Amalgamated Bank
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Fixed Income Strategies


Domestic fixed income securities are selected using a highly controlled and disciplined approach. To achieve investment objectives, Amalgamated Bank's investment process focuses on duration and maturity management, supplemented by yield curve analysis, sector allocation and security selection. The investment process can be best described as a top-down approach. The Bank's fixed income strategies follow a stratified sampling approach with emphasis on credit research. Decisions regarding the implementation of investment policy are reached using a team approach led by the Director of Fixed Income and closely monitored by the Bank's Trust Committee.

Amalgamated applies disciplined risk management to its fixed income strategies that provides market rates of return with low volatility. We do not attempt to anticipate interest rates. Instead, we use a methodology that seeks to ascertain our clients' investment needs and expectations to provide them with an appropriate investment strategy and performance benchmark.

Based upon the selected benchmark, we construct a portfolio of securities with expected returns closely correlated with the benchmark. Our method of investment management requires us to first separate out the various risks in a portfolio of fixed income securities, namely: duration, yield curve, asset allocation and security selection. For each of these four key determinants of fixed income investment returns, we have placed restrictions on the degree to which any one can have an impact on performance relative to the benchmark. By establishing a range of acceptable deviation from the performance benchmark, we have also established a range of expected residual return.


As active investment managers, we add value by outperforming the benchmark index. Adding value requires assuming a certain level of risk. We define market risk as any deviation in investment strategy from that which is prescribed by the benchmark index. For example, the Barclays Capital U.S. Aggregate Index has certain duration and market weightings among the asset classes included in the index. Any time our duration or asset allocation deviates from that of the benchmark, we have assumed market risk. In making such a decision, we apply our own economic and market knowledge to the investment process to determine what holds the best prospect for future total return. This is a relative value judgment, which is arrived at by analysis of historical economic and market patterns in juxtaposition with current market values.

Our investment philosophy eschews interest rate anticipation and yield curve risk in favor of asset allocation and issue selection as means for out performance. As such, duration and yield curve positioning do not significantly deviate from the benchmark index.

Once we have determined an appropriate duration, we decide on our asset allocation policy. Again, we measure our risk as the degree to which we are willing to deviate from the market value allocations represented in the appropriate benchmark. Here, through an analysis of historical and current return patterns among the broad asset classes, we arrive at a judgment regarding relative value, defined as future return prospects. The benchmark asset class for this process is U.S. Treasury securities. All other asset classes are judged in terms of their return prospects relative to U.S. Treasury securities. In other words, the risk premium in non-treasury securities is the excess yield earned over the yield on a comparable maturity treasury security.

The final step in market risk management is issue selection. Upon completion of the asset allocation process, portfolio managers will use relative value to determine individual issue selection. The manner in which this procedure is executed is much like the asset allocation process; however, consideration is given to individual securities rather than broad asset classes.

Returns using Amalgamated Bank's active fixed income strategies depend on four factors: duration, yield curve, sector allocation and security selection. Amalgamated Bank has a controlled approach to the fixed income management process. Since duration and yield curve exposure account for the largest variance of the four contributing factors, we choose to limit risk by minimizing the deviation from the benchmark. We control duration risk by seeking to limit portfolio duration variance to +/- 5% of the benchmark index. Furthermore, we manage the yield curve risk by seeking to limit portfolio exposure to +/- 15% at any point on the yield curve, relative to a benchmark.

We add value through sector rotation and security selection. The fixed income team at Amalgamated has found this to be the best overall method for adding value in a consistent fashion without exposing the portfolio to undue risk.

We determine our sector allocation and security selection based on:

Past historical relationships between sectors
Economic fundamentals
Technical analysis of sectors
Seasonal factors
Overall interest rate environment
Inefficiencies in the market

Amalgamated Bank offers four broad active fixed income investment strategies to our valued clients and we will work with our clients in helping to develop a customized fixed income strategy and policy statement which will meet their goals and objectives.


Amalgamated Bank's Core Strategy objective is to provide 15 to 20 basis points in excess return over the benchmark in a consistent manner over a market cycle. The strategy will invest in a portfolio that is substantially similar to the Barclays Capital U.S. Aggregate Index using an index sampling technique to choose securities that replicate the characteristics of this benchmark. This statistical sampling technique takes into account such factors as duration, maturity, sector allocation, security structure and credit quality and attempt to match the investment characteristics of the benchmark index. Our investment process focuses on maintaining risk characteristics similar to the Index. We do not change the portfolio based on changes in the shape of the yield curve or the direction of interest rates.

The Core Strategy does not seek to duplicate the benchmark index. Rather, Amalgamated seeks to maintain the relative weightings of sectors in the portfolio to correspond to their respective weightings in the index. Amalgamated expects to be able to invest within +/-3% of the actual index weighting of broad market sectors. The Core Strategy is intended to cause the portfolio to react to changes in interest rates similarly to the index which, in turn, generally reacts similarly to bonds with maturities between four and ten years.

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