RidgeWorth Podcasts

The Fixed Income Market 5 

DAVID CRAIG:  Hello and welcome to Fixed Income Market Five.  It is May 4, 2012, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadvisor of RidgeWorth Investment Grade Bond Funds, discussing what is going on in the fixed income markets.  So Jim, after a very strong first quarter for high yield bonds and corporate bonds, it looks like Treasuries started the second quarter the strongest.  What drove that?

JIM KEEGAN:  Yes, Treasuries led the way after underperforming in the first quarter David and particularly the long end of the curve with 30-year Treasuries up 4.8%.  I think it was a function of Europe coming back into the headlines with concerns in the periphery, as well as economic data which had surprised here in the U.S. to the upside of January and February came off rather sharply in the March/April period.  The first quarter though was all about “risk on”; it was all about Central Bank liquidity, the ECB’s LTRO Program (European Central Bank’s Long-Term Refinancing Operation), Chairman Bernanke saying that he is ready, willing and able and assuring the market that he will do more money printing if stock prices fall or the economy slows, and then probably one of the things that didn’t get talked about a lot in the first quarter was just significant bond fund flows continue.  We had $100 billion in bond fund flows year-to-date in taxable bond funds and these numbers are staggering; $900 billion, almost $900 billion since 2007.  So I think it is consistent with our investment theme of safe income at a reasonable price in a zero interest rate policy environment. 

DAVID CRAIG:  Okay.  Now last month you mentioned that China is something we should be keeping our eyes on.  In April, the Chinese Stock Market stormed back from the big drop in March and data released this week, including an increase in export orders and a slowing decline in factory output suggests to some that China may have hit bottom the first quarter.  Would you agree with that?

JIM KEEGAN:  I think in the case of China David, one should be very careful about extrapolating too much from the latest moves in the stock market.  Much of the rallies are due to the expectations of monetary policy easing and that is true in China.  There is widespread expectation that the Central Bank in China will cut reserve requirements for banks.  The government has clearly been encouraging banks in China to lend aggressively to municipalities to counter the slowdown in economic activity, but China has significant problems in their banking system due to very aggressive lending, non-performing assets are bloated, have significant exposures to non-viable projects that were initiated by these local governments, so there is significant structural problems in our view yet to play out in China.  The recent PMIs (Purchasing Managers Index) are somewhat misleading at the headline level.  The improvement in the headline by our read is that it was precisely due to the explosion in bank loans to local governments.  While you saw the headline rise, more importantly you saw new orders dropped, so it remains to be seen whether China can manage a soft landing or not, but the problems there we think are pretty serious and the biggest question is going to be unavoidable that they have some problems somewhere down the road, but as to timing it is going to be very difficult.

DAVID CRAIG:  Okay.  Now let’s move to Europe.  Polls are showing that Francois Hollande, the French Socialist Candidate, will probably be the new French President after the run off against Nicolas Sarkozy this Sunday.  If that happens, what do you believe are the ramifications for France specifically and Europe in general?

JIM KEEGAN:  Well we think that Mr. Hollande will likely win the election as you indicated and he will move toward the middle after elected.  Hollande has little choice but to continue with the implementation of the economic reform for austerity.  There might be some implementation delays due to his anti-austerity and pro-growth stance, which will likely add to the volatility in Europe and he may give further leverage to those in Europe that are advocating against austerity, which again could potentially lead to uncertainty amongst investors, which markets typically do not like.  We don’t think at this point that his victory will be the catalyst for a big “risk-off” trade.  You know, it is going to be very clear that he is going to have to work with Germany, so I’m sure shortly after he is elected he will probably take a trip to Germany.  The more important thing, you talked about this French Election on Sunday.  The more important election to us is really the Greek Election, which is also on Sunday.  If the pro-European coalition, which is polling at about 37-38% does not win a solid victory, I think that potentially puts the IMF (International Monetary Fund) Program at risk and raises the likelihood of a Greek exit from the Euro, and that to me would be a more significant catalyst to a “risk-off” environment and then you got to wonder if that happens then do Ireland and Portugal look at that and say hey, maybe we should take that route as well.  You mentioned the Chinese Stock Market being up in April.  One of the other markets that had a nice run in April was Iceland and you might remember Iceland was the one country that knew its debt was unsustainable, defaulted and were just upgraded to investment grade by one of the rating agencies and the economy is doing pretty well there. 

DAVID CRAIG:  Now are there any other notable highlights for April?

JIM KEEGAN:  Well, you know April the austerity continues to take hold and unemployment is up in Europe.  There is now talk led by ECB President Draghi of a growth compact.  You might recall that he talked about a fiscal compact last December, but the unemployment situation in the periphery is just getting significantly worse.  You have got an unemployment rate in Spain of 24%, with young people, what they call youth unemployment at 51%, while in Greece the unemployment rate is around 22%, and again, you have a similar 51% of the youth in Greece unemployed.  The two things that stood out to me was the fact that German rates repeated record lows throughout the course of April and U.S. rates which tested 2.4% in March fell back to well below 2%.  The other thing that I had mentioned was Australia, which unexpectedly cut rates 50 basis points, and specifically cited slowing global growth and China in particular and Australia, has been one of the growth wonders primarily due to the trade that they have with China. 

DAVID CRAIG:  Now what are the things that investors should be keeping their eyes on now?

JIM KEEGAN:  I think in the short term the things I would cite are three or four things; the election obviously in countries like France and Greece, and more importantly, this goes to both politicians and policy makers, it is going to be much more important to follow what they do rather than what they say.  The fundamentals will always be important and watch the unemployment rates, the fiscal deficits in the peripheral parts of Europe, European Stock Markets I think should be paid close attention too, and the European Bank situation continues to worsen and non-performing loans continue to go up.  So we would expect that the European Banks will be under significant pressure from the rating agencies at some point.  Then, the growth compact; what I mentioned before, you see the President Draghi or more of the Europeans are pushing back against austerity and talking about a growth pact.  We don’t exactly know what they mean by a growth compact.  They have cited using the European Investment Bank to do some infrastructure spending, but we are talking about $60 billion worth of loans which is really not going to do a lot.  Then the question becomes how does this growth compact, however, that is defined, mesh with austerity and the Germans continued insistence on austerity.  As always in Europe, watch the bond auctions in the periphery, particularly auctions where the maturities go beyond three years.  It is very easy for the Europeans to auction debt within the LTRO maturity window of three years, but it gets more difficult as you go out beyond three to ten years in particular. 

DAVID CRAIG:  All right, well Jim thanks for your insights.

JIM KEEGAN:  Thank you David.  

  

The Equity Market 5

DAVID CRAIG:  Hello, welcome to the Equity Market Five.  It is May 4, 2012, and I’m talking with Don Wordell of Ceredex Value Advisors, subadvisor to the RidgeWorth Mid-Cap Value Equity Fund, about what has been going on in the equity markets.  Now Don, after a very strong first quarter, the equity markets pulled back a little bit in April; why was that? 

DON WORDELL:  I wouldn’t get too caught up in the equity markets pulling back a little bit in April.  I mean, the first quarter we were up very, very strong and I just think that the market was digesting the big move off the lows of last October, as well as just digesting earnings that are starting to be reported in April. 

DAVID CRAIG:  Okay.  Now from a S&P 500 sector perspective, Telecom and Utilities did extremely well for the month.  What are some of the reasons for that?

DON WORDELL:  I think the biggest reason is that Telecom and Utilities are defensive stocks and so with the market pulling back a little bit and then their underperformance during the first quarter, it was just a little bit of reversion to the mean; the stocks just did a little bit better in April and it was nothing more than that. 

DAVID CRAIG:  Okay, and then Financials and Technology were the laggards for the month; why was that? 

DON WORDELL:  I really think that that was a function of just a strong performance coming off the lows of October and then just the market beginning to digest the earnings reports, and the earnings reports that you get in April re primarily the Financials and even some of early Tech reports and so I think that while earnings were good, expectations were pretty high for that sector going into earnings. 

DAVID CRAIG:  Okay.  Now China has been interesting to watch over the past two months.  There is a big drop in the Chinese Stock Market in March and then a big bounce back in April.  What is happening in China and how does that impact the way you manage it in a domestic equity portfolio? 

DON WORDELL:  It definitely has an impact you know, what is going on in China is that you had an economy that was growing at 10-12% for many years and that growth is slowing somewhat and now it is a much bigger economy so it is growing off a larger base, but that growth is finally going to bottom out in the 7 to 8% range and we are just on the way down, so the markets are very nervous about China’s slowing economy.  As the economy slows, a lot of people get worried about China’s massive consumption of commodities and the impact that can have on inflation, and so really the world is just waiting to see where China’s economy bottoms.  We also have the Chinese New Year’s which really slows down things over there every year and it seems like every year in the first quarter, calendar quarter we get, all the Chinese economy worries come out because of the Chinese New Year slowing down the economy.  So I would tell you that it is the third largest economy I think in the world now and it is growing, 7.5% growth is still fantastic, but it does have an impact on how we manage money because a lot of our companies have exposure to China so it is something we have to be very concerned about.  

DAVID CRAIG:  Okay, and then finally, is there anything else that happened in April that impacted your outlook for 2012? 

DON WORDELL:  You know, the thing that has been the most impactful has just been earnings.  As people listen to these calls that I have done over the last couple of years, I sound like a broken record.  Corporate earnings are in good shape, corporate balance sheets are in good shape, and so I continue to believe that, and you have seen that with these earnings reports; you know, companies are meeting or exceeding expectations; at this point, something like 75% of the companies that have reported have exceeded analyst expectations.  Corporate balance sheets are in tremendous shape, and so I think that going forward if we can get past the macro concerns, if we can get past this election and get past the sequestration spending clip that could happen next year with the government, I think that this economy is going to do very well and the market should do very well.  So all the things I talked about are very near term issues for the next six months, which probably creates some volatility, but I come back and look at the bottom up fundamentals of these stocks and I’m encouraged by earnings and corporate earnings and balance sheets, and so we are still cautiously optimistic in the near term and very optimistic in the long term. 

DAVID CRAIG:  All right, well Don thanks for insights.

DON WORDELL:  You’re welcome. 

 

The Style Class Market 5

DAVID:  Hello and welcome to Style Class Focus Five.  It's May 3, 2012, and I'm talking with Brian Nold of Seix Investment Advisors, subadviser to the RidgeWorth High Income Fund about the high yield market.  So Brian, after our last interview about the high yield market in early November, high yield had a pretty good sell-off in November but has been steadily climbing since then.  What has been happening in the high yield markets? 

BRIAN:  Thanks David.  There’s really been three main drivers of the improved trading environment within the High yield market and one is the strong fundamental performance that we're seeing in high yield companies in terms of strong earnings.  The second would be the degree of stabilization that we are seeing out of Europe, and then the third is the strong inflows of cash that have come into the high yield market with between $15 and $16 billion of inflows just on the retail mutual fund side into the high yield market which is only a fraction of what actually comes into the whole market.

DAVID:  Okay.  Now in November, spreads were about 713 basis points which you said implied a forward default rate of about 7%.  What's been the default rate over the past twelve months?

BRIAN:  Well, the default rate's actually been just below 2% over the last twelve months so very low levels by historical standards and that's really been driven by the strong fundamental environment that we're seeing for high yield companies as well as the improved access to capital for high yield companies in general, so there hasn't been really a driver to push companies into bankruptcy or to distress. 

DAVID:  Okay, and then where are spreads now and what does that imply about the forward default rate?

BRIAN:  Spreads are just under 600 basis points, so about 589 basis points at the end of April and if you figure out what that implies, it's about a 5% or so default rate and that in relative comparison to projections of about 1.5% to 2% default rate over the next twelve to eighteen months, that's based on kind of a bottom up analysis of the high yield market, so we think that current spreads are significantly overstating the potential default risk and that's likely due to where absolute yields are, so yields in the higher market are just under 7% in the high sixes right now and that relatively low yield is masking the fact that spreads are still wide and that really the underlying connection there is how low absolute Treasury rates are.  There's probably some kind of artificial floor as to how low absolute yields will get despite whatever the default rate may be implied.

DAVID:  Now you mentioned in November that many companies had already refinanced debt they had at lower rates.  What does the high yield new issue look like today and what are the companies using for that debt floor? 

BRIAN:  The new issue market's robust.  It's very strong.  We've seen $113 billion in year-to-date new issue and that's up about 12% year over year and about 60% or so is being used for refinancing and a relatively small amount is being used for more aggressive activities like share repurchases or aggressive M & A (mergers and acquisitions), so overall, it's a very positive environment for credit given the use of proceeds.

DAVID:  Okay.  Now let's move to Europe.  How have the issues in Europe been impacting in the high yield market regionally?

BRIAN:  With the relative stabilization that we've seen in Europe, really driven by the improved access to liquidity for European banks has driven kind of more global risk appetite for investors, and we are seeing some of that flow through in terms of capital flows into the high yield market.  From a fundamental standpoint, we are seeing a little bit of stabilization in the European operations of U. S. companies that are in high yield markets, so they are seeing some stabilization albeit at lower levels of activity. 

DAVID:  Were there any other highlights in the high yield market that we missed?

BRIAN:  I think I'd just reiterate the strength and the fundamentals in high yield companies which is the most important takeaway and that's really shown by three things, which is decreasing leverage, strong free cash flow and strong liquidity. 

DAVID:  Okay and then what's your outlook for high yield?

BRIAN:  Well, high yield is up a little over 6% year-to-date and we have seen spread tightening year-to-date.  Really the first quarter was pretty strong.  We saw some further spread tightening in April.  We would expect most of the return for the rest of the year in high yield market to really be driven by the yield component or the coupon in the bond.  We do expect fundamentals to remain strong, so we would expect any macro-induced volatility that may come into the high yield market will likely present a buying opportunity.

DAVID:  Okay, great.  Well Brian, thanks for your insights. 

BRIAN:  Great.  Thank you very much.

 

The Plan Advisor Tools 5

DAVID CRAIG: Welcome to the Plan Advisor Tools 5.  It’s the week of May 14 and I’m with Brandon Shea, Managing Director and DCIO Team Lead for RidgeWorth Investments, discussing branding in general, and developing a statement of services specifically.  First Brandon, why is it important for an advisor to develop a personal brand?

BRANDON SHEA: If you don't have an identifiable brand, you will be seen in the marketplace as a commodity and your services will be hired and fired on the basis of price.

This comes about as a result of two important challenges that retirement plan advisors face:

1. Any advisor can hold himself out as a retirement plan expert – while there are credentials you can obtain to differentiate your expertise, there are no professional licenses or specific qualifications needed to call yourself a retirement plan advisor.  As a matter of fact, some studies show that a majority of plans, especially in the micro and small plan market are managed by advisors without any extensive DC plan experience or expertise.

2. Most plan sponsors do not know enough about the complex world of retirement plans to understand the difference between a retirement plan expert, the “professional” if you will, and the retirement plan novice, the so-called “blind squirrel.” Often, these decisions are made on the basis of friendship or a family relationship with the business owner. 

If you cannot articulate the value of the services you offer at a set price AND a competing advisor, who doesn’t understand the business and the complexities the way that you do, offers to do the same services for 15-20 basis points less, you may lose that business if you cannot establish a demonstrable “value gap”: meaning the difference between what you offer versus the competing advisor trying to place a wedge between you and your client. With the new fee disclosure regulations on the horizon, plan sponsors will be zeroing in on costs and less likely to focus on the value that you bring, unless you are able to adequately and compellingly demonstrate that value.

DAVID CRAIG: What can advisors do to stand out?

BRANDON SHEA: They can take intentional steps to personally brand themselves as an expert in their marketplace. You do this by executing the proven “PHD Personal Branding” process that RidgeWorth Investments has launched and is releasing throughout each quarter in 2012. The process consists of 4 sequential steps that build upon each other.

The 1st step is to strategically plan your brand in your marketplace so that the value you offer will resonate with your target audience or clients & prospects.  Part of this process is to build the tools to help you communicate the value of your personal brand to your target “ideal client”. In previous podcasts and in our webcast from February, available on demand in our Virtual Knowledge Center at ridgeworthVKC.com, we showed you how to create an effective personal biography that conveys your competence as a retirement plan professional, reveals something positive about your character and provides a couple connection points of common ground to build rapport with prospective clients. We also discussed how to craft a series of compelling positioning statements that make you memorable in the eyes of an HR director, a CFO or CEO by communicating you understand the common issues they each face with their company’s retirement plan and that you have the expertise and resources to solve those issues. These items help answer the question “who are you?” in the mind of your ideal client.

DAVID CRAIG: Now that the advisor has defined who they are, where does the Statement of Services come in? 

BRANDON SHEA: The “Statement of Services” document is your opportunity to showcase the "How" of what you do (the specific professional services your team offers) to achieve the "Why" a client hires you (to achieve positive results for their plan & their participants).

Not only can an effective Statement of Services reinforce your personal brand, it can help you generate more revenue in an environment of constant benchmarking and fee compression.

It's a good assumption to think that the plan sponsors you call on are all overwhelmed with other tasks and projects.  Overwhelmed people can only take in so much information about a topic that they may not see an immediate need for (like a switching a current broker of record or vendor when the current plan is intact).

Also, thanks to complex DOL & ERISA regulations and revisions to such regulations, we work in a complicated industry. Busy people who are overwhelmed tend to oversimplify complicated situations & you may unknowingly become a victim of this. In other words, due to the complicated nature of our business, clients may have a hard time truly grasping why you are different and how your services can add value in their current situation.

 As a result, plan sponsors may oversimplify all the services that can be provided in the process and the cost of such services. They may assume most financial advisors are generally the same & provide the same services.

Your Statement of Services document is an opportunity to de-commoditize yourself and reinforce your brand.

DAVID CRAIG: Can you give me an example of how this could work for an advisor?

BRANDON SHEA: Sure, let's take this scenario out of theory and into the real world. Every day, you’ll face advisors that are competing for your clients who will turn an opportunity they find into a price-bidding war.

In his book MERGE: Simplify the Complex Sales in Five Surefire Steps (How Hard-Charging Consultants in Professional & Financial Services Slow Down to Succeed), William MacDonald explains that when he is faced with price-bidding situations, he’ll try to get the client to give up some of the valuable services he is proposing rather than reduce the price & he’ll use his Statement of Services as a tool to help make the argument. 

For example, Mr. MacDonald offers the following services in his Statement of Services:

•         plan design

•         plan documentation

•         a complete investment analysis with a registered investment advisor

•         enrollment and education using Certified Financial Planners working with participants

•         monthly financial report to the company

•         24/7 access to web tools

•         a dedicated client team

•         research on new tax law changes, etc…

In other words, he is using his Statement of Services to present in a clear and compelling way all the tangible ways his team provides value. In doing so, the client can quantify the potential savings with each proposed service.

Citing a specific example of when a client was pressing him on fees, he suggested his client work with their outside legal counsel to provide various services he was proposing in the Statement of Services; such as:

•         drafting the plan document

•         designing the investment menu with the help of another registered investment provider

•         and eliminating the use of certified financial planners in the plan participant enrollment process.

Indeed, these three recommendations would have resulted in a reduction in the proposed fees.

This client discovered that if they employed their outside legal counsel to draft the plan document, the cost of that service alone would have been 80% of the total fee the advisor was proposing for all the listed services in the 1st place. The end result was the client agreed to the initially proposed fee structure.

By listing out all the services his team offered and by breaking down the price of each service, it became very clear to the client that they were receiving value for the cost they were incurring. Also, this client was now equipped with a reference point to measure other advisors ‘claims when they say they can take over the plan for a lesser fee. If a competing advisor does not offer the same services, then the client will know they are not comparing apples to apples.

In instances where there is a noticeable difference of perceived value, it is justifiable to pay a premium for that experience. 

What this example illustrates is that when you, as a retirement plan professional, are able to achieve success when, in the eyes of your client, the value you’re offering exceeds the cost of the reduction in basis points they were originally seeking.

The takeaway: build an effective statement of services that reinforces your unique personal brand in the marketplace and allows you to differentiate your value. The example I just referenced highlighted how an advisor was able to defend his fee schedule with the argument that "good work isn't cheap and cheap work isn't good." While the competition was whispering is his client’s ear that they could offer to manage the plan a lower cost, they weren’t comparing apples for apples. They weren't offering to do the same services with the same quality of a credentialed service team for the same price. 

It’s my view that having an effective Statement of Services document is a table stake in this business, a necessary entrance fee to pay to be seen as a retirement professional. In an environment where plan sponsors can easily access bench-marking tools & when so many advisors look alike and are being asked to compress their fees, I encourage you to build a compelling Statement of Services & use it; use it as a valuable branding tool to attract clients to you and use it as a resource to defend your unique value proposition when it comes to being compensated appropriately.

DAVID CRAIG: Is there anything you want to leave with the advisors listening? 

BRANDON SHEA: Absolutely.  To end on a positive note, this is an exciting time to be a retirement plan professional. Investing in your personal brand & your team will yield dividends in this environment of fee disclosure. It will help you be seen as an identifiable brand as opposed to a commodity that trades on the basis of price.

To view RidgeWorth Investment’s brochure on building a successful service model along with additional resources to help your branding efforts, please visit our website titled: www.PlanAdvisorTools.com and click on the PHD Personal Branding Campaign tab. Remember, all great personal brands must have the PHD components to it – it must be Personal, it must be Honest & authentic to you & it must be Demonstrable.

Please bookmark this site as a resource so we can continue to help you brand yourself as an expert in the retirement plan space. 

DAVID CRAIG: Great Brandon.  Thanks for your insights.

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time and are for informational purposes only are not intended as individual or specific advice, may not represent the opinions of the entire firm and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, is provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be and should not be construed as investment, legal, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice. Bonds offer are relatively stable level income, although bond prices will fluctuate, providing the potential for principal gain or loss. Intermediate term, higher quality bonds, generally offer less risk than longer term bonds and a lower rate of return. Although the Fund's yield may be higher than that of fixed income funds that purchase higher rates, the potentially higher yield is a function of the greater risk that the Fund share price will decline. Equity securities may be more volatile and carry more risks than other forms of investments, including investments in high grade fixed income securities. The net asset value per share of this fund will fluctuate as the value of the securities and portfolio changes. Mid capitalization funds simply carry additional risks since smaller companies generally have a higher risk of failure. Value based investments are subject to the risk that the broad market may not recognize their intrinsic value. Past performance is not indicative of future results. For performance data current to the most recent month-end, visit our website at www.RidgeWorth.com. An investor should consider the fund’s investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth Funds can be found in the fund’s prospectus. To obtain a prospectus, please call 1-888-784-3863 or visit www.RidgeWorth.com. Please read the prospectus carefully before investing. Mutual funds are not FDIC insured, have no bank guarantee and may lose value. Copyright 2012 RidgeWorth Investments. RidgeWorth Investments is a tradename for RidgeWorth Capital Management, Inc. an investment adviser registered with the SEC and the adviser to the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors, LLC, which is not affiliated with the advisor. Seix Investment Advisors is a registered investment advisor with the SEC and a member of the RidgeWorth Capital Management Incorporated network of investment firms. Ceredex Value Advisors is an registered investment adviser with the SEC and a member of the RidgeWorth Capital Management, Inc. network of investment firms. Unless otherwise noted, the opinions provided by the authors and other sources are not necessarily those of RidgeWorth. Personal Branding program materials are licensed from and developed in collaboration with Insight Development Group, Inc. Insight Development Group, Inc. is not affiliated with RidgeWorth.

The Fixed Income Market 5 

DAVID CRAIG:  Hello and welcome to the Fixed Income Market Five.  It is April 9, 2012, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and Subadvisor to the RidgeWorth Investment Grade Bond Funds, discussing what is going on in the fixed income market.  So Jim, High Yield Bonds, Investment Grade Corporates and Equities continued to lead the way in March and rounded out a very strong first quarter.  What drove that? 

JIM KEEGAN:  I think it was a continuation of the “risk on” that started last October when Mario Dragi took over the ECB (European Central Bank), so the first quarter if you just look at the S&P 500 was up around a little over 12%, which followed a similar 12% in the fourth quarter, so you have had 24% to 25% increase in the S&P 500 in the last two quarters.  I think it is all related to Central Banks telegraphing that they want to keep policy easy, continue to do quantitative easing, front door – back door, and by that I mean ECB with their LTRO (long-term refinancing operations) programs; they did their second one in February.  The takedown was around $1.3 trillion equivalent.  The market’s view is that, should the economy weaken or our stock prices decline, the Fed will do more QEs (quantitative easing) – so QE3, and the ECB will conduct more held LTROs, but I think you need to be somewhat concerned in here because I think there is a level of complacency that has developed in the marketplace.  The one fly in the ointment though David in March was the Chinese Stock Market fell 6.8%.  While risk and assets broadly did well, I think that is something we want to pay attention to.

DAVID CRAIG:  Right.  Now given the relatively strong economic data that has been coming out, you referred to QE; it appears that the Fed is less likely to have another round of QE.  Do you think that will have a measurable impact on the markets this year?

JIM KEEGAN:  Well I think it already has.  I think the economy, if I had to characterize the economy in the first quarter it was okay and as we move throughout the quarter the economic surprise indices fell.  The economy was surprising, or the data was surprising less on the positive side.  So to us we think the question is the same question which we have been asking for a while, which is one of sustainability.  The other impact which I started to talk about last month is the weather; the pull forward effect from a very, very mild winter weather season.  We won’t know until the summer whether or not that is the case.  Argued at this point is it looks like the mild weather in the winter did actually lead to some pull forward effect and I think the markets are clearly looking at the Fed, and in particular, Mr. Bernanke and Mr. Dudley.  It is very clear from their public statements that they want to do QE3, but to your point they may not have the cover.  Although having said that, I think that Mr. Bernanke and Mr. Dudley and vice chair, Janet Ellen Carey, have a disproportionate say within the Fed, so it is argued at this point that the Fed will likely announce a QE3 probably telegraphing it by June because that is when Operation Twist is due to expire.  If the data comes in strong, I think it is going to be more difficult for Bernanke to carry the bidding of QE3, although at this point I have to say that he will carry the bid. 

DAVID CRAIG:  Okay.  Now let’s move to Europe.  Spain raised less debt than hoped last month and we still have the French election that you have been referring to coming up this month; how do you believe these and other European issues might impact the fixed income market? 

JIM KEEGAN:  I still believe that Europe is the source of instability to the global markets and the global economy.  Remember we talked about LTRO, Long-Term Refinancing Operations, that the ECB conducted in December and February, but we got to recall that that is a liquidity tool and so what it did was it allowed the EU (European Union) to kick the can so to speak and put off the potential problems with bank debt maturities, and sovereign rollovers, but it didn’t do anything to deal with the excessive debt problem, growth problem or the competitiveness problem that Europe suffers from, and I think what we have got to start thinking about is the fact that there are going to be some unintended consequences and you may recall a few years back that I referred to when the history books are written that this crisis is going to be known as the crisis of unintended consequences, specific unintended consequences of what has gone on in Europe with respect to the LTROs is it shortened the maturity profile, as most of the issuance that has been done by the peripheral European economies has been done inside the three-year LTRO maturity window.  The other thing is because the banks have been using some of the proceeds, particularly in Spain, Italy and Portugal, they have been the buyers playing carry trade here using the proceeds of the LTRO to buy maturities inside the three-year window, but what that does is it concentrates the sovereign debt in the hands of local banks and so if you think about this vicious circle, you have got zombie sovereigns being supported by zombie local banks being propped up by these zombie sovereigns.  The last unintended consequence is the ECB balance sheet is comprised of what I would argue at this point is very, very risky collateral.

DAVID CRAIG:  Now did anything happen in March that changes your outlook?

JIM KEEGAN:  Not so much changed our outlook.  I think the things that we would note at this point, and again a lot of it relates to what is going on globally; in March, China reduced its 2012 growth target to 7.5% from 8%, which is the first time that has happened I believe since 2005, which increases the risk of a hard landing in China.  One of the things that didn’t get a lot of publicity is that in China’s five-year plan they reduced their five-year GDP outlook to 7%.  Then if you look at industrial profits, they fell for the first time since 2009; that is Chinese Industrial Profits.  Greece you know did their private sector involvement, haircut if you will, 86% went along and then the Greek Government triggered tax which brought it up to about 95%, but the new Greek ten-year debt is trading at around 21.5%, which I think is the market’s indication that Greece will again in our view likely have to default and restructure at some point down the road.  Portugal is likely to need a restructuring.  Spain, as you pointed out, is under pressure again.  We have got the Greek elections which are scheduled to take place at the beginning of May – does the incoming government continued to go along with the program.  You mentioned the French elections which looks like there is going to be a change in government there.  Ireland has a referendum on May 31, 2012, as it relates to the fiscal union in Europe and then last, but not least, stay tuned, it is believed that the Supreme Court will announce its decision related to Obamacare sometime in June.  So there is a lot of things out there that keep us of the view that the economy at this point is flying just above tree line and it is going to take a lot to cause risk assets to come under some pressure here.

