28.57% 11.67% CCC 3.56% 6.44% Common Stock 1.04% - Not Rated % Cash & Accrued Income 0.95% - SSI Investment Management, Inc. acquired the assets of Froley Revy Investment Co., Inc and its composites as of March 1st, SSI is not and does not claim to be GIPS compliant. However, from January 1, 1983 through December 31, 2008, Froley, Revy claimed GIPS compliance and was verified by Ashland Partners & Company, LLP. The Outright Discretionary Convertible strategy is invested in convertible bonds and convertible preferred stocks, and do not have credit quality restrictions. This composite was created in January The composite contains fully discretionary accounts including those no longer with the firm. SSI believes a performance comparison versus the Merrill Lynch All Convertibles (VXA0) index is appropriate. However, the volatility of this strategy is expected to be greater then the volatility of the Merrill Lynch All Convertibles index as the strategy holds a smaller number of positions as the index. The return, if any, above the Merrill Lynch All Convertibles index is dependent upon SSI's discretionary management. The other indices shown, if any, are not necessarily comparable to SSI s strategy. These are widely recognized market indices that are shown for informational purposes only. Actual results of an individual account may be materially different from the performance shown herein because of differences in inception date, transaction and related costs, restrictions, fees and other factors. The annual composite dispersion presented is an asset-weighted standard deviation calculated for accounts in the composite the entire year. All returns are based in U.S. dollars and reflect, on a percentage basis for each of the periods indicated: (a) the net increase (decrease) of all Outright Discretionary Convertible portfolios, dollar-weighted, including adjustments for unrealized gains and losses, the reinvestment of dividends and other earnings, the deduction of costs, except for SSI s management fee and any separate custodial fees, time-weighted to adjust for additions and withdrawals and (b) the net increase (decrease) of the Merrill Lynch All Convertibles (VXA0) index. A client s actual return will be reduced by the advisory fees and any other expenses which may be incurred in the management of an investment advisory account. See SSI s Form ADV, Part II for a complete description of the investment advisory fees customarily charged by SSI. As an example, an account with an initial $1,000,000 investment on January 1, 2003, earning a recurring 5% semi-annual gross return (10.25% annualized), and paying a.5% semi-annual management fee (1% annual fee) would have grown to $1,340,096 on a gross of fees basis and $1,300,392 on a net of fees basis by December 31, 2005 (3 years). THIS MATERIAL IS INTENDED ONLY FOR QUALIFIED INVESTORS. IT DOES NOT CONSTITUTE AN OFFER TO PURCHASE AN INTEREST IN ANY PRIVATELY OFFERED FUND MANAGED BY SSI. SSI INVESTMENT MANAGEMENT INC. BELIEVES THAT RESULTS WERE GENERATED WITH AN INVESTMENT PHILOSOPHY AND METHODOLOGY SIMILAR TO THAT DESCRIBED HEREIN. FURTHERMORE, THE PERFORMANCE DISCUSSED HEREIN REFLECTS INVESTMENT OF LIMITED FUNDS FOR A LIMITED PERIOD OF TIME AND DOES NOT REFLECT PERFORMANCE IN DIFFERENT ECONOMIC OR MARKET CYCLES. FUTURE INVESTMENTS, HOWEVER, WILL BE MADE UNDER DIFFERENT ECONOMIC CONDITIONS, IN DIFFERENT SECURITIES AND USING DIFFERENT INVESTMENT STRATEGIES. IT SHOULD NOT BE ASSUMED THAT FUTURE INVESTORS WILL EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE DISCLOSED HEREIN. THE INFORMATION GIVEN IS HISTORIC AND SHOULD NOT BE TAKEN AS ANY INDICATION OF FUTURE PERFORMANCE. THE PERFORMANCE DATA WAS PREPARED BY SSI INVESTMENT MANAGEMENT INC. AND WAS NOT COMPILED, REVIEWED OR AUDITED BY AN INDEPENDENT ACCOUNTANT. ANY INVESTMENT IS SUBJECT TO RISK OF LOSS. ANY USE OF LEVERAGE INCREASES THE INVESTMENT GAIN OR LOSS IN DIRECT PROPORTION TO THE DEGREE OF LEVERAGE USED.

4 Retirement Trust Fund Monthly Report June 2011 Creating innovative investment solutions for clients for over 35 years.

5 Retirement Trust Fund Monthly Performance (as of June 30, 2011) April 2011 (20 th 30 th ) May 2011 June Q 2011 Retirement Trust Fund (Gross) Retirement Trust Fund (Net) 0.74% -1.12% -1.70% -2.08% 0.74% -1.12% -1.70% -2.08% BofA Merrill Lynch All Cvts ex 144A (VXN0)* 1.52% -0.65% -1.69% -0.84% *Inception Date: April 20, Perfomrance less than a year is cumulative. Performance in italic is prelimnary. *Source: Bank of America Merrill Lynch Convertible Research All results are gross and net of fees. Past performance is not indicative of future results.