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Welcome to the GIM Home / News Page
GIM, Inc. is an investment management firm dedicated exclusively to meeting the fixed income, stable value, and money market management needs of institutional investors. Founded in 1999, we manage more than $430 million in assets for corporations, governments, unions, and other institutions.GIM is a certified MBE and 100% owned by its President and CEO Bruce T. Goode. We bring more than thirty years of financial market experience to bear on our clients' behalf and we manage assets with an unswerving commitment to the highest standards. We insist on quality, integrity and diversity in our portfolios, our process and our practices. We are acutely aware of the efforts our clients took to raise the capital they have entrusted to us, and our first and foremost objective is to protect the value of that capital. With a clear understanding of our clients' unique objectives, our objective is to assemble and nurture portfolios that help them reach their goals with the least possible risk. We helped pioneer the use of pooled stable value funds in qualified retirement plans and we are developing exciting new applications for them today. We would welcome the opportunity to explore ways in which Goode Investment Management can help your organization.
After nine months of Federal Reserve activity comprising seven "eases" covering 325 basis points, the Fed held rates steady at their June 25th meeting as inflation risks seemed to be more problematic than economic risk for the near term. It would also be fair to say that given the lag of monetary policy and the unknown impact of the fiscal stimulus package that it made prudent sense for the Fed to pause for the time being. Spread sectors experienced some retracement back to wider spreads while the treasury curve rallied and flattened from stronger long end performance. The broad Lehman Aggregate Index returned negative -8 bpts for the month with a YTD total return of 1.13%. The Lehman Intermediate Government / Credit Index gained 1 basis point for the month bringing the YTD total to 1.43%. Once again, the better performance from the intermediate index was reflective of two things. First, the stronger performance from the belly (intermediate maturity) portion of the curve and secondly the lack of representation of the securitized sectors within the intermediate index which have had a difficult year so far.After three months of solid spread tightening, the Commercial Mortgage Backed sector experienced a setback as spreads widened by 58 basis points for the month. This produced another large negative excess return month (June) and as such, this index still is in deep negative territory for the year. Year-to-Date excess return for the CMBS sector is -5.05%. The Asset Backed sector (ABS) didn't fare much better as spreads widened by 19 basis points producing a negative -96 bpts excess return for the month. The YTD excess return for this sector also remains in negative territory at -5.08%. Intermediate Credit suffered as the financial segment of that index saw spreads widen significantly when compared to the Utility and Industrial components during the second half of the month.. Clearly as the difficulties in the financial markets continue to affect banks and other financial institutions, this segment continues to be under pressure. While intermediate credit also had a negative excess return for the month of June, the YTD number is only down -2.30%, less than half of the ABS / CMBS sectors. The treasury curve rallied modestly for the month and the curve steepened by 7 basis points when looking at the spread differential between two and ten year treasury notes. Long 30 year treasury bonds rallied 19 basis points to close the month yielding a 4.52. Economic data for the month continued mixed. Unemployment rose to 5.5%, a large jump. Pending Home Sales jumped to +6.3, a positive surprise since the survey number was -.4. Leading Indicators rose +.1 while Industrial Production fell -.2. Retail Sales Less Autos came in at +1.2 versus last month's upwardly revised +1.0 and higher then the forecast +.7. Inflation, as measured by CPI and PPI both came in higher than the forecast surveys which continued to send warning signs to the market. While the full effects of the fiscal stimulus package haven't moved through the economy, it is fair to say that higher gasoline prices create strong headwinds against economic growth and will continue to have a dampening effect on consumer behavior going forward. The Index Plus Strategy returned a negative -37 basis points for the month versus the Lehman Intermediate Gov/Credit return of +1bpt. This month's underperformance was driven by spread sector widening across the board and most specifically within the CMBS and ABS sectors. While we have had a positive second quarter of +87 basis over the Index, we did not expect spreads to normalize to tighter levels all in a straight line. Future setbacks are likely to occur as the markets continue to move their focus onto security valuation and away from the "liquidity/funding" crisis that we experienced earlier this year. However, all spread sector yield premiums remain historically high and undervalued when compared to treasuries. In particular, we continue to see relative value in the high quality securitized sectors relative to credit. Our IPS portfolios currently average a 115 basis point yield advantage over the benchmark index.