DAVID CRAIG:  All right, well Jim thanks again for your insights. 

JIM KEEGAN:  Okay David, thank you; talk to you next month.

 

The Equity Market 5 

DAVID CRAIG:  Hello, and welcome to the Equity Market Five.  It’s April 4, 2012, and I’m talking with Don Wordell of Ceredex Value Advisors, subadvisor to the RidgeWorth Mid-Cap Value Equity Fund, about what has been going on in the equity markets.  Now Don we had another strong month with the equity markets in March that rounded out a very strong first quarter.  What were some of the highlights? 

DON WORDELL:  The highlights for me in the month of March were the fact that China is clearly slowing and it’s probably slowing a little bit more than what some investors were anticipating.  The offset to that is that the Chinese government is going to use a very loose monetary policy to try and spur growth.  They’re doing things like helping the banks out over there.  What that’s going to do is probably surprise to the upside because it feels like the market was selling off because of it and we should get a nice rebound as China continues to improve. 

DAVID CRAIG: Okay.  Now from an S&P 500 sector prospective, Technology and Financials did extremely well for the month and the quarter.  What were some of the reasons for that? 

DON WORDELL:  Well Financials are just continuing to rebound off the bottom, off the horrible recession that we went through in 2008.  That’s what is going on there.  Financials are beginning to see a steeping yield curve as the ten year yield backed up a little bit.  Financials are working through; most of the banks are beginning now to work through and really to get through the other side of their credit issues.  You’re continuing to see some tepid loan growth which is positive.  As far as technology goes, it’s Apple.  When Apple does well it brings the whole group up with them. 

DAVID CRAIG:  Okay.  Now, Energy, which did well in February had negative returns in March and had a pretty lackluster overall performance in first quarter.  Why was that? 

DON WORDELL:  Well for two reasons and one I alluded to before was this slowing in China.  China seems to be the global indicator for commodity prices and so when China was slowing then it was a problem for the expectation for the consumption of energy globally; which is a very big worded way to say if China slows then the oil prices are going to go down.  The other thing too hurting some of the energy stocks was natural gas prices are setting ten year lows and that’s hurting the E&P (Exploration and Production) sector.  Then you had some of the big service names missed their earnings and guide lower which was hurting some of the service names.  You just had a real confluence of factors there that hurt them.  

DAVID CRAIG:  Okay.  Europe remains in the headlines.  Are European issues still having a dramatic impact on the domestic equity markets?

DON WORDELL:   Yeah.  Yeah, they sure are and it’s frustrating.  I know Europe it’s going to have an impact a couple of different ways.  One, it’s going to have an impact on the perception of help that the markets are going to get from all the different fiscal and monetary tools out there.  Whether it is the ECB (European Central Bank) or the Fed printing money, it’s also going to have an impact on companies that operate in Europe.  Europe is probably in a recession right now, so that could have an impact on these multi-national industrial companies and their earnings outlooks; so yeah, Europe is still having an impact in more ways than one on our equity markets.

DAVID CRAIG:  Finally, is there anything else that happened in March that impacted your outlook in 2012?

DON WORDELL:  I think the things that are really actually helping me and improving my outlook in 2012 is that it seems like the Fed, Ben Bernanke in particular, is really going out of their way now to be very transparent and let the markets know that we’re here to help if you need us.  I think that you know a lot of investors I think are still caught up on the dramatic moves in the market in liquidity that happened in 2008.  I think that those are not going to be the case for the foreseeable future.  I think that the tail risk has been diminished somewhat from that perspective.  I think that this economy while it continues to chug along at a slower recovery pace that what we’re used to, it is still getting better.  We continue to see jobs get created.  The weekly jobless claims data is at a new low for this cycle, which is great.  We’re continuing to see about 200,000 jobs month get created.  I am somewhat more positive about the overall outlook here in knowing that the economy is getting better.  I’ve got the Fed as backstop and there’s a tremendous amount of cash on the sidelines and corporate balance sheets and corporate profits still seem to be within expectations. 

DAVID CRAIG:  Great.  Alright, well Don thanks again for your insights. 

DON WORDELL:  You’re welcome.

 

The Style Class Market 5

DAVID:  Hello, and welcome to Style Class Focus Five.  It’s April 11, 2012, and I’m talking with Chad Deakins, President and CIO of Certium Asset Management, sub advisor to the RidgeWorth International Equity Funds.  So, Chad, when we talked in September of last year, the headlines were definitely negative for the Eurozone.  That still seems to be the case.  What are you seeing there and how can it get better? 

CHAD:  Well, the things in the Eurozone have gotten a lot better.  We’ve seen the ECB (European Central Bank) step in with two big refinancing opportunities for the financial institutions in Europe, they’re LTROs (Long-Term Refinancing Operations), and that has insulated the global financial system and brought down systematic risk quite dramatically.  We’ve seen a solution put in place for Greece, but now what we’re getting is there’s some refinancing in Spain, Italy, and that has again raised the volatility and scared investors a little bit.  Also, along the same time a little bit of softening news in the U.S. and some noise out of China as well.  So, we still think that we don’t invest in macro information.  We utilize the macro information.  We actually invest in companies – companies with good cash flow, good balance sheet, large sales outside of domestic Europe.  So, domestic Europe, especially the periphery, Spain, Italy, these are slow-growing economies.  They’re actually going to be in a light recession this year, will probably come out next year, maybe negative 1% GDP in Italy and Spain, but positive in France, Germany, and the UK.  So, globally these are kind of the slowest parts growing in the world, but there are large cap companies that are based in Europe.  They have very attractive exposures to the emerging markets and to the United States.

DAVID:  Okay, now most of the headlines have been about Europe, but recently China has been making some news with changes in its economic forecast.  How big a deal is that?

CHAD:  We think that most of the headlines about China are a little bit too volatile these days.  We’re in the midst of a leadership change every ten years, and we think they’re going to hold steady through that.  Currently things in China look pretty good.  China has regained its economic momentum late last year, and they’re going to grow with a GDP in excess of 8%.  They’re talking about trying to shift their economy a little bit from being so much export driven to a little more service economy, and we think they’ll be successful with that.  So, I don’t think there’s going to be a lot of fallout from what’s going on in China.

DAVID:  Okay.  Then what are you current thoughts on emerging markets in general?

CHAD:  Well, emerging markets are obviously the growth engines, one of the main growth engines of the world, mainly through population growth and urbanization, but the emerging markets are smaller markets, and they are very volatile often.  So, one of the ways to take advantage of the growth in the emerging markets is to invest in the larger cap development market companies and have significant sales exposure into the emerging markets. 

DAVID:  Okay.  Is currency currently effecting valuations?

CHAD:  Currency definitely has an impact on valuations from an investing standpoint.  Year to date, 2012, the euro is actually up a little bit against the dollar.  It’s up about a percent, so not a lot.  The Japanese yen is down 5%.  We’ve been underweight, Japan, so the weakness in the yen has not been troublesome to us.  The Japanese, the Bank of Japan is actually trying to weaken the yen so that the Japanese economy corporations can become more competitive.  Of course, Japan is a very export-led economy, and they’re currently competing with many of the other emerging markets to export globally.  A lot of the emerging market currencies are up dramatically so far this year, and that’s because they have higher interest rates than we have in the developed world, and you see liquidity chasing that to some degree.  The Columbian peso is up about 8.5%, the Russian ruble is up about 8.5%.  Mexican peso also up about 6%.  So you see a lot of the emerging market currencies up so far this year, and mainly just Japan down so far.  But this introduces a lot of daily volatility, but over time you can see it kind of trending.  We have seen over the last ten years the U.S. dollar weaken pretty dramatically against a basket of currencies, and that’s been beneficial to U.S.-based investors that have owned international investments.  

DAVID:  Okay.  Now in looking out over the balance of 2012, what are the opportunities and risks that you see?

CHAD:  Well, the opportunities are that we’re still, the valuation metrics are still below their ten-year average.  Europe is trading about 15% below its ten-year average for PE (price/earnings) multiple, and I talked about emerging markets a little bit.  They’re trading at a much lower discount, only about 4% with Latin America actually trading at a high premium to where it’s traded.  So, in the developed world, there’s still a lot of opportunity from a valuation standpoint.  Central banks are still accommodative, and they’re trying to stimulate economic growth.  So, you know the old story, “Don’t fight the fed.”  It goes into effect on a global basis as well.  Many of the central banks are still trying to stimulate growth.  

So, those two things I think are very positive on the opportunity side.  There’s room for both EPS (earnings per share) growth and multiple expansion, both of which should lead to higher global equity prices. 

Now, the risks, I think the risks are mostly political and the possibility of error by policy makers.  If policy makers start to tighten rates too soon, that could choke off the global recovery.  Another risk is oil price.  If the oil price were to spike dramatically, that would, of course, curtail global growth.  I don’t think either of these things are really in the cards right now, so we have a pretty positive outlook for the rest of 2012. 

DAVID:  Great.  Alright, Chad.  Thanks for your insights.

CHAD:  Thank you.

  

The Plan Advisor Tools 5

DAVID CRAIG: Welcome to the Plan Advisor Tools 5.  It’s April 4 and I’m with Brandon Shea, Managing Director and DCIO Team Lead for RidgeWorth Investments, discussing personal branding.  Brandon, please tell me about the PHD Positioning Statement that RidgeWorth has just unveiled for retirement plan professionals?

BRANDON SHEA:  Sure, it’s a simple, scripted conversation starter that answers the question: “What do you do?”  And it quickly captivates the attention of the listener and creates interest in learning more about what it is that you do.  The reason why the PHD Positioning Statement works so well is because, in just a few words, it incorporates the power of 3 important, personal branding ideas:

1.         It's memorable
2.         It utilizes the Right Words to connect specifically with your target audience
3.         It's organized in a repeatable manner 

Now, the PHD Positioning Statement is made up of 2 important parts.  Part One is designed to Create Agreement with the prospect regarding an undeniable truth.  An undeniable truth is a statement that 98 percent of the public would likely agree with.  Part Two is designed to communicate the most important idea that you want people to remember about what matters to them. It’s not about your product or service, it’s about addressing what really matters to your audience.  They will not remember everything you say, so be intentional about what you want them to remember.  In a moment, I’ll share several retirement-plan specific examples advisors can use but for right now, let me give you an example of one of the most effective positioning statements I’ve ever heard. It goes like this: 

“Do you know how most people don’t like the process of buying a new car, because they don’t like dealing with the salesperson?  

Well, what I do is for $295 I take people through a fifteen-point process to help them determine the exact right car for them and then I go with them to the dealership to negotiate the best price. I call it Floyd’s Smart Car Buying, and I’m Floyd.”

Now what’s amazing is that when I share this exact example about Floyd with advisors around the country, it’s so memorable that 6-12 months later, advisors can recall with a high level of accuracy what it is that Floyd does.

So, the PHD Positioning Statement is a way to make sure that the Psychic Real Estate you are creating is the Psychic Real Estate that you want.

DAVID CRAIG: Brandon you just mentioned the term “Psychic Real Estate” – what is that?

BRANDON SHEA:  When I say the words “Plop Plop Fizz Fizz”, what do you think about? (Pause) 

DAVID CRAIG: Alka Selzter. 

BRANDON SHEA: Exactly. You and the majority of folks listening to this podcast are thinking about Alka Seltzer right now. Taking it one step further, most listeners can probably, in their mind’s eye, visualize two white tablets being dropped into water with bubbles fizzling upward. Some might even be able to recall the jingle that goes “plop plop fizz fizz, oh what a relief it is”?  What’s amazing is that it’s been over 15 years since that commercial last aired.  THAT is Psychic Real Estate.   Psychic Real Estate is the words, it’s the feelings and it’s the images we associate with a product or a service or a brand (be it a corporate entity or an individual like yourself).   Some people call it a Brand Image.  The PHD Positioning Statement is designed to create your own psychic real estate, without all the money it takes to hire creative firms and place ads all over the internet and TV.  In other words, we are crafting statements that will help key retirement plan decision makers in our network recall what it is that we do – whether that is you provide a higher level of participant education than most or a proven process to measure and manage fiduciary risk or insightful benchmarking – you fill in the blank about the solution you offer that you want your clients & prospects to remember about you.

DAVID CRAIG: How can retirement plan focused advisors apply this? 

BRANDON SHEA:  I recently helped a retirement plan-focused advisor build effective positioning statements to articulate their value proposition. This advisor had hired an outside marketing pro to create a professional looking 45-slide sales deck a PowerPoint with beautiful images). After utilizing the sales deck to present his value proposition to a CEO, CFO & HR Director for 45 minutes, the HR Director paused and asked the advisor “Great, now what is your value proposition?” The advisor confided in me he could have banged his head against the table in frustration having put all the effort and expense into creating a value-prop pitch book & still receive the question “what’s your value prop?”  I asked the advisor, “How powerful would it have been if you had looked right at the HR Director & identified an issue she commonly dealt with & immediately provided a solution you provide that solves that specific issue? Such as:

“Do you know how you get nervous when these guys start talking about moving the retirement plan because you’re the one who’s going to be doing all the paperwork and battling to meet deadlines?”

“Well, what I do as your plan advisor is hold your hand as much as possible during that transition process to help you with the paperwork and ensure you know about every deadline and you’re not surprised by any unforeseen curve balls.”

Then this advisor could have looked right at the CFO and said:

“Do you know how you might wonder if your plan is receiving the appropriate services for the fees being charged?”

“Well, what I do as your advisor is utilize proprietary benchmarking services to compare your plan to similar plans in size and industry around the country to ensure the fees you’re paying are commiserate with the services you’re receiving.” Then he could have looked at the CEO and said: 

“Do you know how you want to keep your most important employees happy?” 

“Well, what I do as your plan advisor is provide you with unique ways to utilize plan design so that your most important employees maximize their savings and benefits for retirement and thank you for it.” 

Finally, if this advisor also managed private wealth, he could have addressed all of them and said:

“In regard to managing individual private money, do you know how some people are worried about outliving their money?”

“What I do as a private wealth, financial advisor with 18 years’ experience is put people through a 4-step, proven process to ensure they have an income stream they can never outlive.”

So, as a retirement plan advisor, imagine the possibility if you invested just a little time into crafting powerful statements like these about your services so that your target audience will recall exactly how you provide value to your clients.

Like anything worth having in life, it’ll require a little effort on your part but RidgeWorth Investments has designed a Positioning Statement Workbook that walks you through the process of building your own compelling positioning statements.  If you’re listening to this podcast & have not seen that workbook yet, you can access it by visiting our website www.PlanAdvisorTools.com and clicking on the Tab that says “PHD Personal Branding”. Also, if you have an iPad, our branding material is available on the RidgeWorth iPad app available in iTunes.

DAVID CRAIG:  Do you have any final thoughts?

BRANDON SHEA:  Yes, I do. A strong personal brand has the ability to attract your ideal clients to you. If you invest the time to think about your personal brand and how you want to be perceived by your target market & then you take the time to build tools like, in this instance, effective positioning statements for the key decision makers in the retirement plan space, you can be assured that it will yield dividends. The benefits will outweigh the cost of your time & creativity to build effective branding tools.

DAVID CRAIG:  Great, well thanks for your insights Brandon:

BRANDON SHEA: My pleasure.

The Fixed Income Market 5

DAVID CRAIG:  Hello and welcome to Fixed Income Market Five.  It’s March 9, 2012, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors, and sub-advisor to the Ridgeworth Investment Grade Bond Funds, discussing what’s going on in the fixed income market.  So, Jim, high yield bonds, investment grade corporates, and equities all had relatively strong returns in February; what drove that?

JIM KEEGAN:  I think since December, David, what’s been driving risky assets is central bank liquidity.  The most recent version of Central Bank liquidity has been the ECB (European Central Bank) conducting its long term refinancing operations; they just conducted the second of two where the takedown was about $530 billion Euros.  You have the Bank of Japan (BOJ) that has announced that it has increased its balance sheet expansion for quantitative easing, as well as the Bank of England, which increased its quantitative easing by $50 billion Sterling, and to put that in some context, we all know that the Fed’s done two versions of quantitative easing; QE1 and QE2, and then Operation Twist, and that’s taken the Fed’s balance sheet up to $2.9 trillion, but in the context of looking at Central Bank’s balance sheets relative to GDP of the four central banks, that being the ECB, Bank of England, and the BOJ, the Fed has the smallest balance sheet relative to GDP, so that puts in context the money printing or quantitative easing that’s been done by the four major central banks.

DAVID CRAIG:  Right.

JIM KEEGAN:  You’ve also got the prospect for QE3 here on top of the Fed, the dollar SWAP lines, which during February, rose to the highest level since May of 2009; that’s where foreign central banks borrow dollars from the Fed, and then – long winded answer – but European Government bond options went off reasonably well.  The Greek private sector involvement SWAP, and CAC legislation; collective action clauses, went through, and finally the prospect of the potential combination of the EFSF (European Financial Stability Facility) and the ESM (European Stability Mechanism) bailout fund running simultaneously, at least from the market’s perspective, that’s what’s gotten risk assets doing pretty well here.

DAVID CRAIG:  Okay.  Now, last month we talked about the strong jobs report, and today, the February jobs report that was released was a fairly strong encore.  On the other hand, you have Challenger, Gray releasing a report yesterday that shows that the year-to-date announced layoffs are over 100,000, where it’s announced hirings were less than 20,000.  How should we be reconciling those two reports?

JIM KEEGAN:  Well, I think you bring up an interesting point here; there’s a lot of data points that you can look at where on the one hand things look like they’re getting better, and then on the other hand they look like they’re getting worse.  Now, the layoff announcements are kind of prospective, whereas the jobs data is kind of what’s already happened.  But to be fair and balanced here, we are and have been impressed most by the initial claims data, which appears to have normalized.  

DAVID CRAIG:  Okay.

JIM KEEGAN:  And the payroll data, as you point out, that came out today has definitely improved both when we look at the three month moving average, six month moving average, and twelve month moving average, all three of those data points are about the best that they’ve been since 2006.  The key or point about mixed data, the Gallop Organization, which does a non-seasonally adjusted calculation of the unemployment rate, the under-employment rate, and they do this every day, continuously, so there’s not a survey; they do a daily, weekly, and monthly, and it’s based on 30-day rolling averages.  Their data in February indicated that the unemployment rate rose to 9.1% from 8.6%, so up 0.5%, and then their under-employment rate rose to 19.1% from 18.7%.  Now, there may be a silver lining in there in the sense that those numbers may be going up because more people are feeling encouraged and looking for work, but only time will tell, and then the other thing that I think is important when you’re looking at any data right now is because we’ve had such a mild winter, the seasonal adjustment factors that normally account for the bad weather; in our view they may be artificially goosing the data to make it look better than it is, but we won’t know that until we start to get the April, May, and June data.

DAVID CRAIG:  Okay; now as far as Europe, you mentioned the other three central banks; what is impacting the fixed income market the most, and what should investors be keeping their eyes on?

JIM KEEGAN:  Well, I think the Greece situation; certainly that saga is no-way, in fact, over.  As a matter of fact, the Greek Government released today, that they had almost 86% participation in the private sector SWAPs, where they're going to be issued new debt, and what's interesting the debt hasn't started officially trading, but in the gray markets.  The new debt that investors will receive, which has a longer maturity of lower coupon, and has a principal write-down of 53% is already trading in what we call the gray markets or the unofficial market, anywhere from 17% to 25%, so Greece is not out of the woods yet, and may in fact have to be back for another restructuring within six to twelve months.  Greece, we got their revised fourth-quarter GDP data today, and the economy contracted in Greece at a 7.5% rate, which compares to a 5% contraction in the third quarter.  Eurozone GDP fell 3/10 of a percent in the fourth quarter, quarter over quarter, with Germany down 2/10, and Germany has been the workhorse in Europe, and Italy actually officially fell into a recession; their GDP was down 7/10 of a percent in the fourth quarter, which now, just to put this in some context, Italy is now experiencing its fourth recession since 2001.  The interesting thing in light of everything that's gone on in peripheral Europe, the one country in Europe that had a banking sector problem and realized that it made no sense for them to bail out the banks was Iceland and Fitch actually, during February, upgraded Iceland to investment grade, so countries like Ireland may want to take a look at that; Ireland and Greece.

DAVID CRAIG:  Right.

JIM KEEGAN:  But I would say, from an investor's perspective.  The thing that I would say pay most attention to, as it relates to Europe specifically, but risk markets in general, is the upcoming French election.  The first round takes place April 22nd 2012, and the way the election works over there, if nobody garners 50.1%, there's a second round, and if you extrapolate out from the recent data in the polls, which hasn't changed much.  The Socialist candidate will win in a landslide over the incumbent, Sarkozy, and the Socialist is basically campaigning against the fiscal compact that the EU has just agreed to.  The reason why I think that's important is because the fiscal compact is less than two months old, and Spain, last Friday, has already announced that it will not abide or adhere to the requirements under the EU's fiscal compact, as in their view, it will be too austere on their economy, so Europe is by no means solved yet.

DAVID CRAIG:  More to come on that.  Did anything happen in February that really changes your outlook?

JIM KEEGAN:  No, not really.  From a longer-term perspective, as you know, we still remain of the view that we're going to stay with lower rates for longer, so our investment strategy is safe income at a reasonable price.  In this zero interest rate policy world that the Fed has conditionally committed to until the end of 2014, and were contending with the mild winter here and the seasonals; high oil prices are problematic here, and the interesting thing, David, just to put this in some proper context.  A lot of economists have these tracking models where they take each and every data point that feeds into the GDP calculation, and they come up with what they call a tracking model and most tracking models have GDP for the first quarter of 2012 tracking at below 2%.  

DAVID CRAIG:  Okay; not robust

JIM KEEGAN:  So another interesting data point that I'll leave you with is we had the flow of funds data released by the Federal Reserve were showed a year on year contraction in household net worth, and I haven't verified this, but I was reading a strategist, who said that we have never had a year-over-year decline in household net worth where we didn't have a recession, so.

DAVID CRAIG:  Okay.

JIM KEEGAN:  That's one piece of information; I haven't verified it, but it's an interesting thing.  If in fact it's true.

DAVID CRAIG:  All right, well, Jim thanks again for your insights.

JIM KEEGAN:  Okay, thank you.  David, talk to you next month.

 

The Equity Market 5

DAVID CRAIG:  Hello, welcome to the Equity Market Five.  It’s March 8^th, and I’m talking with Don Wordell of Ceredex Value Advisors, sub advisor to the RidgeWorth Mid-Cap Value Equity Fund, about what’s going on in the equity markets.  Now, Don, we had another strong month in the equity markets in February.  What were some of the highlights?

DON WORDELL:  I think the biggest highlights for February were two-fold; one just continued earnings expectations that are being beaten by most of the companies in the report, and the second is just continued…I think we’re something like 22 or 23 weeks of better than expected macro-economic data in the United States.  So that’s really what’s helping get this equity market going.

DAVID CRAIG:  Okay.  Now last month, large caps trailed mid and small caps, but they jumped out in front in February.  Why was that?

DON WORDELL:  I think a lot of it comes back to earnings.  You know, as the companies continue to report solid earnings and then the other thing, too, the large cap stocks have a tremendous exposure to the global macro environment.  So I think that that’s real positive as you see this continued macro-economic improvement as well as there seems to be commitment to resolution.  We can debate for hours the type of resolution you’re seeing in Europe, but there seems to be commitment to resolution in this European debt crisis situation, and that’s helping large cap stocks as well.

DAVID CRAIG:  Okay, now from a sector perspective, Technology and Energy did quite well.  What led to that?

DON WORDELL:  I think Technology was really driven by Apple.  I know it’s not in mid cap stock, but you have to pay attention and Apple continues to knock the cover off the ball and that is the tide that lifts all the boats of technology.  Then for Energy, it’s just this continued movement up in energy prices.  I mean realistically if you look at the price of oil, you say to yourself – well, if the economy is really strong then the demand for oil should go up and we’re going to have strong prices there.  If the economy is weak, you’ve got a very aggressive monetary policy in place that will weaken the dollar and that will send commodity prices higher.  So really it’s a win/win situation.  Then you layer on some geopolitical things that nobody seems to be able to analyze; you know the Israel/Iran conflict that could really drive oil prices higher as well.  So there are a lot of positives for oil prices which then helps energy stocks.

DAVID CRAIG:  Okay, then you mentioned Europe.  Still lots of issues over there and Greece has a big payment that’s due today that looks like it may be able to make.  How has what’s been going on in Europe affect the equity markets recently?

DON WORDELL:  Yeah, again I come back to my earlier comment which is that we could debate for hours the structure of what they’re doing to solve the problem.  The thing that I like is that they’re doing something.  They’re not just sitting around and waiting.  They’re trying to work out a resolution, and I think the markets are just getting more and more comfortable with the fact that there are tremendous policies in place that the European Union and the European Central Bank have begun to ease.  That increase in liquidity and increase in monetary flowing and liquidity has helped the system.  So I think that that is just what people are focused on now and are comfortable that something is going to get done.  So it’s one less thing the equity markets have to worry about which makes it easier for them to go higher.

DAVID CRAIG:  Okay.  Now looking forward according to the ADP National Employment Report which was just released today, more private sector jobs were created than economists expected last month, but at the same time you’re seeing large companies streamline their work forces.  Is the momentum of job creation enough to offset the corporate streamlining?

DON WORDELL:  Yeah, I think so.  We think that you’re going to see continued movement higher in just private sector employment creation.  You know, tomorrow morning, March 9, 2012, we get the big employment number for February. I think that will come in somewhere around 200,000 jobs being created.  The unemployment rate is probably at least flat, too, maybe a little bit better.  That’s just a self-fulfilling prophesy.  It begins to feed on itself and continue that confidence and confidence breeds more confidence and creates more job creation.  So I do believe that the overall job creation will get better.  A lot of these companies I think that most of the streamlining is done.  I think that the restructuring that you’ve seen since the Great Recession as it’s called of 2008 has been done.  I think that that’s going to, I think that maybe there’s some one-off stories with companies laying off workers in different sectors of their companies.  I really think the overall hiring is going to get stronger as this economy continues with the momentum we’ve seen for the last 22 to 23 weeks.

DAVID CRAIG:  Okay.  Finally, is there anything else that happens in February that impacted your outlook for 2012?

DON WORDELL:  Yeah, you know my outlook stays cautiously optimistic.  When I look at the, you look at the continued movement higher and the leading economic indicators, you look at 22 to 23 weeks of building economic momentum.  Then I look at corporate balance sheets that are still in great shape.  With the tremendous amount of cash that still needs to get put to work, I look at earnings that continue to exceed expectations.  I’m very optimistic for equities.  My worries are just tail risk events that I can’t seem to analyze.  What impact does if Iran’s production gets shut down and oil prices spike to $150 a barrel?  What impact does that have on our economy?  Things like that are just tail risks that keep me somewhat cautious, but I’m becoming more and more optimistic.

DAVID CRAIG:  Okay.  Great, well Don, thanks again for your insights.

DON WORDELL:  You’re welcome.

 

The Style Class Market 5

DAVID CRAIG:  Welcome to Style Class Focus Five.  It’s March 8, and I am with Ron Schwartz, Head of Tax-Exempt Investing at StableRiver Capital Management and subadviser of the RidgeWorth Investment Grade Tax-Exempt Bond Funds discussing municipal investing.  So Ron, after all the headlines about looming municipal defaults in 2011, those defaults didn’t seem to happen, and the Barclays Municipal Bond Index has outperformed the major equity and bond indexes over the past year.  To what do you attribute that strong performance?

RON SCHWARTZ:  Well, last year at the end of 2010 and early 2011, the municipal market was very worried about municipal credits because of Meredith Whitney’s forecast of $200-$300 billion in defaults, and people listened to that.  They saw the 60 Minutes interview, and they sold aggressively and irrationally, and they cheapened up the municipal market dramatically.  Later in the year, we saw that municipal credit did remain stable.  There was not an increase in defaults; and so we saw the municipal market strongly rebound from a very cheap relative value area to fair value again; and so it was basically a panic selling pressure at the beginning of the year.

DAVID CRAIG:  Okay.  Now when we talked in August of last year, you mentioned how lack of supply through August helped munis perform well.  Did supply remain lower than expected through the end of the year, and what are your expectations for supply in 2012?

