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Current Views

July 22, 2010: Zero Coupon Treasuries

In the current commentary we discuss our use of zero coupon treasuries (also known as Strips*) as a risk management tool. We have utilized these instruments to provide a measure of downside protection in our equity portfolios for many years now. During turbulent market environments in which investors seek high quality securities, zero coupon treasuries have exhibited relative strength. These securities have the longest duration** for any given maturity, and therefore by definition would be expected to outperform other Treasury Bonds of similar maturities during periods of falling yields. Hence they have fared very well during periods characterized by concerns over decelerating or declining economic output. On the contrary, like most fixed income securities, Strips are not an appropriate hedge when adverse market conditions are caused by inflationary fears. One would typically expect Strips to lose value during inflationary environments.

In early May we started building a position in zero coupon Treasuries. With inflation running at extremely low levels it is our belief that the current environment is one which favors the utilization of Strips as an effective market hedge. Furthermore, recent macro data points have been emblematic of a decelerating economy, indicating that any inflationary pressures from loose fiscal and monetary policy are not likely to be felt anytime soon.

* "Strips" is an acronym for Separate Trading of Registered Interest and Principal of Securities, and refers to a pre-stripped bond.

** Duration is a measure of interest rate sensitivity..

 


 

This information is intended solely to report on investment strategies and opportunities identified by Roosevelt. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Please contact us at 646-452-6700 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions, or if you would like to request a copy of our Code of Ethics. Our current disclosure statement is set forth on our Form ADV Part II, available for your review upon request, and on our website, www.rooseveltinvestments.com.

Past performance is not a guarantee of future results. Indices are unmanaged and cannot accommodate direct investment. Themes assigned as per Roosevelt Investments’ evaluation. Risk tools may include cash or other securities that we believe possess a low or inverse correlation to the overall market.

INVESTMENT PRODUCTS: NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

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The Roosevelt Investment Group, Inc. is an independent investment management firm that is not affiliated with any parent organization. The Roosevelt Investment Group, Inc. manages equity, fixed income, and balanced assets for primarily U.S. clients. The Roosevelt Investment Group, Inc. is an investment adviser registered with the U.S. Securities and Exchange Commission and notice filed in all 50 states.

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