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SEPARATELY MANAGED ACCOUNTS

FIXED INCOME PORTFOLIO STRATEGIES

We offer an intermediate-term taxable bond strategy and short- and intermediate-term tax-exempt strategies for national and state-specific portfolios for residents of states with high personal income tax rates.  In addition, our Portfolio Managers specialize in the integration of bond investing with responsible, green investment principles.  

Shelton Capital Management has been managing fixed income portfolios since Dick Shelton founded the company in San Francisco over 29 years ago.  The Fixed Income portfolio team comprised of Charles Sandmel and Bill Mock has an aggregate of over 32 years in managing all sectors of the high-grade municipal government and corporate bond market.  

A short description of the process:

  • Shelton Capital Management creates bond portfolio models based on the client’s risk tolerance and tax considerations; a “green” overlay emphasizing bonds that finance energy conservation, clean energy and water, mass transit, climate resilience and environmental remediation may be applied to any model.  
  • We evaluate and choose bonds which, in aggregate, approximate the coupon, duration and credit quality of the appropriate Barclay’s Capital Index.
  • We diversify holdings by coupon, maturity and source of repayment; we strive to limit exposure in any security to no more than 15% of total portfolio value.
  • We continue to monitor risk and return characteristics for each position.  While our preference is to limit trading costs, we replace short or maturing securities as the duration of a portfolio becomes shorter than the benchmark with the passage of time.

FAQS  -  Fixed Income Portfolio Strategies  

Which portfolio is right for me?
The process of matching your investment goals and personal profile with an asset allocation mix is based primarily on risk tolerance, time horizon, and other factors.  While some clients establish their investment objectives and guidelines on their own, consulting with an advisor is an ideal solution to identify the most suitable solution.

If your account is tax-deferred (IRA or similar) you want to consider the taxable-bond portfolio.  If your Federal tax bracket is 28% or greater, you probably want to consider a tax-exempt bond portfolio.  We recommend that you consult your tax advisor.  

What is a “green overlay” and how might it affect risk and return?
A portfolio constructed with a green overlay would emphasize bonds that are issued to finance green enterprises or infrastructure; issuers commonly define the uses for which proceeds may be used, and some larger issues obtain third-party certification of green character.  Most green bonds issued to date are rated based on the overall credit quality of the issuer.   There is limited history on which to form a judgment, but to date we have seen no evidence of investing in green bonds reducing return or increasing risk.  We use the term “green overlay,” because the green bond market is in its early stages, and it may not be possible or appropriate to populate an entire portfolio with green bonds.  To the extent that access to green bonds is limited, we intend to fill out such portfolios with bonds that do not ostensibly finance harmful enterprises or projects.

What are the main risk factors in these bond strategies?  
All bonds carry a risk that interest and principal will not be paid timely or in full.  The benchmark indices against which our portfolios are constructed have average credit ratings in the “AA” range (upper medium grade) range and we invest only in bonds rated “BBB” or better, or (if unrated) deemed to be of “A” quality or better.   

The value of any bond is subject to variation driven by rising or falling interest rates.  Bond values and interest rates move in opposite directions.  In general, bonds with shorter maturities are less price volatility than longer bonds.  “Duration” is a convenient measure of bond price volatility; the price of a bond rises/falls by a percentage nearly equivalent to the number of years of duration. Inflation risk reduces the purchasing power of bond principal and interest over the longer term.

Important Information

When comparing mutual funds to SMAs one should carefully consider the fees and expenses associated with each type of investment. All investments carry a certain degree of risk, including the possible loss of principal and there are specific risks that apply to each investment strategy. There is no assurance that an investment will provide positive performance over any period of time.

Prospective clients should consult their financial advisor about investment strategies that are appropriate for their investment objectives, risk tolerance, tax status and liquidity needs. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on the state of residence.