RON SCHWARTZ:  Yeah, the first half of the year we saw a very light supply, and that was primarily due to a lot of issuance at the end of 2010; and that was also when the Build America Bond was expiring, so there was a lot of issuance then, and so in the first half, we saw a very light supply, and then there was a forecast that it would be historically very, very small  issuance, but we did see issuance rebound in the second half and so basically, for the whole year, we did see a decline in overall issuance.  It was about $290 billion, but at one point, the forecast was about $240 billion, so we did see the second half issuance rebound and for this year, we are expected to see an increase from last year’s level; probably in that $320-$330 billion sort of level.

DAVID CRAIG:  Okay.  Now there still seemed to be some analysts who believe that that muni market is ripe for defaults.  What are your thoughts on the health of the muni market?

RON SCHWARTZ:  Well, you know, there are still obviously fiscal pressures and credit concerns, so that will remain throughout this year.  We do feel fairly confident in investment-grade quality paper and especially paper that is rated triple-A and double-A rated paper, but there is still pressure on there, and it is crucial to do credit analysis, and to provide reviews on existing positions like we do for all of our positions that we invest in, so basically, you know, we don’t really see any increase in defaults, but we do see credit pressures.  

DAVID CRAIG:  Okay.  Now what do you believe are some of the primary risks for munis in 2012?

RON SCHWARTZ:  You know, the main risks that we look at are still credit risks; you know we still think that credit analysis is crucial.  The state GO (general obligation bonds) seems like they’re doing fiscally responsible actions and balancing their budgets, but some of these local GOs are of greater concerns.  They do not have as many tools to balance their fiscal affairs and especially the smaller issuers; so what we’re doing is we’re increasing our credit analyses.  We are over weighted in the triple-A and double-A rated category.  We feel like this is the most stable area and that will hold the values the best; but basically, that’s our biggest concerns for this year is not an increase in defaults but credit analysis and possible downgrades.

DAVID CRAIG:  Okay.  And last thing was what do you see as some of the main opportunities for munis in 2012?

RON SCHWARTZ:  You know, we still, you know, really like municipals as an asset class; it still is the only tax-advantaged investment available to individuals, and when you think about it, also, you know the Bush tax cuts are probably going to expire at the end of the year.  If that happens, taxes are going to go up.  Again, this makes municipals on a relative value look even more impressive and could perform even stronger, so we still think the municipal class is a relatively stable, good place for individual investors. 

DAVID CRAIG:  Great. Alright well Ron, thanks for your insights. 

RON SCHWARTZ:  Thank you.  

 

The Plan Advisor Tools 5

DAVID CRAIG:  Hello, this is David Craig, director of marketing for RidgeWorth Investments.  I’d like to welcome you to a combined Plan Advisor Tools and Efficient Advisor podcast series on personal branding.  The series will consist of four episodes including (1) Who are you?; (2) What do you do?; (3) How do you deliver what you do?; and (4) How do you grow your business?  In each addition, personal branding expert Mark Magnacca, who has authored the book The Product is You, will provide advisors with specific strategies to help them stand out in a crowded market place.  So Mark, with this edition of our personal branding podcast series, we’re talking about the first question – Who are you?  Now when many people hear branding, they think that is something that’s important to Coca-Cola or Apple or Singapore Airlines, but what does it mean for an independent financial advisor who doesn’t even have the aura of his company’s image to build off of? 

MARK MAGNACCA:  Well, if you think about it, it’s very much perhaps the most important question that a prospective client is going to ask – Who are you?  That’s at the heart of what they want to know.  Branding is simply a way to help people understand faster who you are.  There are lots of different definitions for a concept of personal branding, but the one that I like the best is that a brand is really a promise.  It’s a way for people to have a shortcut to understand who you are.  For those advisors who happen to work at large firms and they’re under the umbrella so to speak of that company’s brand, some cases that works to their advantage and in other cases it can be a disadvantage.  So on the one hand there can be more name recognition, but on the flip side of the coin it can be harder to differentiate yourself when you’re under that large brand.  Conversely, when you work as an independent or for a less well-known firm, your name may not have that name recognition quality, but it’s equally important for you to develop a way to create a positive first impression and that’s what the right type of personal branding does.

DAVID CRAIG:  So Mark, you’re very big into creating an actual positioning statement.  What makes a positioning statement different from the elevator speech that people have been trying to perfect for years?

MARK MAGNACCA:  I can tell you that I was one of those people trying to perfect an elevator speech for years.  In fact, I wrote about and talked about the concept of the elevator speech for many years.  One of the things that I realized is that the problem with the traditional elevator speech which of course it’s this idea that you get in an elevator, you’re on the tenth floor, you press lobby and you’re in there with somebody and they say so what do you do.  In this relatively short period of time you can articulate something that explains who you are and what you do.  Well, it turns out that the rub with that idea is that very often people develop a concise set of words that describe what they do, but it didn’t serve the purpose of actually positioning them favorably.  So it turns out you can say something you’ve rehearsed and you’ve practiced and still not be very compelling.  What’s different about what we call the “so what” positioning statement, is the idea that inherent in it you have passed what we call the “so what” test.  That means that the person understands what’s in it for them.  As an example, in the past you may have said something like “I help people with the life insurance needs of their family,” for example if someone was an insurance agent.  After going through my process, they may instead say something if they were to meet you, David, in the elevator and say you’re with X, Y, Z company, what do you do?  They may instead say something like “Do you know how so many people today are worried about running out of money at retirement?  What I do is help my clients create a stream of income they can’t outlive.”  Now that’s far more compelling for people to then say, really how do you that?  This same guy who I was just thinking about who happens to be an agent as well as an advisor, he’s got lots of different product tools from his annuities, to his immediate annuities, fixed annuities, his bond funds.  Lots of different ways to get people an income stream.  What they’re interested in is the income stream, David, rather than the fact that you may be a life insurance or investment management person.

DAVID CRAIG:  Right.  Now can one positioning statement work for all audiences; for example existing clients, prospect, general business contacts, family and friends? 

MARK MAGNACCA:  I suppose it can, but generally it doesn’t.  I find that you typically have a lead positioning statement.  So the lead positioning statement is targeted towards your ideal target market.  What we refer to as your ideal client profile.  So the one that you’re using the majority of the time, target it to that group.  An advisor that I talk about I the book by the name of Frank, and this is what Frank says after going through this process.  Well, Frank, what do you do?  He says “Well you know how so many business owners have a CFO to help them manage their company’s money?”  The person says yeah.  He says “What I do is work as a personal CFO for my clients to help them make work…optional.

DAVID CRAIG:  Compelling. 

MARK MAGNACCA:  It’s very different, yeah, it’s a different way of saying that causes people to sort of perk their ears up a little bit and say what?  So that would be Frank’s main one, but that’s because its target market is business owners and he would say that to people he might meet on the golf course who are business owners.

DAVID CRAIG:  Right.

MARK MAGNACCA:  If he was at a Chamber of Commerce meeting or if he was at a Little League dinner, he may have a more generic-sized version of that.  It would be what we call the generic version.  That might be the one he would also use at Thanksgiving if he’s sitting next to his great aunt, and she says you’re with this company, what do you do?  Generally you need at least one to get that one down, and then you have the generic one in your back pocket and possibly for most advisors you could have sort of the retirement version and then the working version.  If you have two different markets, you need more than one.

DAVID CRAIG:  Okay. You also suggest that advisors develop a personal biography.  Now if an advisor develops a personal biography, should they go with existing clients and contacts as well?

MARK MAGNACCA:  Let’s start with why they should have a personal biography.  The personal biography really speaks to the thing we started talking about which is branding.  In many cases, it’s the first impression people have of you.  So we recommend that when you have created a biography following the same format of what’s in it for them.  David, the catch here is this isn’t just a misconception people have is that if I write a biography it’s because I’m blowing my own horn.  It’s actually quite the opposite.  By having a biography, you’re helping people answer the question that in most cases they have anyway, they just don’t want to ask you because they don’t want to make you feel uncomfortable.

DAVID CRAIG:  Right.

MARK MAGNACCA:  We call it three things.  We call it your character, your competence and your common grounds.  Those are the three C’s.  Specifically to answer your question, sometimes people say to me how do I share this with people that I’ve already known for five years or longer?  I typically recommend in that situation that you simply call them up and say look, I’ve decided to add a personal biography as part of my promotional kit when I meet new people or on my internet site, would you mind if I send it over to you and have you take a look at it because you’re someone who’s known me for a long time and I’d really like your feedback as to whether or not you think it reflects on the kind of relationship we’ve developed because you’re the kind of person that I’m looking to find more of.

DAVID CRAIG:  Okay.  Then what are the best places to use a personal biography? 

MARK MAGNACCA:  First and foremost, any kind of public events you might do whether it’s a seminar or a group meeting.  Having a biography absolutely causes you to stand apart.  Second of all, we recommend a number of different formats.  For example, many of the professionals who are part of the RidgeWorth team, they use a biography.  There are different sizes that you can use that in and of itself help change people’s perspective because it’s a little different than what they expect.  So in group meetings, that’s one spot to use it.  A lot of advisors now of course they’re all compliance approved, everything I am talking about would have to compliance approved before you send it out, but they will attach it as part of their email confirming an appointment.  So there’s lots of different ways to use it.  In press releases you can use it, electronic version of course on LinkedIn with over a hundred million people now, a great place to have a compelling biography because the simple fact is high net worth people check you out before they give you their money period.

DAVID CRAIG:  Great.  Well thanks, Mark, I think that’s a great start to our personal branding podcast series.

MARK MAGNACCA:  Thank you.

The Fixed Income Market 5

DAVID:  Welcome to the Fixed Income Market 5.  It’s the week of February 6, 2012 and I’m with Jim Keegan, CEO and CIO at Seix Investment Advisors and subadvisor to the RidgeWorth Investment Grade bond funds, discussing what’s going on in the fixed income market.  So, Jim, high yield bonds and corporate bonds did very well in January.  What drove that? 

JIM:  Well, I think all risk assets, David, were largely driven by a couple of things, but I think the most important thing that got the risk markets to rally here was the ECB’s (European Central Bank) long-term refinancing operation, whereby they offered unlimited funds for three years at 1%.  That has been interpreted as back door quantitative easing and I think that’s what got the rally started in December, and then it carried over into January for all risk assets, including high yield and corporate bonds, in particular bank and finance bonds.  And then you’ve got the classic, it’s January-new-performance-year risk on and the I-can’t-miss-a-rally mentality.  So, when you couple that with the fact that our Fed and Mr. Bernanke has made it clear that he wants to do QE3 (quantitative easing, part 3), I think is what’s at the end of the day driving it, and the data has come in better than expected and the question is: is that data going to continue, and what is it based on, and is it sustainable, and I think the jury is still out on that.

DAVID:  Okay, okay.  Now the jobs report that was released last week was much better than anyone expected.  Do you think that the private sector is prepared to spur the recovery?

JIM:  The jobs report, to your point, was a constructive report, no doubt.  Not only was it a constructive report, but the three-month moving average in new jobs created was the best since last April, but one of the things that we have to be aware of is the January employment report has a lot of noise associated with it because it relates to benchmark revisions.  This one was more complicated by the fact that it was the first time that they had the ability to use the data in the 2010 census.  So, good report, but we’ve got to see if it’s a trend that’s sustainable.  Remember, during the Great Recession, which lasted eighteen months, starting in December 2007, we lost seven and a half million jobs over eighteen months, and since the recession was officially declared to have ended in July 2009, we’ve added back 1.9 million jobs, but there’s a caveat there because a million of those jobs are a function of an estimation model that the Bureau of Labor Statistics puts together, called the Birth-Death Estimation Model.  So, we’re not necessarily sure that the underlying growth in jobs is as strong as it is.  I’ll make one more point on employment, which I think is somewhat important here.  The initial claims data, which I think is more important than the non-farm payroll data that comes out monthly, the initial claims data is a weekly series, and that’s moved down and has started to normalize.  So, that’s more impressive to me than what we’ve seen so far in the employment report.  But I will say that the Challenger job cut announcements (consulting firm Challenger, Gray & Christmas) are up 40% year-over-year following being up 32% year-over-year the month before.  We saw today that PepsiCo, one of the more successful consumer products companies, is laying off 8,700 workers, or 3% of their workforce.  So, I’m not sure that we’re completely out of the woods here yet.

DAVID:  Okay.  Now, in his State of the Union, President Obama said he was going to try to expand the refinance program.  Do you think that will have any impact on the housing situation? 

JIM:  Here we go again.  No.  I mean, this is the fourth or the fifth attempt by politicians to somehow goose the mortgage market and any impact, in our opinion, will be at the margin.  It’s not going to be the silver bullet that cures what’s wrong in the housing market.  I mean, as you’ve heard us say many times, the problem in the housing market is a supply-demand imbalance.  The home ownership rate is mean reverting back to its long-term average.  Underwriting standards have normalized and, by that, I mean you now have to put 20% down if you’re going to apply for a mortgage.  The negative equity phenomenon is very important here and if housing prices drop another 5% or more, you’ll push many more homeowners who have a little bit of equity into negative equity, and then the last thing I’d mention is that as the baby boomers retire, it is likely that they will be downsizing, which will put potentially more supply on the market, more pressure on the market, probably at the higher end of the market.  I think longer term, and this is a secular view that we’ve had, is that housing going forward is going to be looked at as a place to live, rather than an investment vehicle.

DAVID:  Right, exactly.  Now, did anything else happen in January that you think investors should be keeping their eyes on?

JIM:  Yeah.  I mean, the European situation is, I think, the most important thing to be paying attention to, at least in the first half of the year.  So far, the European bond auctions have gone pretty well.  Europe’s got about $1.1 trillion in sovereign debt that needs to be rolled over this year and European banks have another trillion Euros in liabilities that are up to mature this year.  While the auctions have gone well so far and yields are down, let’s use Italy as an example.  Italy had $16 billion, almost $17 billion Euros in debt that was maturing and needed to be rolled over in January, and they got that done very successfully.  But, for the next three months, Italy has to roll over $63 billion this month, $52 million in March and $47 billion Euros in April.  So, I’m not sure they can declare “mission accomplished” yet but so far the auctions have gone well, and we attribute that entirely to the LTRO (long-term repo operation) program being conducted by the ECB.  Greece is something that you want to pay attention to.  Greece has a $14.5 billion maturity on March 20.  That’s going to be critically important.  Can they agree, and get the parliaments and the people to agree, to the austerity measures that are going to be associated or conditional to getting the second bailout.  And then we’ve got the French elections.  The first round is in April.  So, there are a lot of important things to pay attention to here.  LTRO at the end of the month, the ECB will conduct their second LTRO operation, February 29.  The market speculation is that could be as high as a trillion Euro, and that would probably continue this broad risk rally that we’ve had. 

DAVID:  Okay.  Anything happen that changes your outlook?

JIM:  Well, out outlook has been that interest rates will stay lower for longer and the Fed seems fixated on aggressive policy, regardless of fundamental improvement.  So, as you know, our strategy has been to look for safe income at a reasonable price because we believe the demand for income will continue to be there in the zero interest rate policy environments that we find ourselves in, and the Fed has conditionally committed to until the end of 2014.  I think at the end of the day, it all boils down to, the issue is sustainable growth and we haven’t seemed to be able to generate sustainable growth in here.  If you go and look at the GDP (gross domestic product) data for 2011, we come into the 2011, market consensus was looking for 3.5-4% and we ended up with less than 1.6%.  We think there is significant headwinds as it relates to the global economy.  We believe that there is a significant global synchronized slowdown here in the world, and it’s spreading, but the ECB with their LTRO program and the strategy of trying to kick the can continually down the road on the sovereign debt banking crisis, it doesn’t solve any of the problems in Europe, which is excessive debt, too little growth and a lack of competitiveness within the periphery.  But, what it does do is it allows the banks to potentially roll over these big maturities that they have, but it doesn’t really assist them in the deleveraging process.  So, in our view, fixed income will continue to do well, but we do believe that because of policy actions both here and aboard by our Federal Reserve and by central banks in Europe and England and Japan, that we’re going to continue to remain in this binary risk on, risk off environment.  We just happen to be, at least in the last couple of months, in a risk on environment, which will probably continue through this next LTRO auction process.

DAVID:  Alright, Jim.  Well, thanks for your insights. 

JIM:  Thank you, David.  Good to talk to you.

 

The Equity Market 5

DAVID CRAIG:  Hello and welcome to the Equity Market Five.  It’s February 3, 2012, and I’m talking with Don Wordell, Ceredex Value Advisors, Sub-Advisor to the RidgeWorth Mid-Cap Value Equity Fund, about what’s going on in the equity markets.  Now Don, we’re in the earning season right now and it seems that the equity markets are responding pretty positively so far.  What are some of the highlights?

DON WORDELL:  Well, interestingly enough, like we’ve been talking about for the last few months, earning expectations have seemed to have continued to get beat.  A lot of analysts, although a lot of these companies are not maybe being on the revenue line, the focus by management teams on controlling costs and trying to do their best to maintain margins is something that should be applauded.  In the mid-cap space, we’ve had quite a few upside surprises from names like CEB or MBC Holdings, and even Apple was the, in the large-cap space was the big one so far, really needed the big highlight, so yeah, we’re continuing to see these companies that are able to at least beat or be in line with the bifid expectations. 

DAVID CRAIG:  Last month you said that you thought investors would return to looking at fundamentals in 2012.  Have you seen that start to happen or are the equity markets just broadly rising?

DON WORDELL:  Well, I believe you’re starting to see that happen, I mean, you’ve seen some stocks that when they missed the earnings, estimates to the quote really get punished, RadioShack, Abercrombie & Fitch are two that come to mind, and then you have stocks that if they beat the expectations and there seems to be some momentum behind their fundamentals, then they’ll actually do really well, so I do believe that the market is absolutely beginning to focus on individual stock fundamentals. 

DAVID CRAIG:  Okay.  Now small-caps and mid-caps led the way in January.  Do you think that can continue?

DON WORDELL:  I do, I do, right now when you look at the balance sheets of these large-cap companies just flush with cash and that cash balance is actually compressing returns to the large-cap stocks, and a lot of these large-cap stocks, if they run into issues with growing organically, they’re going to use those cash balances, especially now as we’ve seen CEO confidence come up and consumer confidence come up, we think that you’ll see them use that cash to buy growth and we think M&A (Mergers & Acquisitions) is going to be a big part of the story for small- and mid-cap stocks over the next 12 to 24 months; therefore, I think that’s going to keep a really solid bid under small- and mid-cap stocks.

DAVID CRAIG:  The other thing that happened today was the better than expected jobs report.  How do you think that will impact the next three to six months?

DON WORDELL:  Oh, I think it’s going to have a tremendous impact.  First of all, I think it’s going to begin to change the conversation around the Presidential Election.  I think that as we continue to see momentum in jobs, that’s going to help, it’s going to really do a lot for a lot of different sectors in the market and bring confidence back to the market, probably bring, what we’re hoping, is more interest into the equity markets and you should see the equity markets begin to, we think that this is not just a one- or two-day rally, begin to have a sustained rally, especially as a lot of investors are out looking at ten-year bond yields that are still below 2%.  There’s nothing very attractive about that at all, so we think that, we’re cautiously optimistic but we do believe that an increase in jobs is going to be very important for the U.S. economy.

DAVID CRAIG:   Okay, now is there anything else that happened in January that impacted your outlook for 2012?

DON WORDELL:  No, I think my outlook for 2012 is getting even stronger.  I think that the continued momentum in some of the macroeconomic data and then the fact that a lot of these companies that are reporting are still able to get at least, worst case, in line with expectations sets the market up to, we think, be a strong performer over the next 12 to 24 months. 

DAVID CRAIG:  Great.  Alright, well Don, thanks for your insights.

DON WORDELL:  You’re welcome.

Of the securities mentioned in the podcast, CEB Corporation was 1.31% of the RidgeWorth Mid-Cap Value Equity Fund.  MBC Holding was 1.20%, and RadioShack was 0.74%, Apple and Abercrombie & Fitch were not in the portfolio.  

 

The Style Class Focus 5

DAVID CRAIG:  Hello and welcome to Style Class Focus Five.  It’s the week of February 6, 2012, and I’m with Rick Nelson, CEO and CIO of StableRiver Capital Management and subadvisor of RidgeWorth Short-Term Bond Funds, discussing short duration fixed income.  So, Rick, the Federal Reserve has recently restated that they intend to keep short-term interest rates exceptionally low at least through mid-2014.  How does this impact your investment philosophy in the future?

RICK NELSON:  Well, it does concern us, David, that they’re extending the period of term that they expect to keep short rates low from mid-2013 now to mid-2014, especially as we’re currently seeing the economy getting stronger in both manufacturing and employment.  If the economy were to weaken, which is what the Fed would be signaling here by extending the term that they’ll keep rates low, this could force the current tightening that we’ve seen in corporate credits to reverse itself.  We still like the high quality short-term corporate credits that are less volatile.  The credit curve is very steep and we think that they still give us nice roll down on the credit curve so we remain longer in high quality short-term credits. 

DAVID CRAIG:  Okay and then how has the European financial situation affected the types of investments that you look at?

RICK NELSON:  Well, we don’t own any direct European credits at this time, and that includes England, but we think the economy is going to start to get better there in 2014.  It’s still a difficult environment for some of the countries with higher debt to GDP (gross domestic product), but this morning, for instance, we saw German factory orders look up, and they primarily were driven by overseas exports, and that’s because the Euro has gotten weaker.  We think that the European situation still has to work itself out, that there still needs to be some restructuring of some of the credits, but we think at some point in time it will start to improve.

DAVID CRAIG:  Okay and finally, let’s talk about what’s going on with the mortgages.  In the State of the Union Address, President Obama talked about making it easier for homeowners to refinance.  How do you think that will affect the short-duration market?

RICK NELSON:  Well, there have been a few modifications already to HARP (Home Affordable Re-Finance Program) and this time, what the President is talking about is extending it to non-agency mortgage holders.  We think that’s going to be difficult to do because the banks are not really incentivized to take on those mortgages with higher loan-to-value.  In the short-term market though, we’re really not involved in those longer-term, 30-year past due mortgages, where we’re looking more at short floating rates in those, agency DUS (delegated underwriter servicers) paper, which is multi-family, as well as ARMs (adjustable-rate mortgages) that are post-reset, and these type of securities really aren’t going to be affected with the volatility that we’re seeing, more being driven by the 30-day past due market.  I also think that it’s more political posturing.  To get a program like this pushed through, you have to involve Congress.  It’s going to be a six-month period of time, which gets us close to the elections, and so I think clearly a big part of this is just political posturing as well.

DAVID CRAIG:  Okay great.  Well Rick, thanks for your insights. 

RICK NELSON:  Thank you, David.

 

 

The Plan Advisor Tools 5

DAVID CRAIG:  Welcome to Plan Advisor Tools Five.  It’s February 3, 2012, and I’m with Daniella Moiseyev Retirement Segment Marketing Manager for Ridgeworth Investments to talk about 408(b)(2).  So Daniella the Department of Labor announced the final rule 408(b)(2) yesterday.  Can you tell us what changed?

DANIELLA MOISEYEV:  Yes, David.  Well, Hilda Solis, the Secretary of Labor made several announcements on Thursday.  First, the effective date of 408(b)(2) has been pushed back three months to July 1, 2012 to allow providers to prepare, and as a refresher, the rule applies to service providers who can expect to receive $1000 or more in compensation and provide certain fiduciary or registered investment advisory services to retirement plans.  Then, in a move that surprised no one, the 404(a)(5) participant fee disclosure regulations were pushed back as well to August 30, 2012, with the first quarterly statement due to participants no later than November 14, 2012.  Then, of course in conjunction with this, as you mentioned, the DOL finally released the final rule for 408(b)(2).  We’ve been working with an interim final rule and now we have the final rule.  Now, while the rule itself is very complex and I’m still wading through the 100-plus pages of the rule, here are my initial impressions of what has changed that’s particularly of note.  Now there are additional changes to what I’m going to mention here, but this is kind of the 30,000 foot overview.  So first, they have made some changes that certain annuity contracts and custodial accounts issued prior to January 1, 2009, so mostly 403(b)-type plans are now not covered by the new rule.  That’s one.  Another change that is different from the interim final rule is that, this is the biggest one I think, is the disclosure around indirect compensation has been “enhanced,” per the DOL.  It must now include a description of the arrangement between the person or entity paying the indirect compensation to the service provider, and this is meant to help the plan sponsor or his delegate (what they’re calling the “responsible plan fiduciary”) to assess why the person or entity is paying the service provider the indirect compensation.  So, they have to figure out whether it’s in connection with their contract or with something the service provider is doing.  It gives you a little bit more information.  They had not had this requirement in the interim rule.  Then, they also added some disclosure to the investment-related disclosures.  The final rule requires disclosure of the total annual operating expenses, expressed as a percentage, calculated in accordance with the department’s new regulation 404(a)(5).  So, they basically took what had to be disclosed on the expenses for the investments and put it so that it fits exactly with the way that they have to be disclosed for 404(a)(5), which of course will help plan sponsors more easily comply with 404(a)(5).  In addition, the final rule requires that the disclosure of any other information related to the investment options that is within the control of, or reasonably available to, the service provider if the information is considered investment-related information must be provided automatically under 404(a)(5).  So again, they’re just putting the two rules kind of in alignment.  Additionally they’ve made some changes to some other investment-related disclosures.  The final rule changes the focus of the so called “pass-through relief”.  What we jokingly refer to as the “CYA provision.”  In the interim rule, the provider could rely on the information being provided by the investment companies in the plan.  Now they are changing it so that the disclosure material can be provided or replicated from information provided by the investment companies and the final rules provisions no longer focus on whether the disclosure materials themselves are regulated, but on rather if they are being provided by companies or entities that themselves are regulated, and the service provider must now act in good faith and must not know that the materials are incomplete or inaccurate and must state that it makes no representation to the completeness or accuracy of these materials.  Additionally, the final rule reserves a place to develop a required guide to show plan sponsors where to find information, if it’s in multiple or complex documents and there may be an additional rule on this coming from the DOL. They’ve basically said that there’s more coming here and there will be some sort of summary guide disclosure required.  They did mock up a sample guide and they are encouraging service providers to use that.  The final rule changes the timing of the initial disclosures.  It changes the deadline of disclosures of the investment-related information to at least annually.  Before it said within 60 days.  So that information now has to be provided at least annually.  Now there are some additional changes, but we think the most important of these is the whole indirect compensation change and we’ll certainly have more to come and put out some more materials on the final rule as we have a little bit more time to digest it.

DAVID CRAIG:  So if I’m a retirement plan advisor who’s been kind of following the development of 408(b)(2), does this final rule represent big changes or not so big changes?

DANIELLA MOISEYEV:  I think aside from the indirect compensation piece of it, the changes are pretty minimal.  Everybody thinks that the three-month delay is good, because it is going to be some time to get all the disclosures properly formatted to be able to disclose to the plan sponsors and of course it brings the rule more closely in alignment with the 404(a)(5) regulation, which is final.  So the changes I don’t think are wholesale.  There are some tweaks throughout.  The biggest change again is the indirect compensations having to be disclosed.

DAVID CRAIG:  Great.  Alright Daniella, thanks for insights 

DANIELLA MOISEYEV:  Thank you, David.

Fixed Income Market 5

DAVID CRAIG:  Good afternoon.  Welcome to Fixed Income Market Five.  It’s the week of January 2^nd and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and sub-advisor to the RidgeWorth Investment Grade Bond Funds discussing what’s going on in the fixed income market.  So Jim, coming into 2011, you were predicting volatility in the fixed income markets due to the macro issues, and potentially a decline in long-term rates when others were projecting a rising interest rate environment.  Both of those things came to pass, but was it for the reasons you expected?

JIM KEEGAN:  Yeah David.  I’d say generally speaking, our view was correct in the macro forces you were talking about is this continued deleveraging, the fact that the economy was weak in general and that the banking system issues, both here and abroad, were still front and center, and I’d say maybe the sequencing was a little bit off in the sense that we got hit with higher commodity prices early in the year, the weather, the tsunami, but generally speaking, our theme has been and remains we’re in this risk off, risk on environment, zero interest rate policy, the Fed on hold for the next few years, is still in play, and that was our view coming in to 2011, so our investment strategy really comes down to safe income at a reasonable price, and the ability to trade the markets in really 2011, came down to were you positioned properly for the third quarter, and if you were like we were, you won, and if you weren’t, it was pretty costly, but to your point, we expected a coupon clip-type year, which was going to be generated by a carry game rather than a capital appreciation in a range-bound interest rate market and, as you may recall, we felt that the rates market would be range-bound most likely, but if there was a breakout, that it would be to the downside and the way we played the lower rates was really almost an options-like strategy in the sense that we had a yield curve flattener which benefited from the decline in long-range since short rates were so well anchored and where our view really became confirmed was with the major benchmark revisions in GDP that came out in the third quarter, which confirmed our view that the economy remained troubled and that, in fact, the great recession was actually deeper than initially thought and therefore, the recovery weaker and the trajectory of growth less promising.