May 2008 marks the second month of negative total return for the Treasury sector and for the broader indices, the Aggregate and Intermediate Gov/Credit as well. From a macro overview standpoint, the markets continue to move back towards a more normal equilibrium from mid-March when the Fed facilitated the Bear Stearns sale and created the Primary Dealer Credit Facility. The liquidity premium for holding treasuries has diminished while the trading in spread sectors has improved as reflected in further spread tightening. However, the overall backup in the markets overtook the benefits of spread tightening and as a result, both the broad Lehman Aggregate Index and the Intermediate Government/Credit Index returned negative -.73 and -.80 basis points of total return for the month respectively. Even with a 25 to 40 bpt backup in yields this month, the Government sector (Treasuries + Agencies) has performed well this year. The intermediate maturity Government Index has returned a +1.80 total return YTD despite loosing 90 basis points this month. Only the MBS (mortgage) sector has done better with a +1.99 YTD return. In contrast, Intermediate Credit, ABS and CMBS have suffered with early year spread widening, leaving the YTD total returns in negative territory for ABS (-2.24) and CMBS (-.27). Intermediate Credit returned a +.82 but is lagging the Government/Treasury sector. This can also be seen when looking at Excess Return (the return exceeding the return of similar duration treasuries) for the spread sectors. ABS has registered a negative -4.12 excess return year-to-date. CMBS posted a negative -2.19 excess return. Intermediate Credit posted a negative -1.07 excess return while only the MBS sector showed a positive .35 bpts of excess return. The treasury curve flattened 5 basis points this month when looking at the yield spread differential between two and ten year treasury yields. If the preference for holding short treasuries continues to unwind, we would expect more curve flattening to occur. Curve flattening is also consistent with a backup in rates which market participants may start to focus on if the perception develops that the Fed is done easing for this cycle. Clearly the balancing act that the Fed must ponder between slow economic growth versus rising inflation has moved the focus to the inflation side of the equation. While home foreclosures and excess housing supply continue to hurt the economy along with nearly $4 a gallon gas, the Fed would be justified in pausing after 325 basis points of ease during the past 9 months. The Index Plus Strategy portfolios returned negative -19 basis points for the month of May compared the Lehman Intermediate Gov/Credit Index return of -80 bpts. The better performance for IPS came from two areas. First, as mentioned above, the Intermediate Government sector had a poor month compared to all other sectors. IPS was underweight that sector. Secondly, the securitized sectors (ABS and CMBS) and MBS all performed better than the Intermediate Credit sector. IPS portfolios carry an underweight to the Int. Credit sector while holding an overweight in ABS, MBS and CMBS. We continue to maintain our spread sector allocations in lieu of holding treasuries. Currently, the IPS portfolios have a 100 basis point yield advantage over the Index. While this approach has produced recent good performance, we don't expect it to be smooth sailing from here on in. There will still be periods of spread widening and uncertainty. The state of the economy has a direct bearing on the consumer and therefore the performance of the ABS sector. The CMBS market will also be driven by the pace of economic growth over the coming months and while the new issuance supply technicals are favorable, the demand for this sector among investors is tepid when compared to 12 months ago. Over the longer term horizon, we still continue to favor the high grade spread sectors.
The month of April gave us markets that in large part continued a trend that started in the middle of March. March was a pivotal month during which the wides in yield spreads were reached in the investment grade spread sectors and the lows in yield were reached along the treasury yield curve and while it may be premature to tell, the Fed's actions surrounding the March 18th rate cuts and Bear Stearns bailout may prove to be the turning point for the fixed income markets as far as the credit crisis goes. That's not to say that we are out of the woods yet, but since the middle of March and through April there has been a gradual move higher in treasury yields as the liquidity squeeze seems to be abating along with a more pronounced compression of spread product yields as liquidity returns to these sectors. The backup in treasury rates dominated spread sector compression and as a result, the Lehman Aggregate Index returned a negative -21 basis points for the month. The shorter Lehman Intermediate Government Credit Index returned a negative -74 basis points. The big winner for the month was the CMBS sector. Spreads narrowed 80 bpts for the month ending at plus 276 over comparable duration treasuries. This is remarkable when you remember that the CMBS sector reached a wide of 494 bpts over treasuries only six weeks ago on March 10th. Excess return for the month was +3.60%, a very good month indeed. To put this in perspective however, the CMBS Index is still negative for the Year-to-Date in Excess return (-4.12%) but April's good performance brought us a long way back. Both the Intermediate Credit and Mortgage (MBS) sectors returned positive performance of 20 and 10 bpts respectively. Again, when compared to the negative returns for treasuries, both of these sectors had strong excess returns for the month. The Asset Backed Sector (ABS) didn't fair quite as well. Spreads did improve in this sector but only narrowed by 35 basis points. Against a negative return for comparable duration treasuries, the ABS sector only managed a negative -90 bpts return for the month (still outperforming treasuries however). The treasury curve, as mentioned earlier, underwent a substantial upward shift in yield. As the liquidity squeeze relinquished some of its grip on the short end of the curve, treasury two year notes moved from a 1.58 yield to close out the month yielding a 2.25%............a 67 bpt move. The treasury 10 year sector closed the month yielding a 3.73, up from a 3.41 at the end of March. This represents a 35 basis point flattening of the yield curve, the most we've seen in two years. This also took place in spite of the Federal Reserve easing the funds rate down 25 bpts to 2.00% on April 30th. The Fed's latest move may be the last cut for a while. Even though economic fundamentals remain weak, home prices still in decline and consumer confidence deteriorating, the Fed has eased 325 basis points in 7 months and now must allow time for both monetary and fiscal stimulus to take effect. With the dollar weakness and oil reaching new highs almost daily, the potential future inflation risks have to figure into any rate decisions going forward. The Index Plus Strategy returned a negative - 11 bpts for the month, outperforming the Lehman Intermediate Gov/Credit index by 63 bpts. The outperformance was due to our overweight in spread product when compared to the Index. The CMBS sector was the single largest contributor to the strong performance for the month. While we believe that there is still a significant benefit to remaining in investment grade spread sectors, we feel cautious about the pace of further improvement. We remain duration neutral in our portfolios and currently have a 121 basis point yield advantage over the Lehman Index.
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