REINHART INTERMEDIATE DURATION CORPORATE
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REINHA RT I NT E R M E DI AT E D U RATION C ORPORATE March 31, 2022 | Separately Managed Account Investment Strategy Letter Reinhart’s fixed income philosophy is centered on the idea of risk management being equally as important as return generation. This means that we will build portfolios that limit absolute and relative risks to acceptable maximum amounts and that we will increase risk exposures in our clients’ portfolios only when offered attractive levels of incremental expected returns in exchange for this increased risk. Our general objective for this portfolio is to offer higher yields and returns than a Government/Credit portfolio while limiting the increase in credit risk from an all-corporate portfolio through a concentration in A-rated or better issues. We pursue this within the constraints of investing only in U.S. dollar denominated corporate bonds maturing in 10 years or less. MARKET OVERVIEW During the first quarter, inflation proved persistent both in its presence in the global economy and as the primary focus of central banks and capital markets. Neither the Omicron wave in the U.S. nor the Russian invasion of Ukraine and the associated decoupling of the Russian economy proved to be enough of a headwind to growth and labor market tightness to cause inflation expectations to come down, and, if anything, these developments were seen as adding to inflationary pressures. The Federal Reserve (“Fed”) began its program of monetary policy normalization with an interest rate increase, and Fed communications are signaling an aggressive tightening program in the near term that will include rapid interest rate increases and balance sheet reduction. Other global central banks were also hawkish and highlighted the need to address inflation. The bond market did not respond well to the first quarter’s developments. Interest rates moved up sharply and the yield curve flattened as expectations for the speed and extent of rate hikes were recalibrated. At the same time that interest rates were rising, corporate credit spreads were widening significantly in response to rising concerns that monetary tightening and the impact of the Russian invasion of Ukraine could push the economy into recession. This combination of rising rates and widening spreads was very unfavorable for corporate bonds and led to the worst quarterly performance since the 2008 financial crisis. PERFORMANCE & ATTRIBUTION The portfolio’s slightly shorter duration during a time of such sharp interest rate increases was a positive for relative returns. Lower rated credits saw greater spread widening during the first quarter, and so the portfolio’s high-quality bias also benefitted relative performance. The combination of these two factors led to strong relative performance, but the portfolio’s absolute performance was still negative due to the negative performance of corporate bonds. TRANSACTIONS & POSITIONING During the first quarter, we exited one utility whose risk profile was increasing to invest in one with a more favorable risk/reward profile, we executed a swap from a consumer goods company to an insurer to shift the portfolio’s allocation of credit risk by sector, and we extended the maturities of two financial credits in order to maintain our desired duration and yield curve positioning. The bond market is pricing in aggressive action by the Fed that is expected to bring inflation under control but not precipitate a recession severe enough to require significant easing. It is very difficult to predict how far and how fast the Fed will have to move to contain inflation and how severe the impact on growth of that action will be. The impact of decoupling the Russian economy from the world will also have negative effects both in terms of inflation and growth. While credit spreads have moved closer to normal levels, these are not normal times with normal risks. Given this scenario, we will maintain our current conservative credit risk positioning. Adherence to our conservative style of fixed income investing has been, and will always be, the hallmark of the Reinhart team. We thank you for choosing us to manage your fixed income investments and will continue to deliver the service you have come to expect.
RE INHA RT INT E R M E DI AT E DURATION
CO RPO R AT E FI X E D I NC O M E
March 31, 2022 | Separately Managed Account Factsheet
OUR FIRM
Madison Investments, founded in 1974, is an independent, employee and founder owned investment firm offering investment
management and investment advisory solutions headquartered in Madison, Wisconsin. The firm specializes in managing high
quality equity and investment-grade fixed income strategies.