DAVID CRAIG:  Okay and you mentioned the coupon clip.  You did think at the beginning of the year that 2011 wouldn’t be able to match the strong returns of 2010.  As it turns out, most fixed income sectors had a better 2011.  Why was that? 

JIM KEEGAN:  Well, from a total return perspective, it was actually mixed in the sense that mortgage-backed securities and Treasuries actually had a better 2011 than 2010.  Corporates actually a little bit less, and then CMBS (commercial mortgage-backed securities), which had a gangbuster year in 2010 of being up over 20%, came in at 6%, so it was somewhat mixed.  What we always have to bear in mind is that when corporates and Treasuries with their longer duration will generally outperform the other sectors in a declining interest rate environment like we had last year.  The clear laggered in fixed income in 2011, though was high yield, which came in at just under 5% versus 2010 where it had a total return in excess of 15%. 

DAVID CRAIG:  Okay, now what were some of the other significant things that happened in 2011?

JIM KEEGAN:  Well, I actually was thinking about that and there’s three things that really come to mind from our perspective and they’re not necessarily going to be in order in terms of sequencing, but the U.S. lost its AAA rating from S&P in the beginning of August and just like everybody coming in to 2010 was predicting higher interest rates, even after an S&P downgrade, interest rates only continued to fall.  What’s interesting to note is I’ve been in this business a long time and it seems like every year you come in, everybody’s projecting higher interest rates.  As a matter of fact, I went back and looked at the Wall Street Journal consensus.  Coming in to 2011, the consensus was that we’d end the year at 370 and, in fact, we ended the year under 2%, and then this year coming in to 2012, the Wall Street Journal consensus is looking for 275 on the ten-year by year-end 2012.  We’re going to take the under on that one.  The other thing that comes to mind as being somewhat significant is the Arab Spring which seems has been forgotten, and the reason we think that’s important is that was driven by a lot of confluence of a lot of factors, but the pressure that was put on commodity prices and food prices in particular, were in some ways responsible for some of these governments being overthrown, and served as somewhat of a catalyst to incite the change in changing governments in some African and Middle Eastern regimes, and it’s interesting in that the Fed will argue that QE2 was responsible, or at least partially responsible, for the rise in stock prices and you might remember my comments about the Fed chairman referring to the Russell 2000 when he references QE2, and he cites the rise in stock prices, but yet the Fed completely absolves itself of QE2 having anything to do with commodity price rises, and you can’t pick and choose which one you want to look at here because they are inextricably linked and I would venture to say, we would venture to say that quantitative easing and money printing lifted all asset prices, including commodity prices, and then the last thing that’s related that I’d say was significant in 2011 was the end of QE2 and the market’s misinterpretation of what the end of QE2 meant and again, we’ve talked about this throughout the course of 2011 in the sense that everybody in the consensus was of the view that once you took out the largest buyer of Treasuries, that being the Fed, that interest rates had only one way to go and that was up, and I think what they missed and what we didn’t miss was the fact that people were focused on that part of what QE2 was, but they missed the other part which we felt was more important which was the mechanics of the way quantitative easing works as the Fed goes in and buys Treasuries but infuses cash into the markets which are clearly designed for that cash to go into other risky assets, most prominently stocks, and once you removed that liquidity and cash from the marketplace, that the implications for risky asset prices was that they would come under pressure and wallah, that was the reason that we took our beta down and materially reduced our exposure to financials, and banks in particular, at the end of the second quarter. 

DAVID CRAIG:  Okay.  Now let’s look ahead to 2012.  How do you think the best income markets will perform this year?

JIM KEEGAN:  Well, it’s interesting.  I’ve been doing this long enough that I don’t attempt to predict the future.  That is fraught with peril, but what we do attempt to do is allocate capital based on relative values in the context of the macroeconomic and geopolitical environment so, if we look at 2012, let’s start with interest rates.  We have been and remain of the view that interest rates will remain lower for longer.  That has been our view.  We continue to see no reason to change that view.  That was a lonely place to be coming in to 2011.  It’s probably not as lonely here at the beginning of 2012, but as I mentioned before, the consensus, as per the Wall Street Journal, is still calling for higher interest rates out the yield curve by year-end 2012.  As far as the yield curve goes, we remain of the view that the yield curve will remain directional, and by that I mean during times when rates are rising, the yield curve will steepen, and during times when rates are falling, the yield curve will flatten.  From a sector perspective for 2012, with the Fed in the zero interest rate policy environment and on hold for what looks like well into 2014 now, the Fed’s are going to be revising their communication strategy with the next FOMC meeting in a couple of weeks, we’ll find out if, in fact, we are right and that they’re going to remain on hold, at least at this point, until 2014.  The need for income is still critically important as real incomes continue to fall.  So, once again, we’re advocating what we call SIRP, which is Safe Income at a Reasonable Price, in a ZIRP world, which is Zero Interest Rate Policy.  Our positioning in this SIRP/ZIRP world, if you will, remains residential mortgage-backed securities (RMBS) are our largest overweight, and we just view agency RMBS as solid income against the front-end of the yield curve, and we remain very comfortable navigating against all the DC policy initiatives that have and will be put in place in the name of trying to help the homeowner.  Second favored largest position for us is the investment grade corporate sector, but our focus remains there in the defensive industrial and utility-type exposures.  We have a modest overweight to CMBS and that’s remained in the seasoned paper near the top of the capital structure, and then finally, we’ve got a neutral position in high yield in the total return fund, and that’s just about generating some income and yield, and at this point, we prefer to own high yield risk in lieu of bank paper, and we say in lieu of U.S. and international bank exposure, given where we are in the credit cycle, and to do that trade, we can actually, we feel more comfortable and we can pick up some yield, so that seems to make a lot of sense to us.

DAVID CRAIG:  Okay, so these are some of the opportunities you see.  What are some of the greatest risks that you see?

JIM KEEGAN:  I tell you, at this point, the greatest risk and the greatest opportunity depend on your view and your perspective.  I would have to say that the number one issue facing the markets in the global environment is the European sovereign debt banking crisis, and I say that that way because they are inextricably linked; that being sovereign debt and the banking crisis over in Europe, because they’re effectively one and the same in the sense that the problem is we have too much debt and too little income, too little economic growth, and once again, policy makers are attempting to solve an insolvency problem with liquidity-type solutions, so you have what boils down to several insolvent banks that are being propped up by several insolvent sovereigns who are being propped up by a highly levered central bank with a balance sheet of questionable collateral, that being the European Central Bank.  So the optimistic view as it relates to Europe is that the ECB will become like the Federal Reserve and start massive money printing operations, but our view at this point is that the bar for the European Central Bank to start to act like the Fed and conduct massive money printing operations is very high and very risky in the sense that the Germans may blink and allow the ECB to print like the Fed, or they may choose to end the monetary experiment, and what I think we need to bear in mind from the American’s perspective, is that money printing and quantitative easing to the Germans is like the Great Depression is to Americans.  It’s just something that is in their psyche that they don’t want to ever face again because money printing from Germany led to the hyper inflation of the 20s and that is in the German psyche just like the Great Depression is to the Americans.  The other risk or opportunity and risk relates to we think the election cycle is going to be very important as it relates to both policy deliberations and decisions here.  Obviously being in the U.S., everyone knows that we have a Presidential Election this year in November, but there are quite a few elections around the globe that are going to be pretty important here.  France has the first round of their elections in April.  Greece is supposed to have an election in February, but that doesn’t look like it’s going to come to pass and the speculation is that they’re postponing that until April.  Russia later this year has an election where Vladimir Putin is going to try and become President again, and what we have to bear in mind is that governments have turned over in all of the European countries that have had elections since the crisis over the last 18 to 24 months, and specifically I’m referring to Ireland, Portugal, Spain.  You know that we have two unelected EU appointed technocrats running Italy and Greece right now.  So, thus far, every government has been overturned by the electorate in Europe and I’d say, Mr. Sarkozy, watch out. 

DAVID CRAIG:  Any final thoughts you want to leave listeners with?

JIM KEEGAN:  We still think it’s an environment where it’s much more important to be focused on the return of capital rather than return on capital, and again, we maintain that the risks are at this point, that we’re going to be in a low return-type environment for the next several years with, and again, I know I sound like a broken record, but this is a deleveraging cycle unlike anything that we’ve seen in the postwar period. 

DAVID CRAIG:  Great, well, Jim, thanks for your insights. 

JIM KEEGAN:  Thank you, David.

 

Equity Market 5

DAVID CRAIG:  Hello, it’s December 19^th and I’m talking with Don Wordell of Ceredex Value Advisors, sub -advisor to the RidgeWorth Mid-Cap Value Equity Fund about what’s going on in the equity markets.  So Don, coming into 2011, you were cautiously optimistic about the equity markets after their strong performance in 2010.  You cited strong corporate balance sheets and earnings.  In hindsight, it turns out that those things just didn’t seem to matter much in 2011, did they?

DON WORDELL:  No, no, strong corporate balance sheets and earnings did not seem to matter.  The macro picture, the issues in Europe, some of the catastrophes that we had earlier in the year with the Japanese tsunami and earthquake, the rhetoric out of Washington, that’s what drove the volatility and equity prices this year.

DAVID CRAIG:  Okay.  Anything else in particular or were those the primary things?

DON WORDELL:  Well, I think the primary thing that really drove it was over the summer.  You know, the first quarter of 2011 everything seemed to be humming along just fine, but we were expecting a little bit better macroeconomic growth out of the U.S. economy.  But as the summer rolled on and we had the debt ceiling debate heat up and the debt downgrade and then people began to refocus on the debt that is strangling the European economies, all the while, China was trying to manufacture either a soft landing, some kind of slow down there.  You know, the market lost a lot of confidence over the summer and so therefore the equity prices really fell out.  Everything that we’ve talked about historically with strong balance sheets and corporate earnings do seem to be in good shape – it’s still there; however, I do believe that looking forward out into 2012, I think it’s going to be more and more difficult to really drive higher, to exceed expectations from an earnings standpoint.

DAVID CRAIG:  Now, you’re particular excited about the prospects for Financials in 2011 in regional banks specifically.  What happened there?

DON WORDELL:  Boy, were we wrong on that call.  You know, when we look at Financials, what happened was the confidence issues of the summer really eroded the ability for these banks to drive loan growth.  There is no loan growth out there for them to get to and the second thing is just the rhetoric around regulatory issues really just continues to be problematic for these banks.  So the regulatory issues, the lack of high quality loan growth, and then just still some of the issues that investors just can’t get their hands around capital and what the ultimate capital levels are going to be required are is causing a big headwind for these banks.

DAVID CRAIG:  Okay.  Now, let’s look ahead to 2012.  Do you think investors will start caring about fundamentals again? 

DON WORDELL:  Yeah, they always do.  We’ve always had the short periods of time where the market gets focused in something.  In 1998 and 1999, it was the technology boom and in 2003, you had this low quality rally off the bottom, same thing in the second half of 2009.  But at the end of the day, the market does come back to fundamentals.  I think that in 2011, the correlations within the individual asset classes made it very difficult for folks like us that are stock pickers to differentiate ourselves in the market, but I do believe that investors will come back and look at fundamentals because they always have and they always will which is why we can continue follow our process looking for companies with fundamentals, low expectations where we think the fundamentals are better than the market thinks.

DAVID CRAIG:  Okay.  Now what sectors do you think will have the strongest performance in 2012?

DON WORDELL:  I think you’re going to see strong performance out of some of the Material sectors.  We think you’ll see strong performance in Industrials and Energy.  We continue still to believe that longer term Energy is an excellent place to invest. 

DAVID CRAIG:  Okay.  Now what are the biggest risks that you see in 2012?

DON WORDELL:  Right now I think the biggest risk I see is just going to be what kind of confidence does the market have with the election year?  It’s almost what kind of issues are going to be raised.  Is anyone going to have the confidence to make investments in 2012 in front of this election and all of the rhetoric around the election is going to be probably pretty difficult.  That’s probably the biggest risk and then just the continued issues with the European debt situation and then as well as what’s going on in the Chinese economy. So it’s tough to put my finger on one thing, those are probably the top three risks in my mind.

DAVID CRAIG:  Okay.  Alright, well, Don, thanks again for your insights. 

Fixed Income Market 5

DAVID CRAIG:  Welcome to Fixed Income Market Five.  It’s December 7^th, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadviser of the Ridgeworth Investment Grade Bond Funds, discussing what’s going on with the fixed income market.  So, Jim, in our July Fixed Income Market Five, you said that you thought June was a brutally binary month.  It seems that it applies to November as well.

JIM KEEGAN:  November was incredibly binary, David.  If you recall, we came into the month, it started with the surprise referendum that Greece was going to hold on the bail-out package.  Then Greece was threatened by the EU, that they’d be thrown out of the Euro potentially and that only to be followed by a political crisis in Italy which led to within two weeks two democratically-elected prime ministers ousted by unelected bureaucrats in Brussels only to be replaced by two unelected technocrats that have connections to the experiment knows as the Euro.  That got the markets obviously bothered to the downside as it relates to risk assets.  All risk was off for most of the month and then towards the end of the month and the last day of the month in particular where you saw risk assets rally led by stocks which were up over 4% on the coordinated action by the Fed and five other central banks to reduce the rate on dollar swap lines to foreign banks and extending the program by six months out to February of 2012.  It was just that global coordinated central bank action which had a big effect on risk assets.  Ultimately all they did was reduce the cost of banks that are in need of dollar funding so they might alleviate some stress on the margin and potentially slow the deleveraging process that needs to occur in Europe at the margin, but it really doesn’t solve any of the fundamental problems.

DAVID CRAIG:  Okay, that was my question.  With the Fed and European Central Bank moves, do you think they’d have a meaningful impact on European issues?

JIM KEEGAN:  No, I think the impact is to buy some time, but it doesn’t change the dynamics of the structural problems that the European Union has particularly in the peripheral countries although it’s pretty obvious that the contagion has hit the core with Italy definitely and potentially France down the road.

DAVID CRAIG:  Okay.  Now you’ve been saying all along that housing and employment were two things to keep an eye on.  The BLS just reported last Friday that the unemployment rate dropped to 8.6% which is the lowest rate since March 2009.  So the question is what were the causes of that drop and do you see that as a positive side of the economy?

JIM KEEGAN:  Well, I’d say the employment report was okay, but it wasn’t great.  You need to understand the employment report in the context of the entire report and then understand an okay report, but in the context of we’re two plus years into this “recovery.”  Yet the reason the unemployment rate or a big part of the reason why the unemployment rate dropped from 9.0 to 8.6 is because you had 315,000 people leave the work force.  Two years into recovery, people should be encouraged about finding work and you should have people joining the work force, not going the other way.  We did have a 140,000 increase in private payrolls with revisions to overall payrolls for the prior two months of around 72,000.  What I was probably most encouraged by was the household survey where the three-month average gain has been 318,000.  To put that into some context, the six months average was 134,000 and the twelve-month average pretty similar at 139,000.  If you look at the core of the report as it gets into the consumer and as it relates to income, and you talked about housing, but average hourly earnings actually fell during the month.  And the average duration of those that are unemployed increased by a week and a half to 40.9 weeks which is almost ten months.  So the average duration of unemployment is going in the wrong direction.  The other thing that I would point out is that of the 140,000 jobs that we got in the month, two-thirds of those jobs were in retail, leisure and hospitality and temporary help which tend to be lower pay.

DAVID CRAIG:  And seasonal probably, too.

JIM KEEGAN:  There’s definitely some seasonality to that.  So the report was okay, but we’re going to need a lot more jobs to be created to bring this unemployment rate down and adjusting for that 315,000 that left the work force if you had added them back in, the unemployment rate would have been 8.8%, not 8.6%.

DAVID CRAIG:  How many jobs need to be added each month just to keep up with population growth?

JIM KEEGAN:  Well depending upon who’s survey you pay attention to, it’s somewhere between 125 and 150,000.  So the population, the work force grows by about 125,000 per month.  So just to keep the unemployment rate flat, we’d need to create 125,000 jobs.  This month we got 120 because we had 140 in the private sector and we lost 20 in the government sector.

DAVID CRAIG:  Okay.  Anything that happened during the month change your near or long-term outlook for fixed income?

JIM KEEGAN:  No, I think we’re still in this binary risk on, risk off environment.  Our view which has been that rates would stay lower for longer remains intact.  I’d say about the only certainty that we see out there is high volatility.

DAVID CRAIG:  Right.  Well, Jim, thanks again for your insights.

JIM KEEGAN:  Okay, David, good talking to you.

 

Equity Market 5

DAVID CRAIG:  Hello and welcome to the Equity Market Five.  It’s December 7^th and I’m talking with Don Wordell with Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund about what’s going on in the equity markets.  So, Don if you look at the 0.22% return for the S&P 500 Index in November, you’d think it was a pretty quiet month for the equity markets.  Was that the case?

DON WORDELL:  Oh, David, I think you know the answer to that question, of course not.  The month of November was another very volatile month in the equity markets.  The continued macro headlines that move the market one way or the other just are frustrating and exhausting but no, it was not at all a quiet month in November. 

DAVID CRAIG:  Now, Consumer Staples and Energy lead the way in the S&P in November.  What is it about those sectors that helped them perform relatively well in such a volatile month? 

DON WORDELL:  You know part of issue for energy was just the big move up in oil prices.  You know, as oil prices move higher because there was seemingly a resolution to the debt problems in Europe which then could get investors focused on global growth resuming then you’d see a big demand for energy.  Then with Consumer Staples, I think you just had a bifurcation in the market and some of the other commodity prices actually eased up which would help the Staples’ earnings because they’ve been really trying to match their pricing with their cost increases.  So, maybe the market was perceiving some help there as well.  It’s all fundamental but the move in oil really helped the energy stocks.

DAVID CRAIG:  Okay.  Now, Financials continue to struggle and gave back nearly 5% in the month.  Why do you think Financials still can’t find their footing?

DON WORDELL:  I think it’s the regulatory environment, the fact that the pressure from the regulatory agencies is just not easing up.  Towards the end of the month we had the indications on the stress test that all the largest banks are going to be put through next year and those stress tests are going to include testing for a sovereign default which is going to put more pressure on the results and then limit the capital return to shareholders that these banks can do.  I really think the regulatory environment is very punitive for these stocks right now.

DAVID CRAIG:  Okay.  Now, on a positive note the unemployment rate did drop to its lowest level since March of 2009.  Do you think that drop is sustainable? 

DON WORDELL:  Well, you know unfortunately when you peel the onion back and you dig into the numbers, what you find is that the unemployment rate dropped because there were just a large number of folks that just dropped out of the workforce.  They just stopped looking for a job.  So, that skews the number.  Again, I think it comes back to the regulatory environment and confidence and as long as we have this continued class warfare, the heightened political rhetoric, and then the lack of a resolution to the global macro debt issues, I think it’s going to be very hard for the unemployment situation to get much better from here. Although it continues to grow slowly, you really have to dig behind the numbers and see that it’s probably not as good as most investors would like it to be. 

DAVID CRAIG:  Right.  Okay.  Were there any other highlights during the month that you think were worth noting?

DON WORDELL:  Yeah.  I think the biggest highlight was the end of the month.  I think what I want a lot of our clients to focus on is just the negative sentiment.  I know all the things that we’ve talked so far on this call have been somewhat negative and there is such a bearish sentiment out there on the market.  You saw right towards the end of the month what happens when the market got wind that they felt like there would be some kind of resolution in Europe I think we had a huge up-day in the market of almost 500 points.  I think there’s such, such negative sentiment that the market continues to climb that wall of worry and that’s very positive for building positions in stocks.

DAVID CRAIG:  Okay.  Now did anything that happened in November change your short to near term outlook?

DON WORDELL:  No.  Nothing at all that we saw in November would change our outlook.  We’re still, you know, near term we are cautiously optimistic.  We’ve been that way for a long time.  I think that corporate earnings continue to be in good shape.  Balance sheets appear to be in a good shape.  It seems that Europe continues to move ever so slowly towards a resolution but we are closer to one than we were a month ago and that will help the sentiment and help stock prices

DAVID CRAIG:  Great.  Alright, well, Don thanks again for your insights.

DON WORDELL:  Alright David. 

 

Style Class Focus 5

DAVID CRAIG:  Hello, welcome to Style Class Focus Five.  It’s December 7^th, and I’m talking with Michael Sansoterra, Senior Portfolio Manager with Silvant Capital Management subadvisor to the RidgeWorth Large Cap Growth Stock Fund about growth investing.  So Michael when we talked in April, I mentioned that after a pretty long run for value, growth had quietly come back into favor and was leading value over the one, three and five-year time periods according to Russell.  That’s still the case.  Why does growth continue to do well despite all the volatility we’ve seen this year. 

MICHAEL SANSOTERRA:  Thanks David.  You know we think growth stocks have done well primarily based on their scarcity value.  We have found that historically when investors are really struggling to find a place where they feel comfortable, which we’ve definitely seen as volatility has increased, growth stocks typically start to carry a premium to other types of asset classes and to other equities as well.  So, growth stocks in particular that have actually managed through this process pretty well for the last three to five years as the economy has come back from a pretty difficult period and have become more scarce, more difficult to find and therefore have commanded a premium so their performance has done quite well. 

DAVID CRAIG:  Okay.  Do you think growth still has room to run?

MICHAEL SANSOTERRA:  You know we do.  We look at the reasons why those companies have done well and that’s really on a fundamental company by company basis and despite the macro fears and particularly the concerns around Europe, we’ve seen those companies continue to execute.  The companies that we own typically are beating investor expectations and are doing so by raising their revenue and earnings, are doing so by having pricing power, sometimes by taking market share and the trends in those companies we believe have continued not only in the last year but really even in the last quarter.  The data from the last quarter suggested pretty solid fundamental results from these types of companies and that typically means those performing shares can continue to outperform. 

DAVID CRAIG:  Now even though growth has done well, according to Morningstar through October the large growth category had nearly four times the outflows of large value year to date.  Why do you think that’s the case?

MICHAEL SANSOTERRA:  Well I think broadly speaking from an equity perspective investors are still extremely fearful of equity markets and no surprise, the recession in 2008 and 2009 was very severe, arguably one of the most severe we’ve ever seen and that has really spooked investors from a sentiment perspective.  We see sentiment very, very poorly.  Folks are just terrified and when they’re terrified what do they do?  They put their money in fixed income which we’ve seen lots and lots of inflows in bond markets and to a lesser extent in dividend paying stocks, the stocks you find in typical value products.  So, no surprise that outflows on the margin have been out of riskier assets and into ones that make folks sleep at night a little better. 

DAVID CRAIG:  Now how have the European issues impacted the way you invest?

MICHAEL SANSOTERRA:  We’re looking at the types of exposures all the time and I would say on the margin we have over the last few quarters lowered our exposure to Western Europe from a consumer perspective recognizing that some of the stocks we own do sell largely into Europe and we wanted to make certain that those risk adjusted weightings were appropriate and we’ve taken some of our growth expectations with those assets and expanded them into different parts of the world, emerging markets, some U.S. domestic but it’s really marginal.  Actually, we’re company by company.  We’re ground up in very fundamental specifics so we don’t make big macro calls.  I would say on the margin we have a little less exposure in Europe today than we did perhaps three to six months ago but it’s very marginal.  Ultimately the companies we own we believe can continue to outperform based on their fundamentals company by company.

DAVID CRAIG:  And what would your advice be to long-term investors?

MICHAEL SANSOTERRA:  For long-term investors, clearly this has been a challenging period.  We would tell them to stay the course.  We look at volatility even today over the last rolling 21-day period you’re talking about a three standard deviation moving volatility.  We’re seeing some of the highest volatility these markets have ever seen over the last 30 years.  We’re seeing equity valuations very reasonable twelve times forward earnings, twelve and a half times sort of a twelve month rolling forward earnings.  So, not expensive equities, a lot of fear in the market, very tough sentiment.  This is when you actually should be adding to equity.  This is when you should be staying the course.  It’s the tough time.  It’s the scary time but long-term investors should really keep their eye on their long-term asset expectations.  You’re not going to get fantastic results from bonds.  You’ve got opportunities.  You just need to recognize that times are going to be tough for a little while.  The volatility will be high but ultimately longer term we believe growth equities will actually do well for the next three to five years. 

DAVID CRAIG:  Great.  All right Michael, thanks for your insights. 

MICHAEL SANSOTERRA:  Appreciate it.  Thanks David.

 

Plan Advisor Tools 5

DAVID CRAIG:  Hello and welcome to a special holiday edition of the Plan Advisor Tools Five.  Brandon Shea, Managing Director and DCIO Team Lead for RidgeWorth Investments, shares some insights in how to differentiate yourself this holiday season.  Brandon?

BRANDON SHEA: When it comes to corporate giving in the holiday season, the advice of Harvey McKay rings true:

“Don’t be boring!
Don’t be predictable.
Be a differentiator.”

In his book Pushing the Envelope: All the Way to the Top, Harvey McKay says:

 “[Client gift) giving is wrapped up in the concept of staying close to your customer. To do the job right, you have to know that customer as a living, breathing human being, with likes & dislikes, interests, a family, and a background, so you can knock their socks off when a gift package shows up.” 

In this podcast, I’ll share with you three thought-provoking ideas to differentiate yourself as a professional this holiday season.

Idea No. 1: Personalize your communication.

My wife & I live in Los Angeles and in the past, we have received a lot of correspondence from a local realtor we know who is actively seeking our future business & referrals (the issue for him being most of those emails go unread). What separated the email he sent us last week from the others he’s sent in the past is that he personalized the message specifically to our situation.

He knows we have 2 young children & with that in mind - he sent us a note informing us there would be a family-friendly, holiday fireworks display next weekend in the local beach community. In other words, he did a great job of putting himself in our shoes and thinking of a holiday-specific activity that would resonate with us as parents with young kids. How’s that old saying go J? “People don’t care what you have to sell them until they know you care about them”.  I believe that’s true.

The benefit of putting forth an effort like this (of personalizing your communication) is that you retain “front of mind status” in the minds of those you’re connecting with – my wife has mentioned this email & the realtor’s thoughtfulness more than once this past week.

Personalize your communication.

Idea No. 2: Provide specific ideas for your clients to enhance their holiday experience

An issue for all of us is that the holidays are a busy time, a lot is going on & it’s easy to lose track of unique events taking place around us.

One simple but impactful idea for you is to scan your local community for ideas to help your clients celebrate the holiday season. Zagat.com is a great resource for restaurants in your community - why not create an email or send out a letter using nice stationary that lists the top 5-10 local restaurants to visit that would create a memorable family experience or even a romantic holiday dinner? For example, a local resort just south of Los Angeles is having a Christmas brunch next week where kids can have their picture taken with Santa Claus and there will be an elf station where kids can make cookies and ornaments. My wife & I made reservations to attend this event with our kids and when I’ve told other parents who have young kids about this event - their eyes lit up as they expressed they didn’t know this hotel had an event like this and they’d love to join us. 

The email or note on nice stationary you might send may also include local insight on where to get the best deals on produce or turkey or any of the fixings for a holiday dinner.   

As people’s attentions shift towards celebrating the holidays (be it Christmas or Hanukah or just Season’s Greetings), put yourself in the shoes of your existing clients and prospective clients.

Look for specific activities, places or ideas you can recommend that will enhance their experience this season. Not only can you help them build a memorable experience this season – you’ll become a lot more memorable in their eyes too!

Idea No. 3: Some of your clients grew up in other states and miss some of the familiar holiday customs.

Send them something that will remind them of home (&, in the process, your thoughtfulness). Having grown up in Nashville, Tennessee, I would sometimes get as a gift, a chocolate chip, bourbon pecan pie. I tell you, not only did that put a big smile on my face – J - but the sender got the full attention of my brain & stomach!

Also, if you’re sending a holiday card to your clients & you want to stand out from the crowd, I recommend going one step beyond just signing it. Every year my family receives a printed note that’s inserted into a signed holiday card from a financial professional we know. In the printed note, this gentleman briefly shares specific reasons why this past year was so significant for him and the clients he serves. He also talks about a couple reasons why he’s so enthusiastic about the potential each New Year’s Eve brings (for example – he may talk about the “psychological paycheck” he gets from helping clients establish their 12 month goals & then helping them nurture those goals to fruition).

While it only takes a couple minutes to read his note every year, my wife and I feel this professional has done a great job of distinguishing himself as a thoughtful person who is passionate about serving others & we’ve referred more than 1 person to him to be a client.

