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The above information is not a complete analysis of every material fact concerning any market, industry, or investment. Data has been obtained from sources considered reliable, but Dodge & Cox makes no representations as to the completeness or accuracy of such information. Opinions expressed are subject to change without notice. Information regarding yield, quality, maturity, and/or duration does not pertain to accounts managed by Dodge & Cox. The above returns represent past performance and do not guarantee future results. Dodge & Cox does not seek to replicate the returns of any index. The actual returns of a Dodge & Cox managed portfolio may differ materially from the returns shown above. This is not a recommendation to buy, sell, or hold any security and is not indicative of Dodge & Cox’s current or future trading activity. The securities identified are subject to change without notice and may not represent an account’s entire holdings.
Source: Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance, L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.
The Bloomberg Barclays U.S. Long Credit Index measures the performance of investment grade, US dollar-denominated, fixed-rate, taxable corporate and government-related debt with at least ten years to maturity. It is composed of a corporate and a non-corporate component that includes non-US agencies, sovereigns, supranationals and local authorities. The Bloomberg Barclays U.S. Long High Yield Index measures the performance of USD-denominated, high-yield, fixed-rate corporate bonds with at least 10 years to maturity. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country classification, are excluded.
1 The information in this paper should not be considered fiduciary investment advice under the Employee Retirement Income Security Act. This paper provides general information not individualized to the particular needs of any plan and should not be relied on as a primary basis for investment decisions. The fiduciaries of a plan should consult with their advisers as needed before making investment decisions.
2 One basis point is equal to 1/100th of 1%.
3 Information ratio is the ratio of a portfolio's relative return to its tracking error. In the context of credit spread hedging, spread information ratio is (portfolio spread (excess) return less benchmark (here, Long Credit) spread return) / tracking error of portfolio spread return to benchmark (here, Long Credit) spread return.
4 A bond may fall out of an index prior to default if the rating is withdrawn or if it no longer meets the index inclusion criteria. At that point, an actual portfolio might continue to hold the bond whereas the index would no longer reflect its performance.
5 For example, overlaying the passive portfolios in Figure 3 with a total return swap paying 3-month T-Bill, receiving the return of the Bloomberg Barclays Long Treasury Index, and sized to ensure that the portfolio duration is equal to benchmark duration at the start of each month would have reduced tracking error in the passive portfolios by 25%, with a slight increase in return.
6 Index blend returns assume monthly rebalancing, no transaction costs, and no management fees for the index blends. Dodge & Cox total returns represent the Dodge & Cox Long Credit composite and are gross of fees.
7 Source: Moody’s Annual Default Study, for the period 1983-2020.
8 Source: Bloomberg, Barclays Research. Based on Barclays Liquidity Cost Score (LCS) daily observations for the 10-year period ending March 31, 2021.
9 Net of fees performance reflects the deduction of a model fee of 35 basis points, the highest tier of the fee schedule.
10 Source: Bloomberg HPA model. Average contribution from asset allocation and security selection reflects average over 3-year periods starting September 30, 2013 and ending March 31, 2021 for a representative Long Credit account and are gross of fees. The representative account was chosen because it is at or above our separate account minimum size, has been a long-standing client within the given strategy, and has maintained guidelines consistent with the given strategy throughout the relevant period. Thus, we believe it is reflective of our strategy for this mandate. Representative account holdings are subject to change; characteristics and holdings may differ for new accounts.