WHY IDC? IDC PHILOSOPHY
Traditionally, investors have accessed the fixed income markets Maintain a high-quality, well-diversified portfolio of corporate bonds
through a broad market strategy with exposure to Treasury, that combine two key attributes:
Agency, corporate, mortgage backed, and asset backed securities. 1. Through our credit analysis we believe there is a low risk of
There are two main reasons why one may choose to invest in a default
corporate only bond strategy:
2. Excess expected returns adequate to compensate for any
1. Income orientated investor - investment objective driven incremental credit risk relative to other investment options
2. Tactical asset allocation - relative value driven
FIXED INCOME PHILOSOPHY
THE RESULTS X High Quality – Primarily “A” rated or better.1
This approach results in a portfolio that skews to the higher end X Duration Constrained - Portfolio duration usually
of the investment grade credit rating scale while maintaining within 10% of the benchmark index.
corporate sector weightings more in line with the overall X Well Structured – Predictable cash flows at the portfolio and
investment grade universe. Over time such a portfolio is expected security levels.
to result in similar returns to a corporate bond benchmark with X Highly Liquid – Invest in highly liquid bonds, primarily from
less volatility and lower default risk. large issuers with multiple securities across the yield curve.
PERFORMANCE
Since
Trailing Returns (%) QTD YTD 1-Year* 3-Year* 5-Year* 10-Year*
Inception*
Reinhart Int. Duration Corporate (Gross) -4.54 -4.54 -3.91 1.46 1.93 2.10 3.83
Reinhart Int. Duration Corp. (Net blended fee**) -4.60 -4.60 -4.15 1.21 1.68 1.84 3.56
Reinhart Int. Duration Corp. (Net 2.25% fee**) -5.09 -5.09 -6.05 -0.79 -0.33 -0.17 1.53
Bloomberg Intermediate Credit Index -5.07 -5.07 -4.05 2.10 2.47 2.74 4.44
*Figures are annualized.
Calendar Year Returns (%) 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012
Reinhart Int. Duration Corporate (Gross) -1.41 6.29 7.36 0.72 2.45 2.13 1.75 3.86 -1.06 5.46
Reinhart Int. Duration Corp. (Net blended fee**) -1.65 6.02 7.09 0.47 2.19 1.88 1.49 3.60 -1.31 5.20
Reinhart Int. Duration Corp. (Net 2.25% fee**) -3.61 3.93 4.98 -1.52 0.17 -0.14 -0.52 1.55 -3.27 3.13
Bloomberg Intermediate Credit Index -1.03 7.08 9.52 0.01 3.67 3.68 0.90 4.16 -0.16 8.09
**Net returns are reduced by two separate annual model fees. The first net return is reduced by a blended model fee which represents the standard fees over time; for periods from
1/1/2004 to current, net returns are reduced by a 0.25% annual model fee, applied monthly; for periods from 7/1/2001 to 12/31/2003, net returns were reduced by a 0.35% annual
model fee, applied monthly. The second net return is reduced by an annual model bundled fee of 2.25%, applied monthly. Due to variances between wrap/UMA programs, multiple net
returns are presented to show two possible outcomes at different total annual model fee rates. This fee represents a fee charged to clients and combines Madison’s management fee plus a
maximum advisor fee. Actual fees will vary depending on each individual agreement, so clients should consult their advisor for actual fees. See each entity’s Part 2A Disclosure Brochure for
more information. Actual returns may vary depending on a particular account’s inception date, trading platform and trading discretion. Any differences in the timing of trades may result
in various performance outcomes for Madison’s separately managed accounts versus model manager accounts.
Madison Investment Holdings, Inc. acquired the fixed income management assets of Reinhart Partners, Inc. on June 11, 2021 and now employs the Investment Team that previously
managed the assets at Reinhart. The Investment Team manages the assets using substantially the same strategies and objectives as at Reinhart. Performance information dated prior to the
purchase reflects that of Reinhart Partners, Inc.
55O SCIENCE DRIVE, MADISON, WI 53711 888.971.7135 MADISONINVESTMENTS.COM
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FXIDC-041422REINH A RT INTE R M E DI AT E DURATION
CO RPO R AT E FI X E D I NC O M E
March 31, 2022 | Separately Managed Account Performance & Characteristics
Portfolio Characteristics may help you understand how the portfolio, taken as a whole, is situated relative to other portfolios or the benchmark. See the
Definitions section on the last page for more details about each metric presented below.