My wife and I have embraced this idea of sending personalized notes out with our Christmas & Season’s Greetings cards and the response has been very positive & it’s also sparked many meaningful conversations along the way. In fact, it’s had a large impact on my personal career. One of the personalized cards I sent out in 2010 (which happened to be an Independence Card celebrating the 4^th of July – I don’t limit my personalized cards to my network to just the holidays) – it attracted the attention of RidgeWorth Investments’ executive management team and it started a conversation. That conversation, and many thereafter, resulted in me becoming the National Sales Manager of RidgeWorth’s Defined Contribution Investment Only Team.

So, be creative, caring and personal with your communication.

I’ll close our time together by sharing another gem from Harvey MacKay J:

“If you’re creative, show it.
If you’ve got class, let them know it.
There’s nothing that results in indignation,
More than a deadly lack of imagination.”

From all of us at RidgeWorth Investments, May Peace, Joy, Hope and Happiness be yours during this Holiday Season and throughout the New Year.

Thank you.

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time and are for informational purposes only are not intended as individual or specific advice, may not represent the opinions of the entire firm and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, is provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be and should not be construed as investment, legal, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice.

Fixed Income Market 5

DAVID CRAIG:  Hello, and welcome to Fixed Income Market Five.  It’s November 4^th, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadviser for the RidgeWorth investment grade bond funds, discussing what’s going on in the fixed income market.

So Jim, last month we talked about the significant macro headlines, but in October, there’s a pretty big move to the upside for both equities and Treasury yields.  What happened?

JIM KEEGAN:  Well, basically, what we had, David, was the risk markets, equities being the most prominent, were oversold from the short-term technical perspective.  So what became pretty obvious in October was that financial markets were trading off headlines rather than anything else, as you could see from correlations rising. 

The economic data came in okay and better than expected.  Earnings started to be released for the third quarter, and I believe coming into the third quarter, we’re looking for 13% year-over-year growth in S&P 500 earnings, and it looks like they’re tracking at about a 16% rate so better than expected.

Also, at the beginning of the month, many stock markets, including ours, were down 20% from a peak earlier this year, and that occurred either October 3 or 4.

Then, what happened was, you had, again, this headline risk driving markets.  Bernanke, in his Congressional testimony, told Congress and the financial markets that the Fed is prepared to take further action.  In other words, turn the printing presses on again as appropriate, and then you just had all of the European headlines.  “Yeah, we understand that we have to put a concrete solution on the table,” and they continue to say they plan to have a plan, kept postponing what that plan was, and then they came out with the plan, but no details.  So that was what led to the heightened volatility in both risky assets and Treasuries.

So when risk assets are going up, generally the dollar’s weakening and Treasury yields are rising, and that’s what we saw in October.

DAVID CRAIG:  Okay.  Now surprise news this week was that Greece was going to put the European ballot to a vote.  What impact do you think that has?

JIM KEEGAN:  Well, obviously you could see that once the Prime Minister of Greece, Papandreou, surprised the European bureaucracy that he was going to actually put the bailout plan to a referendum, which seems to be the logical thing because the austerity that’s being imposed on the Greek people at this point is really leading to a deep recession, which could turn into a depression.  So it seems to me that is something that the Greek people should want to make a decision on.

The fact is that the Europeans almost mounted, the best way to say it is, an international coup, where they threw the Prime Minister under the bus and started negotiating with people in his party and the opposition’s party so the Prime Minister pulled back, but there’s a confidence vote scheduled for tonight, six o’clock East Coast time, 12 o’clock midnight in Greece, where we’ll know whether or not we have a government.

Now the question will be when we come in on Monday, what will that government consist of?  The issue, I think as far as the markets are concerned, is the markets do not want another election.  So are they able to cobble together some deal between the ruling party and the opposition, which are both very unpopular in Greece right now, or is there an election which may bring in a far left or a far right party, even further right and left than the two main parties?

DAVID CRAIG:  Okay.  Now the not so surprising news is the Fed has adjusted its outlook lower, predicting growth of a little more than 1.5% for 2011 and 2.5% for 2012.  Do you think the Fed will make any more moves that you think is stimulative?

JIM KEEGAN:  I don’t expect that you’re going to see anything from the Fed for the balance of this year in the way of either increasing Operation Twist or doing Quantitative Easing 3, although I think they’re clearly laying the groundwork for Quantitative Easing 3, and I think the reason why we think that’ll be a 2012 event is because the chairman is very motivated to do more quantitative easing.

Right now, he’s got three voting members of the FLMC who have dissented with both respect to quantitative easing and Operation Twist, and they will be leaving or rotating out as voters in 2012.  They will be replaced by three doves.  So the environment will be much more conducive to a Bernanke-led mindset; not to mention the fact that in 2012, it being an election year that Congress may be distracted by the election and Bernanke may be able to thwart QE3 on the system.

DAVID CRAIG:  Okay.  And for those listening, Jim went into much more detail on that in the Seix Perspective which is on ridgeworth.com about what’s going on with the Fed.

So Jim, what’s in with your outlook?  Did anything happen in October to change your outlook for 2011 and 2012?

JIM KEEGAN:  Well, David, as you know, we’ve been of the view that we’re going to be in this risk on, risk off environment, and there’s nothing that happened in October or anything that’s happened in 2011, or 2010, for that matter, that changes our view that we’re going to continue to be in a risk off, risk on environment.  Unfortunately, we’re subject to this headline-driven risk where markets perceive things as beneficial to risk assets in the short-term or negative to risk assets in the short-term, and that’s really what’s going to drive markets.

As I said earlier, Europe at this point plans to have a plan, but there are no details.  So once again, they’re long on promises, short on details, and as I always like to say, the devil’s always in the details and the biggest issue as it relates to the European sovereign debt banking crisis is where’s the money going to come from?  They keep talking about levering up this European financial stability fund, recapitalizing the banks and forcing Greece to take a haircut, but where is the money going to come from?

And then finally, as it relates to the US, we’re not at all dealing with the structural problems that we have in this country, and monetary policy does not lend itself to solving the structural problems that we have.  So we anticipate that we’re going to continue to be in a pretty volatile environment, and I think you’re going to hear more and more about this too big to fail concept globally.  When you think about too big to fail, it’s really an idiosyncratic concept, and we’re starting to ask the question and have been for awhile, as you know, that if there’s institutional, too big to fail solvency issues, is it really too big to save and therefore that’s what the volatility is indicating to the markets.

DAVID CRAIG:  Right.  Alright.  Well Jim, thanks again for your insights.

JIM KEEGAN:  Thank you, David.  

 

Equity Market 5

DAVID CRAIG:  Hello, and welcome to the Equity Market Five.  It’s November 4^th, and I’m with Don Wordell, of Ceredex Value Advisors, subadviser to the RidgeWorth Mid-Cap Value Equity Fund to talk about what’s going in in the equity markets.  So, Don, October looked like a mirror image of September. Materials, Energy, and Financials, which were all down the most in September, were up the most in October.  What happened?

DON WORDELL:  Well, there’s quite a few things that happened in October.  It was a very busy month.  I think the bigger drivers are going to be earnings.  As we enter earnings season, a lot of these companies in the Materials, Energy, and Financial space, were in line or exceeded the market’s expectation for earnings as well as the overall macro issues seemed to subside as Europe took another baby step forward towards solving their debt issues.

DAVID CRAIG:  Okay.  What were some of the other highlights of October?

DON WORDELL:  You know, again, I think that the other highlights that you saw, you really saw the market get way oversold at the end of September or in the early part of October.  Actually, the market bottomed on October 4, 2011, it feels like.  We think that a lot of that has to do with the expectations and the realization that earnings were going to be better than what the market was modeling.  You know, on top of that, you had the other expectation, or the highlight that I would put out there also, is you probably saw some more rebalancing going on where you had a lot of the big pension funds rebalance away from fixed income into equities. And then again, I think the bigger, overriding highlight is going to be what seems to be we’re getting closer to resolution with the debt issues in Europe.

DAVID CRAIG:  Okay.  You mentioned Europe.  There are still continued headlines about troubles in Europe.  How is that affecting the domestic equity markets?

DON WORDELL:  This market right now, the correlations are so high across stocks within sectors that it just seems like the market is just trading on whatever the next headline is out of Greece, Italy, or Spain.  So, it’s having a very big impact on the markets.  Also having a very big impact on just the overall intraday volatility which is very difficult and exhausting to trade, but it is creating opportunities.  So, we’re okay with it right now.  We think that, again, I really do feel like Europe is moving, not as quickly as I would like them to move, but moving in a direction of resolution.

DAVID CRAIG:  Okay, now the Fed just revised its expectations for economic growth lower.  Do you think that will have an impact on the equity markets?

DON WORDELL:  Yeah, and you know this is a bit counterintuitive in that I think that it will, and I think it will actually be positive, because the Fed is going to be rearview-mirror looking, so they’re going to be late.  They’re going to tell you something that you already know.  What that means is that they’re going to be there to help support the equity market, whether that’s QE3, or what have you, I think that that’s positive for equities because they know that they’ve got the Fed doing everything they can to help prop up the equity markets. 

DAVID CRAIG:  Okay.  What’s your near- to medium-term outlook for equities?

DON WORDELL:  You know, my near- to medium-term outlook has really not changed.  I’m still cautiously optimistic.  I feel like, again, I feel like we got through October.  All of the financial stocks reported earnings that were in line to better than expected.  You saw some loan growth on the banks.  Capital was still in a great position for the banks.  Credit is continuing to improve somewhat.  I think that we’ve taken a double-dip recession off the table in the United States, and I think those are all good things near-term and medium-term for equities.  I come back to corporate balance sheets are in great shape.  Cash levels have never been higher, and also you’re seeing corporations do good things for shareholders, increase dividend payments, increase share repurchase, and overall M&A, that’s all positive and shows a more positive sentiment.  So, if we keep earnings in line to better than expected and these balance sheets are in good shape, I think that the overall stock market is going to do well over the next three to six months.

DAVID CRAIG:  Okay, great.  Alright Don, well thanks for your insights.

DON WORDELL:  You’re welcome.

 

Style Class Focus 5

DAVID CRAIG:  Hello and welcome to Style Class Focus Five.  This is November 4^th, and I’m talking with Brian Nold of Seix Investment Advisors, subadviser to the RidgeWorth High Income Fund about the high yield market.  So Brian, through June high yield was up about 5%.  That gain was completely wiped out in the third quarter only to be recovered in October.  What was happening in the high yield markets?  

BRIAN NOLD:  Well David, we saw quite a bit of volatility during the third quarter in the high yield market and it continued into October.  Generally there was a global risk reduction across really any kind of risk asset class in the markets.  The high yield market was down over 6% during the third quarter, but as you said did rebound up about 5.9% in the month of October.  We saw outflows of cash from retail mutual funds across the bond and the high yield market of about $500 million in the third quarter.  However, in the last three weeks, we have seen over $8 billion of inflows, so clearly the market did correct and re-price, but investors, I think, saw a very attractive opportunity and cash came into the market and drove very strong returns in the month of October. 

DAVID CRAIG:  Ok, and then after the downturn and recovery, where are spreads now and then what about the forecast for defaults?

BRIAN NOLD:  Well spreads now are about 713 basis points and for comparison at the beginning of the year they were 534 basis points and the widest we saw at the beginning of October we reached about 900 basis points.  When you look through to figure out what that implies for the forward default rate for the high yield market, it implies about a 7% forward default rate.  That compares to roughly a 1% trailing twelve month default rate, so a fairly significant increase is forecast based on the spread levels.  However, in a recessionary environment, the forecast for defaults would be in the 5 to 5 ½% range and in a non-recessionary environment, or just a slow growth environment, defaults are likely to be in the 2 to 3% range, so there is quite a significant excess spread cushion built into the market right now due to the macro uncertainty that is mostly coming out of Europe. 

DAVID CRAIG:  OK and the Fed came out this week and revised their growth estimates lower.  Do you think the Fed’s commentary will have an impact on the forecast for defaults?

BRIAN NOLD:  Well the market is already anticipating a slow growth environment which we actually don’t believe will dramatically increase defaults, as companies have been very aggressively refinancing any of their near term debt maturities over the last three years, so it is mostly something that has been priced into the market. 

DAVID CRAIG:  Ok, now why would an investor want to invest in high yield and what looks to be a pretty stagnate economy? 

BRIAN NOLD:  Well there is an attractive current yield in the market of about 8 ¼ and the credit cycle in general is continuing to improve as companies are focused on continuing their balance sheet repair and generating strong free cash flow. So again, stagnate economy and slow growth is actually not a negative scenario for most high yield companies that have very strong balance sheets. 

DAVID CRAIG:  OK, and you touched on this a little bit, but how has the situation in Europe, and particularly in Greece, impacted high yield?

BRIAN NOLD:  Well as we saw in August there was a general risk reduction trade because of the uncertainty in Europe; however, from a direct impact to company fundamentals, we are seeing very little impact.  Third quarter numbers thus far are coming out fairly strong or in line with expectations.  The high yield market, in general, is generally dominated by companies that are mostly impacted by what is going on in the U.S. economy.

DAVID CRAIG:  Ok, and what is your outlook for high yield?

BRIAN NOLD:  Well in the scenario where Europe does prevent a contagion from enveloping the global banking system and then the U.S. faces a slow growth environment, we would actually expect high yield spreads to tighten as really the current spread levels discount a significantly higher default rate than what we would anticipate.  We believe the combination of the current yield of 8 ¼% and further spread compression from high yield could drive strong returns over the next twelve months.

DAVID CRAIG:  Ok, great, well Brian thanks for your insights.

BRIAN NOLD:  Ok, thank you.

 

Plan Advisor Tools 5

DAVID CRAIG:  Welcome to the Plan Advisor Tools Five.  It’s the week of November 7^th, and I’m with Daniella Moiseyev, retirement segment marketing manager for RidgeWorth Investments to talk about the potential impact of fee disclosure on advisor and consultant fees.  So Daniella, we’ve been talking about fees all year in this podcast due to the new fee disclosure regulations coming into effect in 2012.  With this new emphasis on fees do you think there will be an effect on advisor and consultant fees as well? 

DANIELLA MOISEYEV:  Oh absolutely, David.  There has been a renewed scrutiny on plan fees all across the board and we believe that advisor fees will not be immune to this scrutiny, but to quote RidgeWorth’s Investments president, Jim Stueve, only in the absence of value do people begin to focus on price.  That being said, we believe there are several things an advisor can do to refocus the client or plan sponsor on the value, and not the price, of the services that he or she provides. 

DAVID CRAIG:  Okay, what are those things?

DANIELLA MOISEYEV:  Well, there are three things you can do to ensure that your clients understand that the value of your professional expertise outweighs the fee.  First and foremost believe that the advice you provide is worth your fee and avoid becoming defensive.  Practice explaining your services clearly and confidently so you can answer with authority.  Second, don’t assume that every question about your fees is a challenge. And third and most importantly, practice your responses to objections until you are comfortable with articulating your value. 

DAVID CRAIG:  Okay, now let’s talk a little about the first item, believing you’re worth your fee. 

DANIELLA MOISEYEV:  Well, there is a huge body of scholarly work by William Bernstein, Daniel Kahneman, Dalbar and many others that shows that most people, most plan sponsors, most investors, pretty much anyone, are simply not wired to be successful investors.  Simply put, they don’t act rationally when investing.  Your process-driven decision-making and knowledge base add value to the relationship and to the plan and that’s been proven through scholarly work.  You need to be confident about the unique value that you provide.  Don’t think of a response to a fee objection in the moment.  Be ready, be prepared and speak with authority. 

DAVID CRAIG:  Okay, now what about the other two items that you mentioned, not assuming every question is a challenge and practicing your response?

DANIELLA MOISEYEV:  Well, just because a plan sponsor opens the door to the fee discussion doesn’t mean that you need to immediately rush into discount mode.  There are four easy steps on how you respond to an objection to your fees.  First, give a short, neutral response and then probe to get more information or to gain insight.  Identify the underlying issue and rephrase or reposition the question or objection and then answer it by relating it back to your value.  Now, don’t get me wrong.  This isn’t easy to do.  It takes practice and it takes some introspection, but we really believe that if you’re good at what you do and you’re doing it for the right reasons, you can do it. 

So, let me give you an example.  A common objection might be something like a plan sponsor saying “your fee is too high.”  First, give a short, neutral response.  Say something along the lines of “fees are relative to the type and quality of the service provided.”  Then, after clarifying questions to reveal a hidden agenda or gain some insight into why they are bringing up this objection, something like “high – compared to what?”  Then, identify the underling issue and rephrase or reposition the question.  Figure out that the plan sponsor doesn’t really understand what the fees encompass or the quality of the service that is provided.  So, you could say something like “let me review all the services that you will receive for the fee that I charge.”  Something like “plan design services, investment monitoring and investment policy statement development, employee education services, fiduciary services, serving on the investment committee,” et cetera, et cetera.  Once you’ve laid out your value, then you can answer by relating it back to your process.  So, you could say something like list out the services and answer “I believe in exchange for the X amount of fee, these comprehensive services are fair, reasonable and competitive with other programs available to you.” 

DAVID CRAIG:  Okay.  That’s a lot of good information, Daniella.  Thanks for your insights. 

DANIELLA MOISEYEV:  Thank you and thank you all for listening.  

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time and are for informational purposes only are not intended as individual or specific advice, may not represent the opinions of the entire firm and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, is provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be and should not be construed as investment, legal, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice.

DAVID CRAIG:  Hello, welcome to Fixed Income Market Five, it’s the week of October 3^rd, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and sub-advisor for the Ridgeworth Investment Grade Bond Funds, discussing what’s going on in the fixed income market.  Jim, in your end of 2010 Seix Perspective you wrote that “We remain hardened skeptics of the hope trade.  By the middle of 2011 the headwinds with the moribund housing market and intensifying drag emanating from state and local government spending, and an unemployment and underemployment rate incapable of sustained downtrend will be sobering reminders in how different this recovery cycle is.  In short, there is nothing normal about it, new or old.”  Now the headwinds you referenced, in addition to the European issues, have certainly seemed to impact the equity markets in the third quarter.  How did they impact the fixed income market?

JIM KEEGAN: Well David, they’ve impacted the fixed income market primarily through the manifestation of the consensus once again coming into this year being wrong, and what I’m referring to there is that the expectation coming into this year is that GDP would be on the order of 3.5% to 4%, we’d have higher rates and a steeper curve, etc., etc., and the end of QE2 would just lead to higher interest rates and a steeper yield curve.  In fact what’s happened is as we said in prior Fixed Income Market Five’s in addition to the quarterly perspectives is that the end of QE2 was likely going to be no different than the end of QE1.  What happened was interest rates fell and the yield curve flattened, and that was very much an out of consensus view.  The reason is, if you think about the mechanics of QE2 or QE1 for that matter, what the Fed does is every day at 11 a.m. is they go into the market, they buy treasuries and take treasuries out of the market but infuse cash into the market, and that cash was designed to go into riskier assets, i.e., stocks, commodities, high-yield bonds, high-yield bank loans, corporate bonds, etc., etc.  Our view was that once you removed that cash that was coming in as a result of quantitative easing, that the bigger implication would be for risky assets, like stocks, and commodities, and that’s in fact what we’ve seen and rates have in fact fallen.  In fact they’ve fallen over 120 basis points if you look at the ten year treasury during the third quarter.

DAVID CRAIG:  Ok, so the ten year treasury fell more than 100 basis points during the quarter, which is a big move.  Now that should have pushed bond prices and bond fund values higher.

JIM KEEGAN:  Oh exactly, I mean if you think about bond math, interest rates go down, bond prices go up, so you know treasuries lead the way in the third quarter with the big decline we had in treasury rates.  In fact while the US Treasury or the US Government was downgraded by S&P.  If you think about bonds and the Lehman Ag was up a little over 3.8% while stocks were down anywhere from 14% to 20% in the third quarter.  I think what you need to find from your fixed income manager is that they better have a positive return in an environment like that serving as the anchor of the portfolio.  Our performance here at Seix was quite good and we were overweight spread product.  But it’s this safe income at a reasonable price that we’ve been talking about.  The other thing that I’d say about the third quarter is the dispersion of returns that we say in the third quarter amongst bond funds is very reminiscent of what we saw in 2008.  It doesn’t seem like a lot of lessons were learned.

DAVID CRAIG:  Now with interest rates where they are, they’re bound to go up from here right?

JIM KEEGAN:  No, not necessarily David.  Again, that was the consensus, that’s been the consensus for the last several years, ok.  Now here at Seix we’re not market timers so we’re not trying to time interest rates, but we do have a view on the interest rate market.  Look, three things can happen to rates right, they can stay low for a longer period of time, they can head lower, or they can head higher. The consensus view for the last several years is they got to head higher because they’re so low.  In our view there’s a higher probability that rates stay low like they are right now for a longer period of time and an extended period of time, or they even head lower, given the fundamental backdrop and the structural problems that our policy makers globally refuse to acknowledge, let alone address.  Policy makers seem to think that they can create a pain free crisis, or get us through a pain free crisis.  And the amortization strategy and the dragging out of the deleveraging process, really not allowing markets to clear based on true fundamental underlying supply and demand, supports our investment strategy that at minimum rates are going to stay low for longer, but they can potentially go even lower. 

DAVID CRAIG:  Isn’t that what the fed is actually trying to do now, push them lower?

JIM KEEGAN:  Well through their Operation Twist the Fed is trying to bring down long-term interest rates, and by definition that’s going to flatten the curve because there’s not much they can do on the short end with their zero interest rate policy environment.  The housing market is not about low rates, because we’ve had low rates for the last three years, and it doesn’t seem to be doing much for the housing market, so on the margin yeah the Fed will Operation Twist will potentially lower interest rates, but it’s not going to solve what’s fundamentally wrong with the economy.  It’s the structural problems that I talked about in prior Fixed Income Market Fives, and that being excessive debt, a savings problem in this country, unemployment and an underemployment that is not easily solved by monetary policy, housing prices that remain under pressure, and then trillion dollar plus deficits as far as the eye can see.  Monetary policy can not solve those problems. 

DAVID CRAIG:  Let’s move to Europe.  You’ve been warning people about the sovereign debt crisis since the middle of 2009, you talked about it being a competitiveness issue not a fiscal one.  Is Europe addressing its competitiveness? 

JIM KEEGAN:  Well I mean, the easiest way, let’s take a step back and something that I said a couple years back, when everybody was focused on well Greece only represents 0.5% of global GDP.  If you remember, I made the point that you know folks this is not about Greece, this is about the fragility of the global banking system.  Yes, peripheral Europe has a competitiveness problem, and the problem that they have is they don’t control monetary policy because they’re part of a monetary union called the Euro.  Then as a result of that they’re tied from a currency standpoint to that Euro.  The easiest way for these countries to solve the competitiveness problem would be through a lower exchange rate, but given the fact that the Euro has remained artificially high as a result of Germany primarily, I guess the easiest for a peripheral Europe to solve its competitiveness problem would be for Germany to leave the Euro.  While that may be something that happens down the road, it seems like the politicians throughout Europe are wetted to this experiment called the Euro.

DAVID CRAIG:  In let’s end with your outlook, what is your outlook from here?

JIM KEEGAN:  Well as I said, you know the structural problems are still with us, our politicians and policy makers refuse to make hard decisions, and at the end of the day we think that we’re going to continue to be in this below trend growth environment that’s largely driven by inadequate policy responses of allowing markets to clear.  I’m talking about stocks, housing, etc., and you know paying down debt and deleveraging in general.  This cycle is unlike any cycle that we’ve seen in the post-war period, which is why we’ve had a more skeptical view as it relates to the economy, interest rates and risk asset prices. Corporate sector to us is the one sector, and we’ve been singing this song for the last several years.  We took our corporate position down at the end of the second quarter, and we took our beta down when we did that trade, which 20/20 hindsight has worked out quite well.  Having said that though, the corporate sector is in pretty good shape from a liquidity standpoint, from a leverage standpoint.  Does not have the excessive debt problem that the household sector has, that the financial sector has, and that the government sector has as they have transferred a lot of this private sector debt to the public sector.  We still like the corporate bond sector, with a defensive orientation, agency mortgage backed security paper we think makes some sense here, and then certain aspects of the commercial mortgaged backed securities sector as well.  Again, the theme to us is safe income at a reasonable price, because as Chairman Bernanke has conveyed, we’re going to be in this zero interest rate policy environment for quite a long time. 

DAVID CRAIG:  Jim, thanks for your insights.

JIM KEEGAN:  Thank you David.

 

Equity Market 5

DAVID CRAIG:  Hello, welcome to the Equity Market Five.  It’s the week of October 3^rd, and I’m with Don Wordell of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund to talk about what’s going on in the equity markets.  So, Don, you’ve been cautiously optimistic about the equity markets for most of the year, citing strong earnings and balance sheets, but being concerned about the macro environment.  Recently the macro environment seems to be dominating.  How do you, as a stock picker, deal with this?

DON WORDELL:  Yeah, it’s been a really challenging third quarter and summer for us.  You’re absolutely right.  The macro environmental is overwhelming the fundamental bottom-up research, but the stock picking, what we did, we just stick to our guns.  We do not stray from our process.  Our process has guided us through many, many business cycles before this, and we are confident it will guide us through forward business cycles.  So, we stick to our process, which is just going back and checking and rechecking our fundamentals, and as valuations become more attractive, we just buy bigger positions in stocks that we want to own.

DAVID CRAIG:  Okay, great.  As the stock market drop has a pretty significant decline in consumer and small business optimism.  What do you think it’s going to take to reverse that downward trend and confidence?

DON WORDELL:  You know, I think what’s going to reverse it over the next six weeks is there’s going to be earnings.  I think that earnings are going to begin to be announced.  Usually you get them starting about the third week of October, and I think that earnings are going to be in good shape.  You might see some ease back in forward guidance, but I think that for the most part, most of our fundamental work is showing us that margins are going to be fine, earnings are going to be in good shape, and the market is now at a level where expectations are so low that we think it’s pretty attractive. 

DAVID CRAIG:  Okay, great.  Now the sectors that you’ve been most positive on over the next 18 to 24-month time period have been Financials, Industrials, Energy, and Materials.  These four have not performed well since June.  Do you still have a favorable long-term outlook for them?

DON WORDELL:  I do.  I still have a very favorable long-term outlook for Financials.  I think that Industrials, Energy, and Materials are probably the ones that are more suspect at this point.  I think that we’re beginning to hear about hints of questionable growth in China, and that’s going to have a big impact on Energy, Materials, and Industrials.  So, if the developing economies catch the flu that seems to be going around Europe right now, then it could be a problem for the next 18 to 24 months.  However, corporate companies that we’re looking at in this space have very strong balance sheets.  They have very strong individual catalysts that drive them higher.  But when you look at what we’ve done, we have lightened up on some of our Industrials exposure, and we have lightened up on some of our Energy exposure in this time period because you could see real softening in global demand.  That would be very short-term in nature but something that’s enough for us to sell some positions.

DAVID CRAIG:  Okay.  So, what are some of the positive things you’re seeing in the equity markets? 

DON WORDELL:  Well, just continuing along with my last comment, the positives that I saw that we’re seeing over the summer is that if the fundamentals weaken and some of the global developing economies, you’ll see money move back to the U.S. dollar and its commodity prices come down or stay a little bit lower.  What we expect for that to do is to have a positive impact on the U.S. consumer through lower pricing for gasoline, lower pricing for food at the grocery store, all of this will drive higher discretionary income.  So, we’ve taken some of the money that we’ve sold and some of our Industrial positions and bought some consumer discretionary stocks that really had low expectations and were really discounting fairly draconian outcomes for their earnings that we don’t think are realistic, and we think that they’re going to be better off than what the value of the market is giving them.

DAVID CRAIG:  Okay, great.  And let’s end with your outlook.  We’ve already been incredibly volatile the past couple of months, but what’s your outlook for equities for the balance of 2011 and then into 2012?

DON WORDELL:  I think volatility is going to continue.  The volatility is exhausting.  This is what I tell everyone.  It absolutely is, but I think that as you look forward over the short-term, over the next three months, my outlook is that earnings should come in better than what the market is expecting right now.  However, that volatility is going to continue based on, unfortunately, whatever news comes out of Europe.  It seems to be all we have to do is wake up in the morning and look at what’s going on with the European banks, and that determines the direction of the U.S. equity market.  I would tell you that at the end of the day people are describing a lot of reasons for the stock market to be going the way it does, correlations are high, or correlation across asset classes are high, or it’s European contagion, or debt crisis, but at the end of the day fundaments will win out.  I can’t tell you if that’s three months or eighteen months, but they will.  When they do, we feel very comfortable with the stocks we own and their fundamental stories going into 2012.  However, I still think you’re going to have some volatility higher than what most people like over the near to medium term because of things like the election coming up next year.  If we can get past all that, we’re very confident that this is a great time to be building positions in your equity portfolios. 

