Fixed Income

Portfolio

@ Xinyuan Zhang

Content

Fixed Income Portfolio _Xinyuan Zhang 212/09/2016

01

Portfolio

Construction

• Market Situation

• Portfolio

Distribution

02

Strategy and

Rebalance

• Long Only

• Long and Short

03

Portfolio

Evaluation

• P&L

• Return and Risk

Content

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Portfolio Construction

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CUSIP NAME COUNTRY INDUSTRY_SECTOR MATURITY CPN_TYP RTG_MOODY Notional Weighting

912828G46 US TREASURY N/B US Government 11/30/2016 FIXED Aaa 50,000,000$ 12.35%

912828H78 US TREASURY N/B US Government 1/31/2017 FIXED Aaa 50,000,000$ 12.35%

912828K66 US TREASURY N/B US Government 4/30/2017 FIXED Aaa 50,000,000$ 12.35%

478160AU8 JOHNSON & JOHNSON US Consumer, Non-cyclical 7/15/2018 FIXED Aaa 50,000,000$ 12.35%

054303AX0 AVON PRODUCTS INC US Consumer, Non-cyclical 3/15/2020 FIXED B1 10,000,000$ 2.47%

378272AK4 GLENCORE FUNDING LLC US Basic Materials 4/16/2020 FIXED Baa3 10,000,000$ 2.47%

172967JE2 CITIGROUP INC US Financial 11/24/2017 FIXED Baa1 10,000,000$ 2.47%

06051GFJ3 BANK OF AMERICA CORP US Financial 8/25/2017 FIXED Baa1 10,000,000$ 2.47%

023135AH9 AMAZON.COM INC US Communications 11/29/2017 FIXED Baa1 10,000,000$ 2.47%

084664BS9 BERKSHIRE HATHAWAY FIN US Financial 5/15/2017 FIXED Aa2 25,000,000$ 6.17%

UV3893798 DAIMLER FINANCE NA LLC US Consumer, Cyclical 8/3/2017 FLOATING A3 15,000,000$ 3.70%

89233P6S0 TOYOTA MOTOR CREDIT CORP US Consumer, Cyclical 10/5/2017 FIXED Aa3 25,000,000$ 6.17%

US00828EBH18 AFRICAN DEVELOPMENT BANK SNAT Government 11/3/2017 FIXED Aaa 50,000,000$ 12.35%

78012KFV4 ROYAL BANK OF CANADA CA Financial 7/30/2018 FLOATING Aa3 25,000,000$ 6.17%

25468PCV6 WALT DISNEY COMPANY/THE US Communications 12/1/2017 FIXED A2 15,000,000$ 3.70%

405,000,000$

Market and Portfolio Construction

Market:• Strong expectation of rising rate Characteristic:• Short term Source of Return:• MTM and Accrual Source of Risk:• Interest Risk

Bond Selection Criteria:• Short Term

• High Coupon Rate

• Diversify between investment grade and

speculation grade

• Country and Sector Diversification

Fixed Income Portfolio _Xinyuan Zhang 512/09/2016

Portfolio Distribution

Summary• 81% on US

• 50% on Treasury Bill

• 50% < 1year, 95% < 2 years.

• 60% on AAA, 87% > A ; 10% on

Baa ; 3% on high yield bond

• DV01 : 0.0107

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Strategy and Rebalance

Fixed Income Portfolio _Xinyuan Zhang 712/09/2016

NAMEWeekly Average

Contribution to PnL

AVON PRODUCTS INC 82.63%

GLENCORE FUNDING LLC 21.57%

DAIMLER FINANCE NA LLC 20.22%

BERKSHIRE HATHAWAY FIN 14.62%

US TREASURY N/B 11.67%

ROYAL BANK OF CANADA 8.26%

BANK OF AMERICA CORP 7.04%

US TREASURY N/B 2.20%

US TREASURY N/B 1.36%

WALT DISNEY COMPANY/THE 0.54%

CITIGROUP INC -1.14%

TOYOTA MOTOR CREDIT CORP -3.55%

AMAZON.COM INC -10.47%

AFRICAN DEVELOPMENT BANK -19.76%

JOHNSON & JOHNSON -35.21%

Total 100.00%

Long Only ——Stop Gain and Loss

Strategy1——Long Only• Stop Gain 3%• Stop Loss 1%

10/07• AVON triggered Stop Gain• Correlation with Stock Price• Reason: Third Quarter Good