PORTFOLIO DISCIPLINES REINHART FIXED INCOME TEAM
X Manage portfolio risks Michael Wachter, CFA, Portfolio Manager
X Invest in high quality, investment-grade securities Head of Reinhart Fixed Income
Industry since 1988
X Diversify across sectors, industries, and issuers Marquette University - MBA
University of Wisconsin - Madison - BA
Reinhart
Asset Allocation (%) Index X William Ford, CFA, Portfolio Manager & Credit Analyst
IDC
X Peter Altobelli, CFA, Portfolio Manager & Credit Analyst
Banking 26.80 29.40
X Douglas Fry, CFA, Portfolio Manager
Basic Industry -- 2.20
X Katherine Doyle, Portfolio Manager & Credit Analyst
Brokerage/Asset Managers -- 1.59
X Sarah Molitor, CFA, Portfolio Manager & Credit Analyst
Capital Goods 5.60 5.67
X Adam Lynch, Portfolio Manager & Credit Analyst
Communications 2.80 6.11
X Ajla Besic, Associate Portfolio Manager & Credit Analyst
Consumer Cyclical 2.80 7.64
X Reece Piotter, Associate Portfolio Manager &
Consumer Non-Cyclical 9.40 12.84
Credit Analyst
Electric 26.50 5.38
Energy 3.80 6.98
Finance Companies -- 1.96 Reinhart
Portfolio Characteristics Index
IDC
Insurance 13.30 3.53
Yield to Worst (%) 2.90 3.31
Natural Gas -- 0.46
Wtd. Avg. Quality2 A BBB+
REITS -- 3.99
Wtd. Avg. Maturity (years) 4.49 4.85
Technology 5.60 10.19
Wtd. Avg. Current Yield (%) 3.05 3.15
Transportation 2.80 1.73
Effective Duration (years) 4.05 4.30
Other -- 0.32
Convexity 0.24 0.29
Cash 0.60 --
Figures may not equal 100% due to rounding.
The “Other” category is partly comprised of legacy composite holdings which may not be indicative of Reinhart
current investment strategy. New account holdings may vary. Quality1 Distribution (%) Index
IDC
AAA 6.60 0.83
AA 11.40 6.06
A 80.90 43.24
BBB 0.50 49.86
Under BBB -- --
Cash 0.60 --
Figures may not equal 100% due to rounding.
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FXIDC-041422DISC LO SUR ES
DISC LO SUR ES
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office for Madison’s
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550 800-767-0300.
Science Drive, Madison, WI 53711. Madison’s toll-free number
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Any 800-767-0300.
performance data shown represents past performance. Past
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All investing involves risks including the possible loss of principal.
noted. as
Thisan report
offer or is solicitation
for informational with respect
purposes to theonlypurchase
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as an offer or solicitation with respect to the purchase or sale of any
There can be no assurance the portfolios will achieve their security.
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MADISONINVESTMENTS.COM | 4MADISON
REINHART INTERMEDIATE DURATION CORPORATE FIXED INCOME COMPOSITE
GIPS COMPOSITE REPORT
Composite Assets Annual Performance Results
Composite Index
Total
Year Bloomberg 3-Yr. 3-Yr. % of
Firm Composite Composite Composite
End USD Number of U.S. Interm. Composite Annualized Annualized Bundled
Assets Pure Net Net
(millions)
(millions) Accounts Credit Dispersion Ex-Post Ex-Post Fee
Gross (Blended+) (2.25%)
Bd Index Standard Standard Accounts
Deviation Deviation
2021 19,129 344 691 -1.41% -1.65% -3.61% -1.03% 0.12% 3.17% 4.27% 98%
2020 * 387 716 6.29% 6.02% 3.93% 7.08% 0.43% 3.10% 4.23% 90%
2019 * 338 726 7.36% 7.09% 4.98% 9.52% 0.43% 1.95% 2.16% 91%
2018 * 333 766 0.72% 0.47% -1.52% 0.01% 0.20% 2.03% 2.19% 95%
2017 * 364 887 2.45% 2.19% 0.17% 3.67% 0.25% 2.15% 2.29% 98%
2016 * 361 868 2.13% 1.88% -0.14% 3.68% 0.31% 2.31% 2.47% 99%
2015 * 282 664 1.75% 1.49% -0.52% 0.90% 0.18% 2.32% 2.59% 100%
2014 * 269 631 3.86% 3.60% 1.55% 4.16% 0.37% 2.16% 2.66% 94%
2013 * 240 505 -1.06% -1.31% -3.27% -0.16% 0.25% 2.32% 3.01% 94%
2012 * 272 451 5.46% 5.20% 3.13% 8.09% 0.30% 2.38% 2.85% 97%
2011 * 229 262 6.31% 6.04% 3.95% 5.37% 0.42% 2.89% 3.85% 100%
Assets above are rounded to the nearest million
As of December 31, 2021, total assets under advisement in this strategy are $357 million encompassing bundled fee accounts, non-bundled fee accounts and non-
discretionary accounts which do not include any model-traded assets. This is presented as supplemental information.