DAVID CRAIG:  Great.  Alright, well, Don, thanks for your insights. 

 

Style Class Focus 5

DAVID CRAIG: Hello, and welcome to the Style Class Focus Five.  It’s the week of October 3, 2011, and I’m talking with Alan Gayle, Senior Investment Strategist and Director of Asset Allocation for RidgeWorth Investments about the evolution of asset allocation.  Now Alan, asset allocation has become much more complex over the past decade.  Can you talk about where we’ve gone since the days of a portfolio being made up of domestic stocks, bonds and cash?

ALAN GAYLE:  Right.  The capital markets have become infinitely more sophisticated and a lot faster over the years.  In years past the manager would virtually back into the fixed income allocation for a client based on how much income the portfolio needed to generate and the current yield available in the market, it was simple.  Also many managers used what we call a buy and hold equity strategy.  Usually with the iconic and branded S&P 500 Companies.  Those days are long gone.  In fact, a new group of securities enables a more actively and broadly diversified strategy to be developed.  We can now move very quickly to increase or decrease exposures to developed International markets, emerging markets, commodities, real estate and we can employee ETFs to get tactical tilts and things very quickly.  This has led to opportunistic trading and ways to buffer downside risk in portfolios.

DAVID CRAIG:  So how do you determine what the right mix of these new asset classes is for a given risk tolerance?

ALAN GAYLE:  There are a couple of approaches that investors and investment professionals use.  One is to choose a set number of asset classes and always have an allocation to each that lines up with a specific risk tolerance.  Another approach is to have a range of asset classes that you may include but allocate to them based on current opportunities.  At RidgeWorth, we believe the right mix or the optimized asset allocation is a function of current opportunities to generate total return with a client’s risk tolerance’s very much in mind.  We have four general strategies based on risk profiles.  The conservative allocation strategy has a 70% fixed income, 30% equity target.  Moderate has 50/50 mix.  Growth has 70% equity/30% fixed and aggressive growth has 100% equity allocation.  We can vary equity exposure plus or minus 10% around those respective targets based on expected returns.  Within these risk banks, we then drill down on estimated total returns using what we call our 360 degree analysis.  It’s not as easy to say that stocks should provide and 8% to 10% annual return like the old days.  Instead we look at stocks in myriad ways.  By market capitalizations – large, mid and small; by domicile, US based, International develop and emerging markets and we look at fixed income as having opportunity sets.  Short, intermediate, long, high yield, floating rate, credit and we augment all of that with alternatives – real estate, commodities and TIPs.  At any point in time some of these securities may be undergoing stress or what could be defined, what we define as overvalued based on our estimates absolute and relative forward returns.  We do that by looking at both fundamentals and technical momentum with the intent of identifying market traction before taking action.  Not buying too early, not selling to late.  In addition, we have discussions with RidgeWorth portfolio managers to take their pulse on what they’re hearing from companies and how they define the best opportunities.  Clearly we have to examine how all the pieces work together in a portfolio.  Gold is not highly correlated with the S&P 500 over time.  It serves more as an inflation /risk off hedge.  So we also look at longer term correlations and what kind of returns we can expect versus the volatility or the risk that we take.  The result of all this is a portfolio true to its Lipper category and one that should be more “all weather” than ones that we would characterize as alpha generators or downside protectors.  We’re active traders.  Always looking for opportunities to maximize returns per unit of risk so frequently we purchase attractive securities or funds across all the portfolios just at different weightings.  This provides consistency and reflects our best thinking.

DAVID CRAIG:  Okay, great.  So once an allocation has been set what are some ways to keep it in balance?

ALAN GAYLE: Again, there are different approaches.  Some investors and investment professionals may rebalance over periodic intervals.  Quarterly, for instance.  Others may rebalance when a portfolio gets a certain percentage out of balance.  At RidgeWorth, we rebalance actively based on cash flows and opportunities.  In fact, we start each day talking about news flow and craft a game plan for when we receive the daily cash report.  We take a sophisticated approach and adjust with more of a fine tuning perspective based on the fundamental landscape, news events and technical factors such as the Fibonacci retracements, distance from the moving averages, support and resistance levels. 

DAVID CRAIG:  Okay, now how would a well allocated portfolio have benefited investors this year?

ALAN GAYLE:  Client’s would have benefited with a diversified portfolio.  On a year to date basis through September 30, 2011, the S&P 500 returned -8.7%, while many of the fixed income categories had positive returns.  Precious metals such as gold performed well as did real estate.  The benefits of broad diversification were clear since the equity market returns lagged fixed income returns rather dramatically.  Having said that, the market segments that have lagged are looking increasingly attractive so it could be a very solid opportunity moving forward based on our cautiously positive outlook.  Our expectation that Euro’s own uncertainties will gradually dissipate and the current high degree of asset and stock correlations lessens.

DAVID CRAIG:  Great.  Well thanks for you insights Alan.

ALAN GAYLE:  Thanks very much.

 

Plan Advisor Tools 5

DAVID CRAIG:  Welcome to the Plan Advisor Tools Five.  It’s the week of October 3^rd, and I’m with Daniella Moiseyev, retirement segment marketing manager for RidgeWorth Investments to talk about fee disclosure regulations.  So Daniella, we’ve had ERISA attorney David Williams with us in the past podcasts to discuss regulation 404(a)(5).  Can you give us a quick refresher?

DANIELLA MOISEYEV:  Sure, thanks David.  What we found over the last few months is a lot of people are talking about the plan provider disclosure which is the 408(b)(2), but not as many people are talking about the new regulation under ERISA 404(a)(5).  Now that regulation requires the disclosure of certain plan and investment-related information, most significantly expenses and fees, to participants in what they call participant-directed individual plans.  So things such as 401(k)-type plans.  Basically what it requires is that the plan sponsor, and what they call the plan administrator, but in most cases it is the plan sponsor, has to regularly disclose to plan participants the features of the plan that effect the investment of their plan account as well as a wide variety of expenses and fees that potentially could be charged to their account and then actually are charged to their account.  By regularly, it varies depending on what components are being disclosed; some are quarterly and some are annually.  That is discussed in more detail on our white paper about 404(a)(5).  Now the aim of this regulation, the reason the DOL undertook to write this, is to give the approximately 72 million participants in these types of plans better information about their expenses and fees in order for them to better manage their retirement savings.  The regulation goes into effect on May 31, 2012, for most plans.  There are some plans that will go earlier.  Then it is 45 days after the end of the first quarter after regulation goes into effect so effectively for most plans that will be August 14, 2012.

DAVID CRAIG:  Okay, so what do you think will be the effect on plan participants as a result of this new regulation? 

DANIELLA MOISEYEV:  Well what we’re finding and what the research is showing is that most plan participants are completely unaware that their plans cost them anything.  Most of them think that they’re cost free.  What we think is going to happen after they get that first account statement is going to be a mixture of confusion and shock.  They’ll be able to see in black and white, in dollars and cents and in some cases percentages, what their plan is actually costing them and what is being deducted out of their account.  That’s going to cost quite a bit of consternation.  We think the first thing that most people will do is go ask their family and friends to see what they’re paying.  When you start comparing in that way, you know, one of the first things that they’ll realize is that those participants with higher value accounts are actually paying more than those with lower value accounts and in some cases they may not think that is fair.  What we think is that’s going to cause a lot of people to come into the HR office or call the call lines and on top of that, Dalbar which is an industry consulting group did a study of the model comparative disclosures that the DOL wrote up, and they assessed on a variety of factors; document length, Flesh reading ease, confusing terms, number of confusing concepts, etc. ,etc.  Basically they came up with it was very confusing that the reading ease is very low, that the length is too long to engage with most regular, ordinary participants, that it has a variety of confusing terms (seventeen I believe that they found) and has a lot of confusing concepts.  So that’s going to cause some problems.  Now Dalbar came up with the idea that this is going to cause spikes in call volumes, disgruntled participants and a mass exodus out of 401(k) plans.  We believe that it doesn’t necessarily have to be this way and there are certain things that plan sponsors can do to be prepared to help their participants not be so concerned and so upset and exit the plan.

DAVID CRAIG:  Okay, what are some of those things plan sponsors can do?

DANIELLA MOISEYEV:  Well, we break it up into four things.  First, we think that a plan sponsor needs to understand and be able to articulate the different components of their plan fees in a way that participants can understand.  There are multiple components here, but the ones that we think people will be most concerned with and that most plan sponsors or whoever is staffing the call line or the HR office where participants are going to go need to be able to do that is investment management fees which are probably going to be the bulk of the fees that are being deducted and the participant’s specific fee  so things such as when they are taking a loan or when they’re doing some various transfers or rider charges or redemption fees or transfer fees and those kinds of things.  Then also the administrative expenses and fees which may also include an offset due to revenue share by the investment option.  So all of that are line items in the new disclosure are pretty confusing.  So you need to do as a plan sponsor need to be able to articulate what those means and understand them yourself.  We cover these fees in some detail in two pieces that we have available on our retirement plan website, www.planadvisortools.com.  We have a Managing your Plans Fees white paper and a 404(a)(5) fiduciary focus participant guide both of which go into some of these fees in detail to help you understand them in plain English.  Now the second thing that we feel plan sponsors should do to prepare is to understand and be able to articulate the comparative value of their plan.  There are a lot of ways that you can do that.  As an advisor of the plan, you can work with your plan sponsor client to benchmark their plans.  We do have some benchmarking tools available on our retirement site, but we also feel strongly that you shouldn’t only benchmark the fees of a plan.  You need to benchmark all the various aspects of the plan in light of participant success measures or participant outcome.  So how well is your plan performing relative to its peers will go a long way towards helping your plan participants understand why they pay what they pay.  Now that being said, if your plan is completely out of line or if it’s not having very good participant success outcome, you may wish to work with your advisor to find a better lower cost option.  The third thing we feel is very important to be prepared is to have your staff trained.  That front line staff that will be dealing with participants who come into the office whether it’s the person in the HR department or it may be the employer, the company owner himself, needs to be prepared to answer questions and really understand this.  Again, I think some of the materials that we have available will help go quite a way to help people understand it.  Then the fourth thing we really think is important is to consider distributing a participant guide in advance of the first disclosure.  So before they get that first statement with these fees, send something out to your participants so that they understand what’s coming.  We’re working on something like that now that we’ll have out ahead of the time of the required disclosures, and we’re working on making something that’s going to be in plain English that you’re average participant can understand it. 

DAVID CRAIG:  Great.  And I assume advisers can also go to Plan Advisors Tools to get information to support that?’

DANIELLA MOISEYEV:  Absolutely.  Advisors can go to www.planadvisortools.com.  We have benchmarking tools there that can help you with all the plan sponsors that you work with benchmarking the plan.  We also have all of our printed materials around 404(a)(5) as well as managing your plan fees there that you can take a look at and see if it’s something you would like to use with your plan sponsor client.

DAVID CRAIG:  Great, thanks for your insights Daniella. 

DANIELLA MOISEYEV:  Thank you.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

Fixed Income Market 5

DAVID:  Welcome to Fixed Income Market Five.  It’s the week of September 5^th, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadvisor for the RidgeWorth Investment Grade Bond Funds, discussing what’s going on with the fixed income market.  So Jim, in August we had the debt ceiling deal, the U.S. debt downgrade, huge volatility in the equity markets, significant turmoil in Libya, Chairman Bernanke saying that the economy is worse than he expected, but the Fed wouldn’t be doing anything and Hurricane Irene.  How does the fixed income market respond to all that?

JIM:  Well, the reaction of the fixed income markets David was a fight to quality bid in the risk-free asset class, that being treasuries.  So the downgrade really didn’t come into effect.  We had a widening in risk premiums for the spread sector in the markets.  I think you have to step back here for a second and think about this in the context of what we’ve been through in the last four years.  People were still dealing with the aftermath of the financial crisis.  In 2008 it was led by U.S. Banks and in 2011 it’s pretty obvious it’s being led by the European sovereign debt/banking crisis.  The bottom line is this all in our view stems from the fact that the global banking system remains extremely fragile.

DAVID:  June 30^th seems like ages ago, but in the past two months have you seen any impact of the end of QE2?

JIM:  Well, you know we saw and continue to see exactly what we anticipated which was wider risk premiums and lower treasury yields.  The market seemed to be completely focused on potential for interest rates to rise in the absence of treasury buying on the part of the Fed, but that missed the critical point that QE2 was promoted and designed to lead to risk taking in both the equity and the bond markets.  Remember the mechanics of quantitative easing is the Fed would go in every day and buy treasuries in the secondary markets and thereby taking out treasury supply, but injecting cash into the system through those U.S. treasury purchases.  Cash was meant to be used to buy riskier assets.

DAVID:  Right.  Now let’s switch and talk about housing.  Jim, you’ve been saying housing will be a key data point to watch.  According to the latest Case-Schiller data, home prices have actually increased in the past three months.  Do you think that’s just a seasonal affect or is there more to that?

JIM:  No, this is definitely a seasonal affect, David, and something that will likely dissipate over the coming months.  We anticipate that the Case-Schiller index will decline again and in all likelihood make a new cycle low over the next year or two.  While we haven’t completely updated the internal focus here, we would not be surprised by a further decline of 10% to 15%.  The index currently corresponds to the pricing of homes back to June of 2003.  So if we went down another 15%, that would correspond to October 2001 pricing.  That would give us a lost decade in housing prices which would join the lost decade that we already have in jobs, real household income and stock prices.  The three-month rise as you pointed out in June was up 2.7% on a year-over-year basis, but it’s still down 4.5%.  This spring’s seasonal rise is lower than last spring’s seasonal rise of 3.2% so there’s definitely seasonality here.

DAVID:  Okay, great.  Now another area you said keep an eye on is the employment picture.  The President is introducing his ideas about a new jobs program this week.  Do you think this could have a measurable impact on employment?

JIM:  Unfortunately we’re not too optimistic here as it seems that both political parties seem to be trying to gain the upper hand for the 2012 election.  That seems to be at the heart of each iteration, each proposal, so I think we’ll take the under as it relates to this week’s speech.

DAVID:  Jim, you’ve covered a lot of topics this call.  Did anything that happened in August really change your outlook?

JIM:  No, actually events over the past summer and August have essentially ratified what’s been our view for the last couple of years.  The risk rally prompted by QE2 last fall has begun to unwind as it was not rooted in fundamentals.  Neither is the consensus expectation for a second half bounce after the 0.7% GDP growth that we’ve had in the first half of the year.  The economy we have to remember is gripped by deleveraging.  It’s probably not even half over.  The healing is not going to be accelerated by monetary policy be it conventional or unconventional as low rates will not prompt additional borrowing and spending which is what the Fed seems to be trying to do.  It seems to be trying to put Humpty Dumpty back together again and Humpty Dumpty being consumers that borrow, spend, borrow, spend and just increase their leverage.  We think that that was the exception rather than the rule.  Then when you incorporate demographics and the fact that 77,000,000 baby boomers are going to be retiring over the next eighteen years and they have inadequate savings we think as I said before, many times before, that we think there’s penned up demand to save rather than to spend.  As for fiscal policy, a decade plus with multiple wars, additional entitlement programs, ineffective stimulus programs have left our country stretched.  That GDP ratio is approaching 100% so without major entitlement and tax reform there’s no real avenue for fiscal policy to be enacted to offer any assistance to this cycle.  So at the end of the day it comes down to time.  There’s going to be austerity and unfettered capital markets are the key ingredients to the repair process.  Our political process just does not seem to allow for the right mix of these ingredients to work and allow the system to heal.

DAVID:  Jim, thanks again for your insights.

JIM:  Thank you, David, talk to you next month.

 

Equity Market 5

DAVID CRAIG:  Hello, welcome to the Equity Market Five.  It is September 1^st and I am with Don Wordell of Ceredex Value Advisors, subadvisor to the RidgeWorth Mid-Cap Value Equity Fund to talk about what is going on in the equity markets.  So August was quite a month with the U.S. downgrade leading right into multiple plus and minus 4% days in the S&P, and then you had the Libya turmoil and the Fed saying that they are going to stay on the sidelines for now, and Hurricane Irene.  How did you navigate through the month?   

DON WORDELL:  It has been a very difficult month.  I have had better Augusts in my lifetime I can tell you that.  You know, you just have to stay committed to working the process.  You can’t let the macro noise distract you away from the process, which is building portfolios from the bottom up.

DAVID CRAIG:  Now in July you mentioned that investors should keep their eye on the budget negotiations and their long-term implications.  Now that the deal is done, what do you see as the long term implications? 

DON WORDELL:  I think the long-term implications really could be quite negative.  It is painfully obvious that we have to cut the entitlement programs that have been legislated into existence.  I don’t know how deep the cuts are going to be, but it is obvious that near term we can’t afford to cut because we just still have a weak recovery, but longer term they could really have an impact on things like defense budgets and even the entitlements, which would be Medicare, Medicaid and Social Security.  I think those things could be somewhat negative longer term.

DAVID CRAIG:  Let’s switch to sectors.  Industrials and Financials have taken a particular beating so far in the second half of the year; to what do you attribute that?

DON WORDELL:  I think we will start with Industrials.  It is almost like a replay from last year where it was really focused on the issues in Europe.  A lot of the industrial companies that we own in the market, they are all global.  They have multiple operations around the world and with the European austerity programs that have to be put in place, as well as the debt issues over there; it has just caused a lot of investors to doubt the sustainability of the global recovery.  With Financials, I think it is really a function, and I’m going to use a song which we used to sing as kids, the knee bone is connected to the shin bone, and that is exactly what is going on.  The Greek banks all have their paper held by the European banks and the U.S. banks hold the European bank paper, and it is just a contagion and you have got a lot of portfolio managers out there saying well we saw this in 2008 it is not going to happen to me again, so they are selling first and asking questions later. 

DAVID CRAIG::  Now Utilities and Consumer Staples have been able to pretty much stay flat in the second half.  Why is that the case?

DON WORDELL:  Well that is just a function on the Utilities you have a ten year yield that is down as we are talking 2.15% and there are a lot of utilities out there that have pretty stable earning streams that pay dividend yields in the 4, 4 1/2 and 5% range and it is a yield grab.  People are just gravitated towards the yield because they can’t get it anywhere else.  With Consumer Staples, you are just seeing the stocks do well for almost the same reason; higher yielding than the treasury and then their earning streams are somewhat more stable and while they are clearly being impacted by higher commodity costs for consumer staples, they are able to pay the dividends and it is not having that big of an impact on their earnings and so those stocks are doing much better. 

DAVID CRAIG::  Did anything that occurred in August cause you to revise your outlook?

DON WORDELL:  You know, it actually has.  I am more cautious now than I was 30 to 60 days ago.  I really feel like the European situation could be more severe this time and there is not going to be an easy answer to that.  I do believe that the U.S. economic recovery and the lack of job growth is worrisome.  Although I offset that by saying the corporate balance sheets are in great shape and corporations are still sitting on trillions of dollars in cash right now; it is just getting the right incentives for them to get that cash to work and I think you are going to hear something next week from our President along those lines.  In the near term, I am still more cautious over the next one to three months, but longer term, six, twelve months, eighteen months out, I do believe that the strength in the corporate balance sheets and all that cash will find its way back into investment and the recovery will continue, albeit probably at a little bit slower pace than what we expected or hoped for before.  

 

Style Class Focus 5

David Craig:  Hello and welcome to The Style Class Focus Five.  It is the week of September 5^th, and I am talking with Chad Decans, President and CIO of the Certium Asset Management, sub-advisor to the RidgeWorth International Equity Funds.  So Chad, headlines are definitely negative for the Eurozone.  What are you seeing there and how can it get better.

Chad Deakins:  Well, the Eurozone is in a difficult spot right now.  They have got slow growth outside of Germany.  They have had a lack of physical reserve in preferi countries, meaning they have got high debt to GDP and they are running deficits and they have got a lack of physical integration across the Eurozone and the ECB tightened too early in this cycle, making things worse for them.  So, there is a lack of political leadership, like I said.  That is starting to solidify a little bit and starting to get a little bit of leadership there and the austerity plans in the preferi along with the debt restructuring in Greece should help solidify the situation right now.  The thing about Europe is that there are a lot of multinational corporations that trade on European Markets that get probably less than a quarter of their revenues out of Europe and they are trading at very depressed levels right now.  So I think there is a lot of opportunity for investment in the European Markets right now.

David Craig:  Okay.  Now how do you think that the crisis in Europe is affecting U.S. investors?

Chad Deakins:  Well as I said, there is a lack of political leadership and a lot of instability and it brings more uncertainty on top of the current uncertainty in the United States. We have the kind of stale mate in our government but in Europe they have just been kind of stumbling along with a lack of leadership and waiting to find solutions when their feet get held to the fire just at the last moment.  So far they have been successful in continuing to provide solutions to the crisis at the last minute each time.  I think they are going to need to start getting a little bit further out in front of the problems to reduce global volatility.  So the U.S. investors are obviously seeing the uncertainty over there, uncertainty here, we have got a lot of fear in the markets, which is preventing investors from taking advantage of the attractive evaluations that we have right now. 

David Craig:  Okay.  There sure have been a lot of headlines about Europe but what are your current thoughts on the Emerging Markets?

Chad Deakins:  Well the Emerging Markets are actually one of the things we looked at as a leading economic indicator.  We look at the leading economic indicators, we look at Global CPI, and the ISM figures and what we see right now is Brazil has just cut rates and China market may be getting ready to loosen monetary policy.  When the U.S. kept monetary policy very loose, it caused inflation in much of the rest of the world, food inflation was caused by weather, but oil and other energy inflation was caused by the easy money in the west.  So we have a spot where inflation was very bad now and starting to ease and as inflation eases, we think the leading economic indicators will start to rise.  So right now Brazil, like I said was the first to loosen policy and their stock market rallied to about 4% in a week and especially small cap so, globally this is a very important thing if we get the Emerging Markets including China to start easing their monetary policy, we can reaccelerate the global economy quite quickly.  Now Emerging Markets are trading at very attractive multiples relative to history and relative to the develop markets.  They are currently trading at about a 23% discount to their ten year average valuations but the developed markets are also trading at attractive discounts to their historical valuations.  So we have a situation in International Markets right now where the valuations are very attractive but sentiment and momentum is very negative.  As soon as we can get sentiment and momentum to turn, we are going to see some much better returns in the equity markets.

David Craig:  Now, is the movement of currency having any impact on evaluations?

Chad Deakins:  It has but it has been give and take.  So we have seen the Euro accelerate quite dramatically against the dollar and then come back and all of the Emerging Markets have basically appreciated against the dollar because the U.S. has been increasing the number of dollars in circulation which makes the dollars less valuable relative to what has been going on in the other markets so, it has been good for Emerging Markets and it has been back and forth for other developed markets.

David Craig:  Okay – great.  In looking out over the balance of the calendar year, what do you see and what are your investment strategies for the period?

Chad Deakins:  Well coming into August, we had a pretty well balanced return in the market, valuation was important and quality has continued to be important so balance sheet stability has been very important all through this entire recovery, but then in August with the sharp market correction right off the bat; right after we got some negative economic data in the beginning, value or defensive stocks, defensive sectors dramatically out performed the rest of the market, the more cyclical parts of the market.  We think that it created a significant discount to those parts of the market.  We think that is eventually going to come back but we are not sure of the timing of that so the Global economic indicators need to start to pick up like I said Brazil and China may be the first hints that that is going to start to happen.  Most likely inflation needs to come down a little bit more and that is going to be more of a fourth quarter 2011, first quarter 2012 and then we will start to see pick up again and start to see reacceleration in the equity markets.  Until then, you know a more barbell strategy where you are holding more defensive, non-cyclical types of names in say healthcare, utilities, telecom, staples, those types of names of solid balance sheets and a lot of earning certainty are going to probably outperform your more cyclical parts of the market until we get that uptick.  So, the cyclical stocks are very attractive with value right now and some time in the next year or two they are going to have had a very strong run.  You have got to start making your list of the names that you are interested in and as you think things are starting to get a little bit better go in and start allocating to those more attractive cyclical names.

David Craig: Great.  Okay thanks for your insights Chad.

Chad Deakins:  Thank you.

 

Plan Advisor Tools 5

David Craig:  Good afternoon, welcome to Plan Advisor Tools Five.  It is the week of September 5^th, and I am talking with Brandon Shea, Managing Director and DCIO Team Lead for RidgeWorth Investments, discussing insights on building rapport with business owners.  So Brandon, you have five insights on how retirement plan advisors can build rapport; what are they and where exactly are they coming from?

Brandon Shea:  David, in my position I get the opportunity to work with some of the top 401(k) specialists around the country.  One person in particular I have had a working relationship for many years and he has become a personal friend is Joseph Burke, the owner of Pension Plan Specialists, a very successful third party administration in Vancouver, Washington.  Prior to founding Pension Plan Specialists, Joe is a top producer 401(k) wholesaler nationally for a 401(k) vendor.  He has sat through hundreds of finals presentation meetings with advisors and business owners and he became very methodical about asking business owners five specific questions in post final meeting wrap-ups, and those specific questions were:

1. When a financial advisor has called you what made you want to meet with that individual?
2. During the finals meeting presentation, what did you look for and what separated the good advisors from the not so good?
3. During the implementation process, what were your expectations?
4. What is the best way for an investment professional to earn ancillary business?
5. How do you maintain a long-term relationship with your investment professional?

So Joe was asking these questions with the express purpose of gaining a better understanding of how the best financial advisors build rapport with business owners from the business owner’s perspective.

David Craig:  All right Brandon that sounds great.  Let’s start with the first question.  When financial advisors have called upon business owners, what was it that made a business owner want to meet with one advisor over another?

Brandon Shea:  David the feedback from business owners state that they appreciate it when an advisor is brief and respectful of their time.  They also stated that they appreciated when an advisor made a “power statement” that applied to them, and this might have been in a form of a 15-second elevator pitch, but simply and effectively, the advisors were able to state who they were, why they were calling and how they could benefit the business owners.  Business owners also stated that they like it when advisors know their company and the good will and influence they have been able to generate in their local community.  They said they liked it when advisors are direct and exude confidence, but are not overbearing, and they said that they don’t like threats.  In other words, business owners want to be enlightened about the fiduciary risk that might be on their shoulders, but their advice to advisors is don’t overdo it by trying to frighten them with fiduciary risk and litigation; enlighten, but don’t threaten. 

David Craig:  Now Brandon during the finals meeting presentation, what did business owners look for and what separated the good advisors from the not so good in their eyes? 

Brandon Shea:  Well there were four consistent responses here from business owners as to how good advisors really separated themselves and the first thing was that image is very important.  When business owners were asked how important image was on a scale of 1 to 5, 5 being extremely important, they answered 4.5, or in other words, the image you project as an advisor is very important to extremely important in their eyes, and this encompasses your personal brand as a professional; this is your wardrobe, your manners, your marketing collateral.  I know of several top advisor firms nationally who conduct presentations solely with iPads just to demonstrate their technical proficiency; not to mention it adds a little bit of a “wow” factor on the prospective clients. 

The second area that helped advisors stand out in a good way during the finals presentation was that they demonstrated  an organized thought process and a clear meeting agenda, but were flexible enough to adjust to the business owner’s needs, so they brought an agenda, but as the meeting warranted, they flexed to answer the needs of the business owners. 

The third way that good advisors separated themselves in the finals meeting is that they do their homework in two notable ways to the business owners:

1. They address specific needs that the company is facing.
2. They come prepared to make a strong recommendation. 

It is one thing to work with a lot of different vendors.  The business owners don’t want to hear subtle nuances between five different platforms, they want the advisor to do their homework and make a strong recommendation based on their expertise.  Also, a fourth distinguishing factor is presenting oneself as the member of a team to business owners.  When these business owners were asked how important is it to work with a team of professionals on a scale of 1 to 5, with 5 again being extremely important, the answer was 4.  So the old adage is surround yourself with people smarter than you, but probably more appropriately, surround yourself with people who have complementing strengths where you might be weak. 

David Craig:  Okay, now during the implementation process what did business owners expect?

Brandon Shea:  Business owners expect a clear, concise action plan.  They want advisors to help them with a clear understanding of the roles and responsibilities during the implementation, specifically who is doing what, when and where.  Business owners are also looking for advisors who are energetic and can communicate to their employees enthusiastically.  Here is a key point, and an area that advisors can really generate goodwill with business owners if they execute this properly, and if they help employers really communicate to their employees that they are making a good faith effort to help them prepare for their retirement; for example, they are doing matching contributions, providing education, etc., that is really going to go a long way in the eyes of an employer. 

