Active Portfolio Management Techniques Sample Clauses

Active Portfolio Management Techniques. An active management strategy will be used to manage the Investment Pool. By not routinely following a buy-and-hold strategy, the returns the County earns from its portfolio can be improved. This is because the best security values now may not be the best values in the future. The following techniques may be used to increase the County’s total return: • Substitution Swap - replaces a security with an identical (or nearly identical) security trading at a higher yield and, therefore, at a lower price. • Maturity Sector Swap - involves selling a relatively expensive maturity sector and buying an inexpensive priced maturity sector. Risks are controlled by duration- weighting the swap, so that the overall duration of the portfolio is unchanged. Total returns are improved when the price relationship between the maturity sectors moves back to a normal position. • Coupon Sector Swap - concentrates security holdings in coupon ranges perceived to offer the best relative value. A coupon spread is the yield spread between a high coupon issue and a low coupon issue of similar maturity. If the coupon spread is wide, the higher coupon issue offers the better total return. A narrow coupon spread warrants a move down in coupon. • Quality Sector Swap - improves total returns by moving into low quality issues when quality spreads are wide and trading into high quality issues in times of narrow quality spreads. • Issuer Sector Swap - movements between general issuer categories as relative values change. Total returns are improved by timely trades out of expensive issuer sectors and into relatively inexpensive issuer sectors. • Interest Rate Anticipation Swap - involves anticipating interest movements and positioning the portfolio accordingly. An expectation of lower interest rates would call for lengthening the average duration of the portfolio, and an expectation of rising interest rate levels would call for shortening of the pool’s average duration. • Riding-The-Yield-Curve Swap - in a positively shaped yield curve environment, securities are purchased that have slightly longer maturities than the liability the funds are earmarked for. These securities are then sold when cash is needed to fund the liability. Total returns are improved by the higher yield of the longer maturity security and by the capital appreciation from rolling down the yield curve to a lower yield and a higher price. King County’s Investment Pool will remain sufficiently liquid to enable King County to m...