Reinhart Intermediate Duration Corporate Fixed Income Composite contains fully discretionary, bundled and non-bundled, fee-paying, fixed income accounts that are managed using
the Intermediate Duration Corporate Fixed Income strategy. The composite seeks to invest in investment grade, taxable, corporate only, fixed income securities with an average maturity
of 0-10 years. The principal risks of investing in the portfolio include: interest rate risk, call risk, risk of default and liquidity risk. As interest rates rise, the prices of bonds fall. Long-term
bonds are more exposed to interest-rate risk than short-term bonds. Unlike bonds, bond portfolios have ongoing fees and expenses. In a low-interest environment, there may be less
opportunity for price appreciation. The composite is measured against the Bloomberg U.S. Intermediate Credit Bond Index which measures the performance of investment grade corporate
debt and agency bonds that are dollar denominated and have a remaining maturity of greater than one year and less than ten years. Index information is included merely to show the
general trend in the market for the periods indicated and is not intended to imply that the portfolio was similar to the index either in composition or element of risk. The index is unmanaged,
and an investment cannot be made directly into an index. Index returns do not reflect the deduction of advisory fees or any other fees or expenses. Index returns reflect the reinvestment
of dividends, interest, and other earnings. For the periods from July 1, 2001 through June 11, 2021, the track record presented here consists of the composite, which was previously
maintained by Reinhart Partners, Inc. (“Reinhart”) an advisor not affiliated with Madison. See the disclosures below regarding the fixed income management assets of Reinhart being
acquired by Madison on June 11, 2021. Performance of the past firm has been linked to the composite track record.
*For the purposes of GIPS compliance and the determination of total assets under management, the Firm is defined as Madison. Madison represents Madison Investment Advisors, LLC
(“MIA”) and Madison Asset Management, LLC (“MAM”), two investment advisers under common control registered with the U.S. Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940. (Registration does not imply a certain level of skill or training.) Prior to December 1, 2010, the Firm’s composites were maintained by Madison Investment
Advisors, Inc. (“MIA Inc.”). On November 30, 2010, pursuant to a corporate reorganization that involved no change of control or personnel relating to account composite management, all
composite accounts managed by MIA Inc. were transferred to MIA and performance information for periods prior to December 1, 2010 refer to this composite as managed by MIA
Inc. During the first quarter of 2013, MIA and its parent company, MAM (also a registered investment adviser), began the process of eliminating the distinction between accounts and
products managed by the two companies. Because MIA and MAM share all resources and personnel at their mutual Wisconsin office location and because there is no longer a brand or
line of business distinction between products and services offered by the two registered investment advisers, for periods after March 31, 2013, the collective definition of the firm (Madison)
includes accounts and assets managed by MAM and MIA. However, the firm does not claim compliance with the GIPS standards for assets and accounts managed by MAM prior to April
1, 2013. As of December 31, 2013, Madison Scottsdale, LC (“Scottsdale”), another registered investment adviser under common control with MIA, merged its assets into, and became
part of, MIA and subsequently those assets became part of the firm (Madison). The transaction resulted in no change to the resources or personnel as the sole purpose of this change
was to simplify Madison’s legal corporate structure. Prior to January 1, 2014, Scottsdale did not claim GIPS compliance and no performance for composites formally maintained by
Scottsdale are contained in this performance presentation or included in the definition of the firm (Madison). As of October 30, 2020, Hansberger Growth Investors, LP (“HGI LP”), an
affiliated registered investment adviser under common control with MIA, consolidated its assets into MIA, and subsequently those assets became part of the firm (Madison). The transaction
resulted in no change to the resources or personnel as the sole purpose of this change was to simplify the legal corporate structure. Prior to October 30, 2020, HGI LP claimed GIPS®
compliance and all composite accounts managed by HGI LP were transferred to MIA and performance information for periods prior to October 30, 2020 refer to those composites as
managed by HGI LP. On June 11, 2021, Madison acquired the fixed income management assets of Reinhart Partners, Inc. (“Reinhart”), an unaffiliated registered investment adviser, and
subsequently those assets became part of the firm (Madison). The Investment Team of Reinhart, who were responsible for composite performance prior to June 11, 2021, joined Madison
on that date and continue to manage the Reinhart Fixed Income Strategies. A list of composite descriptions and a list of broad distribution pooled funds are available upon request.