Another important expectation that business owners place upon an advisor is to hold the hands of the staff responsible for implementing the retirement plan.  So to get to the heart of the business owner, take care of the employee or employers that keep the business running.  This key employee or group of employees, their hand must be held after the decision makers make the decision so that he or she doesn’t feel like they are on an island trying to figure out this thing on their own. 

David Craig:  Okay, now what is the best way for investment professional to earn ancillary business?

Brandon Shea:  From the perspective of business owners, the best way to gain ancillary business is to gain their confidence and advisors do this by doing what is in the best interest of the company and its employees and consistently communicating why those specific actions the advisor is taking are in the best interest of the company.  Also business owners remarked that advisors should not seem overly eager to work with the company’s highly compensated employees to the neglect of the non-highly compensated employees.  They understand that it takes time to work with the non-highly compensated employees and often senior advisors will have a junior partner work with the non-highly compensated folks, but they are still willing to work with them.  This is a very important point because business owners often view their employees as family members and if you neglect part of the family, it is not going to bode well.

Finally, business owners acknowledge that when an advisor handles the plan correctly that ancillary business is expected to take place.  One suggestion from business owners though is to make an effort to know the ground rules on how and when to ask for ancillary business.  For example, maybe it is best to do it during non-work hours during their production time. 

David Craig:  Okay, now how does an investment professional earn a long-term relationship with a business owner? 

Brandon Shea:  Well a common response from business owners is that if an advisor exhibits honesty with a high level of integrity that is going to be a strategy that always wins in the end.  Another thing that was said is that the advisors who are present and continually communicate, the ones who don’t stick their head in the sand, but share the good and the bad news that is something that goes a long way to building a relationship.  They also said that when the advisor comes with solutions and ideas that is going to reinforce that relationship.   Let me give you a quick example, I heard about a case recently where a law firm won a large settlement and they were going to have a large influx of cash over a multi-year period of time that was going to incur a lot of taxes.  That law firm was courted by a lot of advisors trying to win that retirement plan business, but the advisor that really got the attention of the senior partners was the one that showed through smart plan decision solutions a way for the partners to maximize their savings in a tax advantage way.  In other words, the advisor truly understood the client’s problems and came with actual ideas on how to solve it, so just coming with solutions and ideas.

Another way to maintain the long-term relationship with a business owner is to continually provide oversight.  There is a great example of a 401(k) advisor in the Northwest who has over 220 retirement plans in his book of business.  He tells every client at the annual review “I called your 401(k) platform and tried to renegotiate the plan’s fees.”  He also asks “Has there been any changes to the program this year?”  So he is constantly reinforcing to the business owners that he is providing oversight to their plan.

Finally, loyalty goes a long way.  The advisors that can find ways to express loyalty to its employer and its employees will definitely make contributions in that long-term relationship. 

David Gray:  Great, that is great information.  Thanks again for your insights Brandon.

Brandon Shea:  My pleasure, thank you David.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

Fixed Income Market 5

DAVID CRAIG:  Good afternoon, welcome to Fixed Income Market Five.  It's the week of August 1st and I'm with Perry Troisi, Managing Director and Senior Portfolio Manager at Seix Investment Advisors, sub-advisor to the RidgeWorth Investment Grade Bond Funds, discussing what's going on in the fixed income market.  So Perry, in July fixed income and equity securities really headed in different directions?  Why was that?  

PERRY TROISI:  Good talking to you, David.  July was driven by several cross-currents, some technical and some fundamental.  Then initially rates were able to move lower in the beginning of July, largely as a sort of technical retracement of the spiking rates we saw at the end of June.  When the Euro debt crisis was seemingly not put to bed but somewhat alleviated, there was like a 39-basis point rise in five-year rates and about four trading sessions at the end of June.  We came into July and rational investors began to realize that that debt crisis is far from over.  And then, we sort of left the technical and moved on to the fundamental when we got the June jobs report which came out on July 8th and that really set the tone for what turned out to be some weak fundamental data points.  We got weak retail sales, weak consumer confidence, a continued firming and core inflation metrics and then by July 29th, we got the GDP data with the pretty negative benchmark revisions and it was pretty clear that the economy was in a pretty bad place and that's really what gave the fixed income market the ability to advance the way it did, and then throughout the month, too, we had to deal with the debt ceiling cloud.  As the month wore on and we had difficulty in reaching an agreement added to the gloom of the outlook, and the view really sort of evolved into a fear of not getting a deal which, ironically, prompted a flight to quality into treasuries.  Even though likelihood of a deal ultimately getting done really meant just more austerity, which means stronger head winds for growth, and that further sort of gave a bid to fixed income securities, particularly treasuries, and that's really what gave  the fixed income market the juice for returns.  This whole month of anxiety basically only produced about a 2% negative month for the S&P.  Had you told me everything that went on, I might have guessed it would have been worse.

DAVID CRAIG:  Now in fixed income, corporates really stormed out to start the second half of 2011, leading all the other categories in fixed income, what are investors seeing there? 

PERRY TROISI:  Well, during the middle of the third year of ZIRP, which as you know is a zero interest rate policy, as dictated by the Fed.  I mean that environment, safe income at a reasonable price, remains a really valuable commodity for many investors, both retail and institutional.  Risk averse investors, which include many retired savers, have seen their income potential just diminished by the Feds' pinning of short rates to zero.  So many retirees were used to achieving some income objective in money market funds or short duration bond funds, and having seen those opportunities disappear, there's been a bit of migration in the funds that offer some incremental yield albeit with some additional risks and that has been going on for the better part of two and half years and it continues today, and you can even see it when you look at retail investor flows as they're published by the Investment Company Institute, it supports this ongoing shift.  Additionally, balance sheets for most of non-financial corporate America came into this downturn in much better shape than I would assume or the government sector.

DAVID CRAIG:  Right.

PERRY TROISI:  And they've been able to navigate the cycle for cost controls and opportunistic capital market issuances that provides relatively lower funding costs.  Most of these institutions endured a far more trying period of overinvestment and too much debt in the early 2000's and most of these corporate CFOs prepared their balance sheets before the Great Recession really arrived. Two other smaller things that are going on. A lot of these large multinationals, these are entities that have a fair amount of exposure to some of the developing market regions that really possess probably the best growth profile going forward and investors are looking for that type of exposure and then the last thing is the corporate bond market does have, in aggregate, a longer average duration than the other primary bond market sectors, so when rates decline the way they did in July, their price appreciation reflects that longer duration.

DAVID CRAIG:  Right, okay, that's great.  Now you mentioned the debt ceiling and the debate that went on there, how does the U.S. debt, and attempts to reduce government spending over time, impact the fixed income market?

PERRY TROISI:  Well, at a very macro level; the primary influence comes from the austerity it's going to impose on government spending.  This will become a powerful headwind for growth and it will essentially only get bigger over time should real reform ultimately get passed.  Now the current fragility of our economy is certainly not a secret to anyone in Washington, so efforts to push the spending cuts to the out years of the current 10-year projection period, is preferable to many politicians, and if you look at the agreement that was passed, the initial agreement called for $917 billion in deficit reduction with another $1.2 trillion to be formulated through a Joint Fiscal Commission.  Of that $917 billion, only 13% takes place in the first three fiscal years of that 10-year projection period, and then in the next three years, it was only about 28.5% so the majority, 58+% were in the final four years of that.  So my expectation is that the additional savings that will come through the Joint Fiscal Commission recommendations will follow a similar model; so now we're talking about austerity and lower growth, it's largely further out in the projection years.

DAVID CRAIG:  Delayed?

PERRY TROISI:  But, yeah, delayed.  No one seems to really be of the mindset that our economy is prepared to handle much, if any, tightening in the short run from a fiscal standpoint but at the end of the day, this move toward austerity means lower long-term potential GDP, all other things being equal, and in that environment, rates probably can stay lower a lot longer than most people anticipate, and while risk assets will face a more challenging environment, it's still not unreasonable to expect investment grade sectors to continue to benefit from that same sort of desire for safe income at a reasonable price, and it's not too different than the same forces that have been in play for the last two years.

DAVID CRAIG:  Okay, great, and let's end up, did anything in July really change your outlook for 2011?

PERRY TROISI:  I would say not particularly.  I think that a lot of what we've experienced certainly in the second quarter, sort of ratified our own belief that the economy was not in a great place and that we were not dealing with something that was, in essence, a transitory soft batch.  I think it is worth noting that what we did find out in July, as it relates to the European sovereign debt crisis, is that it's moving to a different phase.  The crisis for the most part of the last year centered on Greece, Ireland, Portugal, and Spain, but Italy has now been brought into focus.  Now Italy is the eighth largest economy in the world with well over $2 trillion in outstanding debt.  This brings the crisis into a whole new perspective, because the ability to reason, to contemplate, a bail-out of that magnitude, is a very different conversation than anything contemplated up to this point, and in fact, everything that has been done for the other countries up until now, have been done with an eye toward satisfying the market in a way that keeps Italy out of the debate, and clearly, it hasn't worked up until now and we're going to have to pay even closer attention to these developments going forward.  So while we have been wary of what the second half is going to produce, both economically in a fundamental way, as well as what that means for the investment grade bond market, I would say it was probably dealt yet another body blow right from the European crisis that we're going to have to monitor closely going forward.  So things are panning out sort of how we foresaw, rates can stay low longer than most people expect, and the search for income at a reasonable price will be sort of everyone's mandate for the time being. 

DAVID CRAIG:  Gotcha.  All right, well, Perry, thanks for your insights.

PERRY TROISI:  Nice talking to you, David.  Have a great day. 

 

Equity Market 5

DAVID CRAIG:  Good afternoon welcome to the Equity Market Five.  It’s August 4^th, and I am with Don Wordell of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund to talk about what is going on in the equity markets.  So, Don the story of the day is the more than 3% drop in the S&P today and the 10% drop since July 22^nd.  What do you think is going on here?

DON WORDELL:   Well, David I think that what you’ve got here is just a lot of investor concern and fear over the macro issues.  You know, you still have continued European sovereign debt issues.  We had a very embarrassing situation for our own government in trying to deal with our debt issues and then you have the threat of a debt downgrade in the United States and earnings have been coming out but earnings have not been as robust as we had really looked for.  So, you know, I think that there are just a lot of things coming together there that have caused the market to sell off. 

DAVID CRAIG:  Okay.  Now you mentioned that we just got through another earning season.  How did this one go?

DON WORDELL:   Well, these earnings were a little bit light on expectations.  I think that the market had built up an expectation that we would continue to see strong growth on the top line and then continued margin expansion and it just does not look like that is going to be the case.  It looks like that with all the global austerity programs being put in place, the cuts in the United States as far as spending here and the cuts in Europe and the fact that Asia has been slowing is going to have an impact on a lot of companies.  We still can find some very great opportunities in the Industrials, Materials and Energy sectors that we like, but we think that this market pull back is creating an excellent entry opportunity for investors with longer time horizons. 

DAVID CRAIG:  Okay, great.  You also mentioned the potential for U.S. downgrade.  What impact do you think that would have on equities?

DON WORDELL:   You know, I really think that the market is well aware of it, and at the end of the day I just don’t think it’s going to have that big of an impact, but I think that the market is panicking over it.  You know, look, I think you might see your overall cost of capital go up by 20 to 50 basis points across the board.  It would probably cause some higher interest rates for risky borrowers, but I just don’t see it being that material an impact, and in fact, if it’s keeping us from doing some things that need to be done I would say let’s go ahead and get it on. 

DAVID CRAIG:  Right, absolutely.

DON WORDELL:   You know let’s get the downgrade behind us and move forward because I really, I just don’t think it’s going to have that big of an impact.

DAVID CRAIG:  Okay, now let’s look at July specifically.  You said the macro environment doesn’t look good.  The earnings were a little softer than you expected, but were there some highlights that you saw?

DON WORDELL:  Yeah, I think the highlights that we saw were in some of the industrial names that have global exposure you know.  I also think that Technology is going to continue to do very well looking forward as well.  So, you know there are some upsides.  I mean, one of the sectors that has been the most hated since this debt debate in the United States has been Health Care, although, my healthcare companies that reported all reported pretty good earnings.  So, you know I really think that we are in a good spot there in some of those names.  You also continue to see mergers and acquisitions.  I think M&A is going to be a very big theme going forward because, as I’ve talked about, corporate balance sheets are in great shape and if these companies can’t grow organically they are going to grow through M&A and we’ve seen quite a few deals get done and have created some attractive opportunities again for longer term investors because I can’t analyze the macro impact on the next three months, but I think over the next twelve to twenty-four months we are in really good shape in equities.

DAVID CRAIG:  Right, okay, good.  You mentioned a little bit about your outlook.  As the macro environment continues to have headwinds, was there anything specific that would change your cautiously optimistic outlook? 

DON WORDELL:   Well, you know, the thing that I am actually probably a little bit more optimistic here because now I think the market is beginning to discount the little bit slower growth that we are probably going to see over the next three to six months.  However, as I look out, again, over the next twelve to twenty-four months or even longer I continue to see stocks that are great opportunities to own, stocks with great dividend yields.  Their valuations are much more compelling now that they have pulled back after these earnings reports.  Great entry opportunity and we are also seeing some decent fundamentals out there.  You know, auto production is going to go higher.  We have had a pull back in oil prices, which will help the consumer and there is still that global demand for energy that creates the need for industrial infrastructure and then the final two things I’ve mentioned which would be positive is that we are in the front end of a pretty long commercial aerospace cycle and housing is still bouncing along the bottom and if housing gets a little bit better because we get some more clarity on the economic situation in the U.S. then I think that would be positive.  So, there are some things just to hang your hat on that get me more excited after this 10% pullback in the market.

DAVID CRAIG:  Good.  Alright.  Well, great Don.  Thanks for your insights.

DON WORDELL: You are welcome.

 

Style Class Focus 5

DAVID CRAIG:  Good afternoon, welcome to Style Class Focus Five.  It’s the week of August 1^st, and I’m with Ron Schwartz, head of tax-exempt investing at StableRiver Capital Management and sub-advisor of the RidgeWorth Investment Grade Tax-Exempt Bond Funds, discussing municipal investing.  So Ron, although munis got off to a pretty slow start in the first quarter of 2011.  They have performed quite well since.  To what do you attribute the slow start and the strong performance since?

RON SCHWARTZ:  Well, during the beginning of the year the municipal bond market was primarily concerned about two main issues, supply and credit.  On the supply issue, basically the concern was how the supply was going to be distributed with the end of the Build America Bond program, which helped distribute bonds to non-traditional municipal buyers.  At the beginning of this year total municipal supply for 2011 was anticipated to be about $300 billion to $325 billion, however, this estimate was too high and by midyear estimates were down to $200 billion to $240 billion, so the lack of supply helped municipals perform.  On the credit issue, at the beginning of the year the media coverage of several prominent analysts who were calling for intending credit doom in municipals scared away many investors.  The credit of Investment Grade Tax-Exempt Bonds have been very stable and investors have realized this and have come back to invest in the municipal market. 

DAVID CRAIG:  Okay, that leads right into our second question.  There had been quite a few headlines suggesting that the muni market may have some major defaults.  How do you see the fundamentals of the overall muni market right now?

RON SCHWARTZ:  First of all, our current view is that the credit outlook for higher-rated quality municipal bonds is stable.  Second, we do not expect major defaults in investment grade municipal category.  You know we may see some downgrades, we do see increased revenues growth from the majority states along with fiscal discipline and balanced budgets; however, we do have concerns for credits below investment grade, which are credits below triple B.

DAVID CRAIG:  Okay, are you or are you not investing in those credits?

RON SCHWARTZ:  We are not invested, we’re in very high-quality paper.

DAVID CRAIG:  Right, right, okay.  Now recently you talked about downgrades, recently the debt ceiling debate has been getting a lot of attention.  How does the U.S. debt and attempts to reduce government spending over time impact the muni market and then also would a downgrade of U.S. debt have an impact on the muni market?

RON SCHWARTZ:  Well, you know first of all, municipals may be affected by future cutbacks of federal funded programs, you know fiscal discipline by municipalities will be essential and then also credit analyses is crucial.  You know, we always review credits before purchasing and constantly monitoring existing positions.  We are conservative investors.  And you know approximately 80% of the portfolios are in triple A are double A quality. 

DAVID CRAIG:  Okay.

RON SCHWARTZ:  As far as if the treasury, you know, U.S. Government Treasury gets downgraded to double AA category there will be then some adjustments in the municipal market.  It’s not an adjustment based upon a credit weakness in the municipal market, it’s just going to be an adjustment in the respect of that the U.S. government is a AA1 credit then there really can’t be a state credit that should be AAA.

DAVID CRAIG:  Right.

RON SCHWARTZ:  So you’ll see some adjustments but all that is, is the reaction to the downgrade to the treasury market not a credit concern in the municipal market.

DAVID CRAIG:  Okay, great and then what’s your short and long-term outlook for munis. 

RON SCHWARTZ:  You know, we’re pretty favorable.  We have a favorable outlook for quality municipal bonds and I think that’s the key.  It’s quality, bonds are very important in our opinion in the future.  Currently, we are seeing greater demand than supply along with a stable credit outlook so that’s what making municipal bonds relatively attractive today as an conservative tax-free income producing investment and then longer term we feel that supply will also remain limited due to the fiscal pressures and that eventually taxes will be increased and thus makes municipals even more advantageous to those individuals in the higher tax bracket.  So we’re pretty favorable.  We think it’s still a very good conservative investment as long as you stay in the higher quality paper. 

DAVID CRAIG:  Okay, great and for those listening, we do have a page in our website, ridgeworth.com//muni-bonds, that gives an overall look at the muni market as well as an interactive tool where you can see tax-equivalent yields over time, so that might be useful.  Well Ron, thanks again for your input, it’s very helpful. 

RON SCHWARTZ:  Thank you. 

 

Plan Advisor Tools 5

DAVID CRAIG:  Welcome to the Plan Advisor Tools Five.  It's the week of August 1^st, and I'm with Daniella Moiseyev, retirement segment marketing manager for RidgeWorth Investments to talk about services advisors may wish to offer plan sponsors.  So Daniella, how have advisor services evolved in the market place over the last two years?

DANIELLA MOISEYEV:  Well, David, I think in the past a lot of advisors to retirement plans serve mainly as investment due diligence.  So they would report out on performance and report on how the various funds or other managers were doing on those investments within a plan.  That's really changed in the last several years.  What we've seen is the advisor to today's plan serves more as a consultant and almost as a quarterback for all the different other providers for that retirement plan.  They help the plan sponsor navigate the myriad regulations that have come to remain in compliance and also to keep an eye on what all the other providers to the plan are doing.  That's a real big change on how it's been in the past.

DAVID CRAIG:  How does the advisor in today's more complex market decide what to offer?

DANIELLA MOISEYEV:  Well of course, it's very much a personal decision depending on your firm size, your preferences, your client size, the amount of revenue that you're getting from that plan.  That being said, there are several broad brush categories that we feel encompass the main types of services that an advisor can offer.  A lot of advisors don't necessarily offer all of these or they don't necessarily offer every service in a specific type of service plan or they may create bundled service models based on the type of plan it is.  So some of the broad brush categories we think of are plan design services and these are basically consulting services to aid and define the features of the plan; things such as consulting on plan size, consulting on plan provider evaluation and other things of that nature.  Additionally, there's investment services which are kind of the more traditional, what an advisor used to offer as the main services to a plan; things like investment policy, statement development, asset allocation, manager evaluation and selection, performance monitoring or reporting, services around QDIA (Qualified Default Investment Alternatives), investment reviews, managed portfolios, etc., etc.  Then there's employee education services, so basically enrollment, investor education, investment advice, ERISA, 404(c) education so helping the plan participants to make sure they understand details and timing information that allows the plan to be in compliance with 404(c).  One thing we found is that advisors can really leverage a lot of the material that is out there if they choose to do employee education.  There's a lot of material they can leverage from their DCIO partners such as RidgeWorth or from their plan provider, partners and record keepers.  Then the final category that we think of is and its one of the most important ones, increasingly more important in today's regulatory environment, is fiduciary services.  So basically consultant services to help make sure that the plan is in compliance with ERISA and other fiduciary requirements.  So there are to be fiduciary audits, plan benchmarking, which we feel is very important that we do provide a plan benchmarking tool on planadvisortools.com, our website for retirement plan advisors, fiduciary education, fee reporting and analysis, ever more important with the advent of 408(b)(2), 404(c) compliance and ERISA 3(38) fiduciary services if your firm allows you to offer those.

DAVID CRAIG:  Okay.  Once an advisor determines what services they are going to offer, then how do they go about pricing those?

DANIELLA MOISEYEV:  Well, first we need to figure out what your competition is doing and benchmark your fees accordingly.  Now with that being said, we don't believe that it's important to be the cheapest out there because I think your fees need to be commensurate with what you're providing in terms of a service.  If you're providing a superior service, your fees can be higher than the lowest guy on the street.

DAVID CRAIG:  Right.

DANIELLA MOISEYEV:  But additionally, you need to be aware that you need to now list out specifically what services you're offering for each component of your fee due to regulation 408(b)(2) which launches April 1, 2012, and that change is very new for all of us in the retirement plan industry, but we can no longer provide a bundled fee and just decide really merely what you're offering.  You have to really have a thoughtful approach for how you're going to decide on your feel and what you're offering and then list out those services in writing.

DAVID CRAIG:  Okay, great.  Well thanks again for your insights, Daniella.

DANIELLA MOISEYEV:  Thank you, David.

Fixed Income Market 5

DAVID CRAIG:  Good afternoon, welcome to Fixed Income Market Five.  It’s the week of July 4^th, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors, sub-advisor of the Ridgeworth Investment Grade Bond funds, discussing what is going on in fixed income market.  Jim, we’re half way through 2011 now, and we’re between a 2.5% and 3% return for investment grade and nearly 5% for high yield.  Is that what you expected coming into the year?

JIM KEEGAN:  No David, to be perfectly honest it’s a little bit ahead of where we thought we’d be now.  We have six months left to go in the year so a lot can change, and we may end up where we thought we would be.  We were looking for something better than a coupon clip year, but not necessarily annualizing what we’ve had thus far, particularly on the high-yield side, so reasonable chance for some capital appreciation, but things may have gotten a little bit ahead of themselves, but nevertheless in a zero interest rate policy environment our view is that bonds and credit and high yield were the place to be.  If you look at the excess returns that were generated, whether it be corporate bonds, mortgage backed securities, commercial mortgaged backed securities, high-yield; it was a pretty good first half of the year.

DAVID CRAIG:  What were some specific highlights for June and particular in the first half of the year in general?

JIM KEEGAN:  Well June was interesting because June was really a microcosm of what we’ve seen in the markets for the last year to year and a half.   By that I mean we’ve been in this risk on, risk off environment.  One quarter it’s all about risk on, the next quarter it’s about risk off.  And June really represented that in a really exaggerated way. One of my colleagues referred to it as a “brutally binary month” from a risk on, risk off standpoint.  It really was the first three weeks of the month and then the last week of the month.  In the first three weeks of the month it was about risk off.  It started to be driven by fundamentals by the weak May payroll report, which was on June 3^rd.  Today we got the June payroll report which was an unmitigated disaster.  Then in the middle of the month it became about Greece and the European debt crisis, banking crisis came back into everyone’s view at that point.  Then when the Greek parliament approved the austerity measures, which were expected in the market place in order for them to get the fifth tranche of the $110 billion Euro bailout package, all of a sudden it became about risk on. What’s interesting, the last week of the month saw the five-year treasury rise 38 basis points.  In one week it rose 38 basis points, which on a percentage basis is the biggest move ever in the five-year treasury to the upsided deal.  The S&P 500 in the last week of June rallied 5.6%, which is the 29^th best week every going back to 1950.  That would put it in the top 1% of weekly moves going back to 1950.  I really wonder is everything that we saw in June reflective of the top 1% market moves in stocks and then such a big move in bonds.

DAVID CRAIG:  Domestically, there is a lot of talk about the U.S. debt ceiling.  Does that have an impact on the way you invest?

JIM KEEGAN:  Not particularly in the short run.  We’re sure to witness a tremendous amount of political theatre and brinkmanship over the next few weeks, but ultimately an agreement will be reached.  What’s good when you look at what’s been brought into focus here is deficit reduction.  That’s positive and a positive change to the political landscape in this country.  We had been spending as a nation like drunken sailors.  Just this unsustainable level of spending, particularly when you view it as a percent of GDP.  Unfortunately it took this debt ceiling issue to bring this issue to the fore.  With trillion dollar deficits forecasted for the next decade, some credible action is required and required sooner rather than later because we’re in a market environment right now where interest rates are low, and if we wait too long and don’t deal with the spending problem and particularly within entitlement spending, we’re not going to be able to kick this can down the road anymore, and we’ve got to address these real underlying structural deficits that we have, otherwise the old bond vigilantes will reemerge and take interest rates much higher.  That’s not our forecast, but that is the risk if we don’t deal with these problems over the next year or two. 

DAVID CRAIG:  You mentioned the dismal June jobs report that just came out today.  Housing and employment continue to be a very big drag on the overall economy.  Do you see that changing anytime soon? 

JIM KEEGAN:  Unfortunately David, you’re probably aware as well as anybody, our view has been that we would be in this extended period of below trend growth that would largely be driven by the fact that the job engine would not kick in the way it would need to kick in to bring the unemployment rate down and put people back to work.  Ultimately this is about income and the ability of people to be employed, earn an income, spend some money, save some money, and you couple the fact that we have not had really strong job growth, in addition to the fact that the largest asset on the consumer’s balance sheet, which is their home, is depreciating.  Our view has been that we would double dip in housing this year.  That was an out of consensus view coming into the year, it is more consensus-like now, but the reality of the situation is that the confluence of those two events lead us into this environment where we believe we’re going to be in this below trend growth environment for an extended period of time, which really shouldn’t surprise people when you examine this business cycle.  This was not your typical business cycle recession that was an inventory correction.  This was a financial crisis, orders of magnitude greater that we’ve seen since the Great Depression.  The resulting balance sheet repair process is going to be measured in years not quarters.

DAVID CRAIG:  At the beginning of the year you mentioned that you were expecting a coupon clip here for 2011.  Has anything changed your outlook?

JIM KEEGAN:  Not really, from this point on we expect it’s going to be more of the same, we think we’re going to be in this risk on, risk off environment, but we would say that there is probably a greater risk that markets may react more negatively to a second half of the year that doesn’t make up for the disappointment that we experienced in the first half of the year from an economic growth standpoint.  Remember we came into this year and the consensus forecast for first quarter GDP was 3.5% and some estimates had it at 4% and higher, and it actually came in at 1.9%.  What you then saw was, well we’ll make it up in the second quarter.  We obviously are not making it up in the second quarter, and now it’s all about the second half.  Our view is that the forecast for this “catch-up over the second half of the year” remain the consensus and should this soft patch prove to be more than transitory and as a result of the lack of an organic underlying strength in the economy, we think markets may be prone to some disappointment and underperformance in the second half of the year.

DAVID CRAIG:  All right well thanks again for your advice Jim.

JIM KEEGAN:  Thank you David, good to talk to you.

 

Equity Market 5

DAVID CRAIG: Good afternoon and welcome to the Equity Market Five.  It’s the week of July 4^th and I’m with Don Wordell, of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund, talking about what’s going on in the equity markets.  So, Don, despite a pretty weak end to the second quarter, the equity markets performed pretty well over the first half of the year.  What did you see as some of the highlights?

DON WORDELL:  You know, in my opinion I think the biggest highlight is just the continued strong corporate earnings that we’re seeing.  You know we had a very strong fourth quarter reported in January and then we had a very strong first quarter reported in April.  I think the markets are going to follow earnings and fundamentals and we continue to see a solid outlook for corporate earnings going forward. 

DAVID CRAIG: Great.  Now what do you think caused the pull-back in June?

DON WORDELL:  Oh, gosh.  What didn’t cause the pull-back in June?  I mean, you had these continued sovereign debt issues, primarily focused on Greece.  You had very high oil prices driven by, again, geopolitical issues, this time centered in Libya and then you had probably just a contentious debt ceiling and budget negotiations in our own congress.  There’s a myriad of reasons that caused the pull-back.  They all seem to be very short-term and manageable in nature.

DAVID CRAIG: Okay, good.  That leads to the next question.  Are any of those you mentioned really long-term risks or were there any other things you see as long-term risks that happened in the month?

DON WORDELL:  You know, one of the things I think that investors need to be focused on is really the U.S. budget negotiations and debt ceiling.  I think that could have some long-term implications for the equity markets because some of the data that I’ve seen out there is the short-term spending by the government has really been a big boost to a lot of businesses and primarily the consumer and I think near term, Bernacke gave a speech that really focused on hey look we need the government in the short-term while this economy continues to recover from what was a devastating blow, the housing crisis.  So, I think near term you’re going to see a lot of issues there that need to be worked out that could have longer term implications.