Performance

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Rebalance 1

Selection criteria• Balance between investment limit with

more coupon

• Focus on corporate bonds

• Take sector factor into consideration

• Still Short Term

CUSIP NAME INDUSTRY_SECTOR MATURITY CPN RTG_MOODYNotional WeightingDVO1

912828G46 US TREASURY N/B Government 2016/11/30 0.5 Aaa $50,000,000 14% 0.0022

912828H78 US TREASURY N/B Government 2017/1/31 0.5 Aaa $50,000,000 14% 0.0039

912828K66 US TREASURY N/B Government 2017/4/30 0.5 Aaa $50,000,000 14% 0.0064

378272AK4 GLENCORE FUNDING LLC Basic Materials 2020/4/16 2.875 Baa3 $10,000,000 3% 0.0337

172967JE2 CITIGROUP INC Financial 2017/11/24 1.85 Baa1 $10,000,000 3% 0.0119

06051GFJ3 BANK OF AMERICA CORP Financial 2017/8/25 1.7 Baa1 $10,000,000 3% 0.0095

084664BS9 BERKSHIRE HATHAWAY FIN Financial 2017/5/15 1.6 Aa2 $25,000,000 7% 0.0068

UV3893798 DAIMLER FINANCE NA LLC Consumer, Cyclical 2017/8/3 1.4691 A3 $15,000,000 4% 0.0089

89233P6S0 TOYOTA MOTOR CREDIT CORP Consumer, Cyclical 2017/10/5 1.25 Aa3 $25,000,000 7% 0.0106

78012KFV4 ROYAL BANK OF CANADA Financial 2018/7/30 1.2915 Aa3 $25,000,000 7% 0.0187

25468PCV6 WALT DISNEY COMPANY/THE Communications 2017/12/1 1.1 A2 $15,000,000 4% 0.0121

278642AG8 EBAY INC Communications 2017/7/15 1.35 Baa1 $10,000,000 3% 0.0084

89233P6S0 TOYOTA MOTOR CREDIT CORP Consumer, Cyclical 2017/10/5 1.25 Aa3 $25,000,000 7% 0.0106

064159EK8 BANK OF NOVA SCOTIA Financial 2017/4/11 1.25 Aa3 $25,000,000 7% 0.0058

17275RAT9 CISCO SYSTEMS INC Communications 2017/3/3 1.1 A1 $15,000,000 4% 0.0048

0.1544

Fixed Income Portfolio _Xinyuan Zhang 912/09/2016

Cash Security Price Conven Yield Conver Factor

T 2 ½ 08/15/23 101-24 3/4 2.217 0.8139

T 2 ¾ 11/15/23 103-10 3/4 2.235 0.8217

T 1 ⅜ 08/31/23 94-24 1/4 2.206 0.7541

Rebalance 2 —— Short with Future

10/28

Yield Curve : Steepen

• Long short term and short long term

Short bonds VS Enter short position in future

• Relatively low transaction cost

• Choose to short 10-year-treasury bond

future ( CBOT)

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Portfolio Evaluation

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Profit and Loss

Cumulative P&L

• Long Only : $1,118,189.07

• Short With Future: $5,430,689.07

Summary:

• Short is the main source of profitability

in the recent market.

• Profit from accrual > profit from MTM

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Return and Risk

Return:

Simple return:

Strategy Period 1 Period 2

Long Only 0.152% 0.139%

Risk

VaR:

• Using Historical Method

• 61 trading days.

• A 1-day 95% VaR of my Portfolio is

$63,474

Volatility

• Daily Return Volatility : 0.000117

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Thoughts After this whole semester:

Yield Curve! Yield Curve! Yield Curve! Low Risk does not mean not losing money!

Limit is hurting!

Website:http://seekingalpha.com/investing-strategy/bondshttp://www.finra.org/

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