Madison claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. The firm,
as defined above, has been independently verified for the periods January 1, 1991 through December 31, 2020. A copy of the verification report is available upon request. A firm that
claims compliance with the GIPS standards must establish policies and procedures for complying with all the applicable requirements of the GIPS standards. Verification provides
assurance on whether the firm's policies and procedures related to composite and pooled fund maintenance, as well as the calculation, presentation, and distribution of performance, have
been designed in compliance with the GIPS standards and have been implemented on a firm-wide basis. Verification does not provide assurance on the accuracy of any specific
performance report. GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the
content contained herein.
Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. Composite policy does not require the temporary removal of any
portfolio incurring a client-initiated significant cash inflow or outflow. Past performance is not indicative of future results.
+The U.S. Dollar is the currency used to express performance. Time-weighted returns are presented gross and net of management fees and include the reinvestment of all income.
Pure gross returns are shown as supplemental information and are stated gross of all fees and transaction costs; net returns are reduced by two separate annual model fees. The first
net return is reduced by a blended model fee which represents the standard fees over time: for periods from 1/1/2004 to current, net returns are reduced by a 0.25% annual model fee,
applied monthly; for periods from 7/1/2001 to 12/31/2003, net returns were reduced by a 0.35% annual model fee, applied monthly. The second net return is reduced by an annual
model bundled fee of 2.25%, applied monthly. Due to variances between wrap/UMA programs, multiple net returns are presented to show two possible outcomes at different total
annual model fee rates. Bundled fees include Madison’s portfolio management fee, as well as all charges for trading costs, custody, other administrative fees, and any third-party
manager fees. Actual returns may vary depending on a particular account’s trading platform and trading discretion. Any differences in the timing of trades may result in various
performance outcomes for Madison’s separately managed accounts versus model manager accounts. Actual returns will be reduced by investment advisory fees and other expenses
that may be incurred in the management of the account. The collection of fees produces a compounding effect on the total rate of return net of management fees. As an example, the
effect of investment management fees on the total value of a client’s portfolio assuming (a) quarterly fee assessment, (b) $1,000,000 investment, (c) portfolio return of 8% a year, and
(d) 1.00% annual investment advisory fee would be $10,416 in the first year, and cumulative effects of $59,816 over five years and $143,430 over ten years. The annual composite
dispersion presented for periods beginning 1/1/2021 is an equal-weighted standard deviation calculated using the annual pure gross returns of the accounts in the composite for the
entire year. For periods prior to 1/1/2021, the annual composite dispersion presented is an asset-weighted standard deviation calculated using the annual pure gross returns of the
accounts in the composite for the entire year. The three-year annualized ex-post standard deviation of both the composite (using monthly pure gross returns) and the benchmark are
required to be presented for year-end periods beginning in 2011. Policies for valuing investments, calculating performance, and preparing GIPS reports are available upon request.
The management fee schedule for this strategy is as follows: 0.25% annually on the balance. For this strategy, total annual bundled fees charged by wrap/UMA sponsors familiar to
Madison are generally in the range of 1.00% to 2.25% annually. Bundled fee schedules are provided by independent wrap/UMA program sponsors and are available upon request from
the respective wrap/UMA sponsor. Actual investment advisory fees incurred by clients may vary. Additional information regarding investment advisory fees are described in our disclosure
brochure.
The Reinhart
8 .I9E7Intermediate
. 7E1 3D5R I Duration ICorporate Fixed Income Composite was created June 1, 2001 and the inception date is July 1, 2001.
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