DAVID CRAIG: So, specifically how would that debt ceiling issue impact the way you look at companies or even industries?

DON WORDELL:  Well I think for example it’s just something you have to keep in the back of your mind when you’re analyzing fundamentals of a company is how much are they, if at all, dependent on the federal government for funding or for revenue sources.  You know, those are things that are very important but then you also have to look at the end consumer and how much that consumer of whatever product you’re selling is dependent upon the government.  For example, it’s always easier to explain things with examples.  A lot of our industrial companies do work for state and city governments that could be impacted by federal spending and tax revenues.  You know, another situation could be banks and their capital requirement and things that could be set by the government.  So, there are a lot of things that are going on with the regulation in Financials but more importantly just spending at the state and local municipal levels that could have an impact.  So, there is just a myriad of things to keep looking at as you’re doing your fundamental work.

DAVID CRAIG:  Okay, great.  You mentioned the past two earning seasons and how strong they were.  We’re entering another earning season now.  What do you expect to see when companies report this time?

DON WORDELL:  You know, we haven’t really had a lot of negative pre-announcements.  We just haven’t and some of the corporate earnings of the companies that report earnings that have May fiscal year ends and so they report during June, have been strong.  We expect another quarter of good earnings from these companies.  I don’t expect margins to continue to blow out expectations like we saw in the fourth quarter and the first quarter.  I do expect to see some tapering off of margin expansion, but I do not expect to see bad earnings reports.  I think the issue that investors are going to be laser focused on is going to be the outlooks and commentary for management and we’re one of them.  We’re going to be laser-focused on outlooks.  We continue to see positive outlooks and we think that going into this earning season expectations are very low for earnings, so I don’t think it’s going to be a difficult hurdle for investors to get over in the market to continue to work higher if earnings and outlooks are okay.

DAVID CRAIG: Okay great.  Let’s end with a bit of an outlook as we always do, you’ve been cautiously optimistic each month that we’ve talked this year about equities.  Do you remain that way?

DON WORDELL:  I do.  I’m cautiously optimistic because we need to get some of these things that I mentioned before that are more macro-related solved.  We need to get a more permanent solution, which I think we’ve gotten a more permanent solution with the sovereign debt crisis in Greece and we’ve got to make sure that cotangent does not spread to other countries.  We need to get the debt ceiling and the budget issues in the United States fixed and so those are two big things that just keep the cautious in my cautiously optimistic, but again I fall back on corporate balance sheets are in great shape.  Fundamentals seem to be okay and I think that stocks continue to look very attractive relative to bonds and I think they are a great place to be invested.

DAVID CRAIG: Great.  Well, once again Don, thanks for your insights. 

 

Style Class Focus 5

DAVID CRAIG:  Good afternoon and welcome to Style Class Focus Five.  It’s the week of July 11th, and I’m with Rick Nelson, CEO and CIO of StableRiver Capital Management and Subadviser of the RidgeWorth Short Term Bond Funds discussing short duration fixed income.  So, Rick, what is short duration fixed income as you define it?

RICK NELSON:  The way I define short duration fixed income, it’s that space between cash investments and intermediate term bonds.  A lot of times bond portfolios are called ultra-short or short-duration portfolios, and a typical portfolio structure would be securities from one year to five year in maturity.

DAVID CRAIG:  Okay, great.  What are some of the benefits to investing in a short-duration portfolio?

RICK NELSON:  Well, probably the biggest benefit of investing in short duration portfolios, if you look at returns off of, and I did this off of Barclays indices, if you go to the Barclay indices and look at the one to three or one to five index returns, going back 30 years, you can get about 75% to 80% of the return of longer-term portfolios with about one-third the risk.  So, one-third the volatility of a long-term portfolio.  Those historical returns going back 30 years have averaged a little better than 7.5%. 

DAVID CRAIG:  Wow.  So, how does a short-duration fixed income manager add value.

RICK NELSON:  Well, the short-duration portfolios can be looked at through various components that are going to make up the portfolio’s return.  There’s duration, yield curve structure, the various sectors the manager can invest in, and then we also think it’s important to do bottom-up credit analysis of the individual credits in the portfolio as well.  So, managing these different multi-sector approaches, a manager can add value to a fixed income portfolio over just a stated yield or income level that you would think you’re going to get in the portfolio when you initially purchased the portfolio.  So, through active management a manager, I think, can add value in an underlying portfolio. 

DAVID CRAIG:  Okay.  Is there something about the current market environment that makes short-duration fixed income particularly compelling?

RICK NELSON:  I think there is, and a big part of that is just what’s happening in the cash component of the marketplace where basically anybody that is holding cash or very, very short investments is earning almost nothing on those portfolios at this point in time.  Prime money market funds are anywhere from zero to twenty basis points.  We had very low short rates in the environment that we’re in right now, but relative to earning nothing, they’re still very compelling.  So, you can roll out the curve in a short portfolio and add value, yield, and income while you’re not picking up a tremendous amount of volatility in the underlying portfolio. 

DAVID CRAIG:  Okay, but there still is that volatility.  If you had someone who is kind of concerned about interest rates increasing, why wouldn’t they just stay in cash?

RICK NELSON:  Well, the main reason is the bond math works.  If you have a two-year duration on an underlying bond portfolio and interest rates move instantaneously 100 basis points or 1%, you could lose about 2% of the principal in that portfolio.  But in a short bond portfolio, you also could hold that security to maturity and get the full par value back on the bond.  If you have a well-structured bond portfolio, you’re constantly going to have securities that are rolling down the curve that you are able to sell at hopefully higher dollar prices than where you originally purchased them and then reinvest that money into higher rates as rates move higher.  If the rates move higher, it could be a very good thing for short-term bond portfolios because ultimately it will increase the income that the portfolios earn.  Again, going back looking at the Barclay’s indice information, going back 30 years, you’ve had short-term portfolios produce returns of 23%, and the lowest twelve-month rolling period is a negative .2 of 1%.  So, very little downside risk.

DAVID CRAIG:  Okay, great.  Well, thanks for your insights Rick.

RICK NELSON:  Thank you David.

 

Plan Advisor Tools 5

DAVID CRAIG:  Good afternoon, welcome to Plan Advisors Tools Five.  It's the week of July 4^th, and I'm talking with Brandon Shea, managing director and DCIO team lead for RidgeWorth Investments discussing personal branding.  So Brandon, I'm sure most of the people listening to the call have heard of personal branding before, but what specifically does this mean to a retirement plan advisor.

BRANDON SHEA:  Well, let's first define what a personal brand is.  Your personal brand is your personal identity that stimulates a meaningful, emotional response in another person or audience about the values and qualities for which you stand.  So when your name or the name of your advisory team is said, your clients or perspective clients are going to have one of three emotional reactions to your personal brand.  It's either going to be positive, it's going to be neutral or it's going to be negative.  I argue that if it's neutral, that also falls in the negative category.  So it's important as advisors to realize that all of us have a personal brand.  What separates some from others is that they realize this fact and are proactive about building the brand and others are reactive in the process and allow others to define the brand for them.  Another thing that's really important about branding is that it's critical to recognize that we are walking, talking contributors to and detractors from our personal brand everything single day.  In sports for example, think of LeBron James, the professional basketball player, think of his personal branding:  Cleveland, Ohio, before and after he decided to take his talents to the Miami Heat in Florida.  I mean it's a pretty extreme example, but it illustrates that we need to be aware of the fact that every day we add or subtract from a brand, and we need to be conscious of the word or phrase we want others to think about when they think about it.  We need to be intentional about reinforcing this message with our words, our body language, our wardrobe, our presence on the web, our office environment, our market collateral, everything.  So again, what does this mean as a retirement plan advisor?  It means that there's a real opportunity today to brand yourself in a positive light because there's a real confluence of trends affecting our market place and it's confusing clients.  Let me give you a couple of examples.  New fee disclosure rules are about to roll out because the majority of plan sponsors or participants think that their plans are free, that they don't pay any costs.  So there's a lot of confusion there.  There's a lot of chatter about what the definition of fiduciary is and how that applies to plan sponsors and participants, and also with the recent product innovation a lot of plan sponsors and participants are confused about what a target date product versus a target risk versus a target income solution.  So for retirement plan advisors who are intentional about it, they can brand themselves as knowledgeable experts who can cut through all the noise and provide guidance for their clients.

DAVID CRAIG:  Great.  So Brandon what are a few tips or tools that an advisor can use to develop his or her personal brand?

BRANDON SHEA:  David, from my experience few advisors have a personal biography or a team biography and even fewer have what I would deem an effective personal biography.  I've seen a lot of different formats, but I've come across a formula for an effective bio that really works.  The formula goes like this.  Open your biography with a one- to two-sentence mission statement and address what you're truly trying to accomplish in your clients or your prospective client's future to make their lives better.  Follow this mission statement with a second paragraph that establishes your credibility statement.  Talk about your years in the business, your industry and retirement planning accreditations and your unique qualities that allow you to perform at a high level.  Next I recommend you list in bullet-point form the four to five specific ways you bring value to your retirement plan clients.  It could be a plan benchmarking or a plan fee analysis or quarterly participation education; whatever your value prop is, you name it.  I recommend you put it in bullet points for those value-added services to really pop off the page.  Next I recommend you list your educational information.  For example, I live in Southern California.  If you attended a Southern California college like UCLA or USC, that could provide some common ground immediately to folks around here when you meet them.  Last and finally I'd share your personals info in regard to your personal interests, your hobbies, your family and so forth.  I'd have this bio in hard copy, I'd have it in PDF form for you to mail to every new perspective client you meet for the form and I'd have it accessible on your website.  The first tool I recommend is really having an effective bio.  The second branding tool I would recommend would be your statement of services, and I'd also recommend that this be in hard copy form, emailable PDF form and also on your website.  This statement of services simply states all the value added services you and your team bring to each client in totality or in an a la carte manner.  I was recently speaking to a retirement plan advisor who's managing a billion dollar book of business, and he said he's still astonished to find how many plans he comes across where the current broker record has never supplied a statement of services or a service contract.  This advisor is winning business because of the statement of services he's bringing to the table.  The third branding tool I'd recommend is having a 36-month educational game plan that you can present to the plan sponsors which lay on the documents specific recurring times in the future and specific subject mattes you're going to present to the plan's executive board and the plan's participants.  So not only are you managing their expectations in a very positive way, but you're providing them with a scorecard to measure your services as advisor.  If you follow through with what you promise, it's going to be pretty tough for the competition to take that plan away from you.

DAVID CRAIG:  Okay, that's great.  So how do the advisors with whom you've worked applied this in their practice.

BRANDON SHEA:  In regard to the personal bio, I've worked with numerous advisors to make sure they're more intentional about the brand they're trying to get across with that tool.  I've seen them brand themselves as a true professional.  One of the key byproducts is that they've been able to compress the timeline it takes to identify common ground with perspective clients because the information they're sharing throughout that biography.  Regarding the statement of services, the gentleman I mentioned earlier managing that billion dollar book of plan business, shared several examples with me where he had won new business because of the service contract his team was providing.  Regarding the educational game plan I mentioned, the first time I had ever heard about that concept was when an advisor I knew won a $12 million plan and he was selected over three competitors and when he did his followup interview with the plan sponsor, the plan sponsor he was the only one to provide an educational game plan and was the only one to manage his expectations on what their working relationship was going to look like in the immediate future and several years down the road.  So the beautiful thing is if you have an effective personal biography, a compelling statement of services and an educational game plan you separate yourself from the majority of the competition and you've taken positive steps to branding yourself as a true retirement plan professional.

DAVID CRAIG:  That's great information.  Thanks for insight, Brandon.

BRANDON SHEA:  Thanks David.  I appreciate the time.

The Fixed Income Market 5

DAVID CRAIG:  Good afternoon.  Welcome to Fixed Income Market Five.  It’s the week of June 6^th, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and sub-advisor of the Ridgeworth Investment Grade Bond Funds, discussing what’s going on in the fixed income market.  Jim, you’ve been saying that yield-oriented investments would likely outperform this year, given the zero interest rate environment.  In the first quarter, high yield led the way in fixed income, but there seems to have been a slight shift to high grade this quarter.  Do you think that’s significant?

JIM KEEGAN:  You know David, as we’ve indicated for quite some time, we have been of the view and remain of the view that we’d be in the risk on, risk off mode.  As you know, we’ve been saying that the fundamentals as it relates to corporate, particularly non-financial corporates, have been very strong and demand for income in the zero interest rate policy environment that we find ourselves in, which we expect to remain in for an extended period of time, would keep high quality corporates and high-yield corporates in good demand here.  But you have to recognize that we’ve had quite a run here, particularly in high yield.  It’s interesting to note that High-Yield is probably up, depending upon whose index you look at, about 90% in the last two years, and then in May the High-Yield index reached its all-time record low yield of 6.61% on May 16, so I’m not surprised that there’s some profit taking in here. 

DAVID CRAIG:  So, you mentioned the High Yield market and what’s been going on there, but there seems to be a pretty big disconnect between economic data, like housing and unemployment, and corporate data, like earnings and cash and balance sheet.  To what would you attribute that?

JIM KEEGAN:  Well, I think it’s what we’ve been saying all along, which is that there is this tale of two cities, if you will.  We’re dealing with the recovery, if you can call it that, from the largest financial crisis since the Great Depression, and that financial crisis was driven by excessive debt, particularly in the consumer sector and the financial sector and as we’ve been saying for quite some time, and remain of the view, that this is a balance sheet repair process that we have not experienced in this country in decades.  It’s going to take years.  When you think about what happened as consumers took on more and more debt was we really confused as a society debt with income and I think what we’ve done is we pulled demand forward, particularly in that last phase of the cycle 2002-2007 and we pulled demand forward on consumption and economic growth and it’s payback time so we’ve been of the view that we would be in this below trend growth for an extended period of time and it’s playing out that way.

DAVID CRAIG:  Okay, so let’s take a look specifically at May.  Were there any highlights in the fixed income markets?

JIM KEEGAN:  Yeah, we had quite a few.  The data came in on the soft side and I think what really surprised the markets were the ISMs, particularly the services.  Now we did have some indication, if you looked at the new orders to inventory level from the prior month, which had indicated a slowdown was coming, earlier this month in June we got the May report and the ISM fell from 60.4 to 53.5, which is a really big jump.  If you look at the services component, it deteriorated.  Initial claims again jumped over 400,000 on a four week moving average basis.  The leading indicators were down.  We’ve got a Portugal bail out that was announced in May.  There is now talk of having to bail Greece out for a second time in less than a year, after their $110 billion Euro “shock and awe” bail out just about a year ago.  The housing and employment data, as you pointed out, continues to significantly disappoint and now we’ve started to see economists ratchet down their expectations for 2011 growth.

DAVID CRAIG:  Okay, so given that, what is your outlook for the balance of 2011?

JIM KEEGAN:  Our outlook continues to be that we’re going to be largely in this trading range rather than trending market, if you will, so if you look at ten year treasury yields, we think we’re largely going to be in this 3% to 4% range most of the time, but we could go below three and above four periodically and that in this environment it’s clear to us that the Fed is going to remain on hold, that we’re going to be in the zero interest rate policy environment for an extended period of time.  QE2 will end at the end of June and we think that you’re seeing some front running of the end of QE2 and if we go back to when QE1 ended, interest rates actually fell and the economy weakened, so as a result of that, we continue to see this demand for income on the part of investors, so we do see continued demand for fixed income, whether it be investment grade corporate bonds, bank loan funds and High Yield, particularly high quality High Yield.  Because the fundamentals, as it relates to corporate America and defaults…I mean, we pushed out a lot of maturities within the High Yield market, so there isn’t a lot of potential here in the next 6-12 months for defaults to kick up materially.  So, it’s a pretty good environment for credit risk assets.

DAVID CRAIG:  Alright, Jim.  Well, thanks again for your insights.

JIM KEEGAN:  Thank you, David.  Good to talk to you again.

 

Equity Market  5

DAVID CRAIG:  Good afternoon and welcome to the Equity Market Five.  It’s the week of June 6^th, and I’m with Don Wordell of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund to talk about what is going on in the equity markets.  Don, last month you mentioned a few commodities that you had your eye on including oil, copper, cotton, and coffee.  All but copper declined by about 10% in May, but copper held its ground.  Why is copper so important, and why do you think that the price of copper is holding up when the other commodities are declining in price?

DON WORDELL:  Well, I think the answer to that question is that copper is just going to be such an important commodity to the urbanization of all of the developing economies in developing worlds.  Copper is the commodity that has a very high utilization, and so it’s not going to be moved as dramatically as say some of these others that can be highly impacted by just trading flows.

DAVID CRAIG:  Okay.  Now looking at sectors, May was a big month for Telecom after a relatively flat first four months of the year.  What happened there?

DON WORDELL:  I think you’d probably have to say the AT&T, T-Mobile deal was what happened there.  You know that really firmed up a lot of the deflationary pricing to what some analysts were expecting, you know as cell phone pricing probably goes down and down and down for more minutes, that merger would consolidate and create some pricing power, and so I think that’s probably why there was some action in the telecom stocks.

DAVID CRAIG:  Okay, great.  Now Health Care and Energy which started the year strong looked to be losing some steam.  What do you think is leading to that?

DON WORDELL:  Well, you know, with Energy it’s just the price of oil moving down from $120 down to $100, that’s probably what’s driving that.  And then you know in Health Care I really don’t have anything I could put my finger on that happened in the Health Care space.  Probably if I had to guess, I would say maybe some of the political rhetoric around Medicare, Medicaid, spending cuts, you know just the overall impact that could have on healthcare stocks in the future.

DAVID CRAIG:  Okay.  Now Industrials and Financials have yet to kick into gear this year.  Do you think that will change.

DON WORDELL: I do, you know anyone that listens to these calls knows that I’m somewhat bullish on the banks, I’m bullish on Financials, and I think that, you know what we need for these financials to get going is just one of the frustrating things for me as an investor is just the lack of clarity from the Fed on what the rules are going to be for capital.  It always seems to be a moving target recently, and that’s I think as we get some more clarity over the next few months on what those rules and those levels of capital required are going to be, I think investors would be a lot more comfortable with the banks going forward.  The other thing too with industrials is there’s just been some, you know you get the summertime slow down, we had the same experience last summer, and we still haven’t solved any of the European sovereign debt crisis that’s going on in Europe, and you know a lot of these industrials are multi-national and can be impacted by austerity programs in Europe, and so you know again I don’t think it’s anything that I’m too concerned about yet, because I still see strong revenue growth on the industrial side.  I just think it’s going to take some time, because we’ve had strong leads off the bottom even though the last three months have been somewhat flat.

DAVID CRAIG:  Okay.  So what are some of the other highlights of the month for you?

DON WORDELL:  The biggest highlight for me was the dramatic move lower in energy prices, and that’s actually a tax cut to the consumer, but what’s interesting is energy is still, oil is still holding in there at $100 a barrel.  I continue to think over the longer term that the marginal costs to produce a barrel of oil is going up, and energy prices are going to be higher than what the average consumer wants.  And so I think that this is opportunity to add to our energy positions which we’ve taken, and we’re more bullish in energy now going forward, and I continue to be committed to the financial positions we have.  And then finally I’d probably leave you with, you know there’s just a dramatic thirst for yield.  Everyone is stretching for yield, and you’re seeing that with ten-year treasury rates hanging around three percent, and you’re also seeing the valuation of REITs.  When you look at the valuation of REITs now, they’re back above where they were in the 2005-2006 range in the last peak.  So we’re very much out of the way of the REIT space right now, and that could be somewhat painful if it keeps going this way for a while.

DAVID CRAIG:  Okay.  You mention REITs.  Are there any other risks that you see based on what happened during the month?

DON WORDELL:  You know I would just really be cautious on REITs and cautious on stocks that are up because of a stretch for yield not because of the real fundamental story of the underlying business.

DAVID CRAIG:  Okay.  You’ve been cautiously optimistic all year.  Do you read them that way?

DON WORDELL:  I’m still that way.  I still think that there’s a lot of moving parts.  I think the most difficult part of the job now is trying to work our way through the cross-currents on a macro basis.  As much as we like to be fundamental-research, bottom-up stock pickers, the macro cross-currents now are as difficult as I’ve ever seen them in my 15-year career.  So I’m still cautiously optimistic, because I come back to fundamentals, balance sheets are strong, earnings are still in good shape, and we have a very accommodative fiscal and monetary policy so, it feels like the market is just taking a pause, it’s just discounting maybe taking into account some of the, like I talked about before about the political rhetoric around debt ceilings and budget deficits and European debt issues, all those are macro things that can be fixed, and I think we’ll be fine in the, and then when you layer in all the things like we had, the storms, we had the tsunami and the earthquake in Japan and the storms across the U.S., I think all those things are reasons to give the market a short-term pause, but I think longer term over the next 12 to 18 months, we should do fine.

DAVID CRAIG:  Great.  Alright, well thanks again for your insights Don.

DON WORDELL:  Oh, no worries.

 

Style Class Focus 5

DAVID CRAIG:  Good afternoon, welcome to Style Class Focus Five.  This is the week of June 6^th.  I'm talking with George Goudelias of Seix Investment Advisors, sub-advisor of the RidgeWorth Seix Floating Rate High Income Fund about the bank loan market.  George, when we talked in February, you mentioned a tremendous amount of flows that have been coming into the bank loan market.  Since that time, your fund has doubled from $2 billion to nearly $4 billion.  How have flows been across the bank loan category?

GEORGE GOUDELIAS: Well flows across the category have remained strong throughout the year although they have slowed somewhat over the last few weeks down to $377 million.  The flows thus far this year have already out paced all of 2010.

DAVID CRAIG:  Wow.

GEORGE GOUDELIAS:  So as a result, we've had again very strong flows and again a slight slowing with just some of the negative economic data over the last couple of weeks, but otherwise they remain strong.

DAVID CRAIG:  I gotcha, okay.  With all this new money, do the fundamentals and the bank loan market still look strong?

GEORGE GOUDELIAS:  They do.  They still remain strong.  I think we're seeing high quality credits coming to the market.  Names like AES and Calpine.  These are typically BB credits which are the highest rating within the high yield market.  So these are good quality companies that are priced attractively.

DAVID CRAIG:  Okay.  Now in February, you imagined supply and demand for loans would come into balance this year relative to last, has that been the case so far?

GEORGE GOUDELIAS: So far, yes.  The last two years, the bank loan market actually was shrinking over the last two years.  In 2011 thus far, the market has grown just a little bit, so ultimately it tells you that supply and demand remains a lot more in balance than it has been in the past.  May was a very active month new issuance wise.  We probably saw a little bit of expansion in May and June thus far has pulled off a little bit as far as new issuance.  So again I think the supply and demand has come into balance.

DAVID CRAIG:  Okay.  Now what do you see as a primary risk for bank loans right now?

GEORGE GOUDELIAS:  The primary risk remains the economy.  We obviously have had some data over the last couple of weeks that was below expectations, but we remain optimistic on the second half.  Ultimately not 4% GDP growth, but we think that the economy will continue to expand where we think there will be growth.  We do not anticipate a double dip in the economy.

DAVID CRAIG:  Okay.

GEORGE GOUDELIAS:  Corporate earnings remain solid and that's really the metric that we focus on the most.

DAVID CRAIG:  Okay.  In February also, your outlook was for an annual return for bank loans somewhere between 5% and 7% this year.  Do you still think that will be the case?

GEORGE GOUDELIAS:  I do.  I think if we look at the year-to-date period, we're just shy of 3% so naturally we are on track.  We just can't extrapolate that number for the balance of the year, but.

DAVID CRAIG:  Right.

GEORGE GOUDELIAS:  We think that looking at the year-to-date period combined with the coupon that you have in a typical bank loan coupled with M&A activity and refinancing activity which pays back the loan at 100 cents on the dollar, we are still comfortable with the 5% to 7% range for 2011.

DAVID CRAIG:  Great.  Thanks for the insights, George.

GEORGE GOUDELIAS:  Thank you David.

 

Plan Advisor Tool 5

DAVID CRAIG:  Good afternoon.  Welcome to Plan Advisor Tools Five, it’s the week of June 6, and I’m with David Williams, attorney with Schiff Hardin, discussing the 404(a)(5) regulations.  Now, Dave, when we talked in March, we talked about the 408(b)(2) regulations for plan sponsors.  Could you give us some insights into this new 404(a)(5) regulation?

DAVID WILLIAMS:  Yes, I can, David, and thank you for the opportunity to speak with you today.  A general overview is that the new 404(a)(5) regulations that the Department of Labor has issued and approved will require plan administrators of retirement plans such as 401(k) plans to regularly provide information to plan participants with detailed information about the plan.  More particularly, the plan administrator will be required to regularly provide participants with fees and expenses that potentially can effect the value of their plan accounts along with an explanation of what services will be rendered with respect to which those fees and expenses will be charged.  In addition, the second broad category that the regulations address will be that the plan administrator is going to regularly have to provide participants with fees and expenses that actually have been charged to their plan accounts, not just ones that may be charged to their plan accounts. 

DAVID CRAIG:  Okay.

DAVID WILLIAMS:  And the plan administrator for those fees and expenses that are actually charged to plan accounts and that they have to tell the participants about, have to describe to the participants what services were rendered and by whom that earned those fees and expenses that adversely effected the value of the participant’s accounts. 

DAVID CRAIG:  Now, do they have to disclose those in dollars or percentages?

DAVID WILLIAMS:  Yes, that’s a very good question.  The Department of Labor has given plan administrators a number of alternatives about how to express those fees and expenses.  In many instances it can be a fixed dollar amount or it can be a percentage of assets under management, for example, with investment advisory fees and certain other alternative ways of explaining those fees and expenses.  So, plan administrators should consult the regulation to determine what they think is the best way to explain those fees and expenses to participants. 

DAVID CRAIG:  Okay, now how do you think this will affect plan sponsors once they have to begin providing this disclosure?

DAVID WILLIAMS:  It’s becoming clear to me and others that for the first time participants are now going to be acutely aware of the fees and expenses that can be charged to their accounts, and that are charged to their plan accounts and will know those fees and expenses and the impact they’ve had in detail.  So, participants, I believe, are going to get a lot more interested in the subject, are going to ask plan sponsors about those fees and expenses and their size, and perhaps even begin to put pressure on employers to ensure that the employers, the plan sponsors, are purchasing competitively-priced services and products for the plan.  I truly believe that, David, the people that you and everyone else that works with in the industry will have the opportunity to, if you will, put that pressure to good use if, for example, advisors can help employers pursue alternative services and products that meet the needs of participants that are more cost effective perhaps than the ones that are now in the plan in question.

DAVID CRAIG:  Okay.  So, are there any other significant items in 2011 you’re keeping your eye on?

DAVID WILLIAMS:  There’s one, David, that I am.  The Department of Labor has proposed a regulation that will affect 401(k) plans and retirement plans in general.  It has not quite yet adopted it in final form, and that is an expansion of what persons and parties will be fiduciaries to 401(k) plans and other retirement plans.  There will, if the regulation is proposed, is adopted, there will be an expansion of the categories of people who will have that mantle on them, if you will.  With that characterization as a fiduciary, goes responsibility to conduct themselves in accordance with ERISA’s fiduciary standards.  Failure to comply with those standards can result in fiduciary liability and significant damages to individuals who have that characterization.  There’s a lot of controversy about this regulation.  A lot of parties have given comments to the Department of Labor as and when it becomes final, I suspect your audience and the market with which you deal will want to know about the details.

DAVID CRAIG:  Right.  Great.  Well, that’s great information.  Thanks again for your insights, David. 

DAVID WILLIAMS:  Thank you. 

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

 

The Fixed Income Market 5

DAVID CRAIG:  Good afternoon.  Welcome to Fixed Income Market Five.  It's the week of May 9th, and I'm with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadvisor of the RidgeWorth Investment Grade Bond Funds, discussing what's going on in the fixed income market.  So Jim, it seems like domestic fixed income markets had a relatively quiet but strong month in April.  What did you see as some of the highlights?

JIM KEEGAN:  Yeah David, that is a very good way to put it.  It was pretty much a continuation in April of what we saw in the first quarter.  Where there was the risk-on versus this seesaw that we have between risk-on, risk-off.  Both stocks and credit did particularly well as did commercial mortgage backed securities.  You saw commodities led by silver were up very big in the month.  The dollar was down pretty big on the month, 4% for the month.  Oil and energy prices up.  As I said, silver led the way, up 28%.  It’s given some of that back since then. Then, I guess the last thing was it was the weakest month for the peripheral parts of the European market since last November with most of the weakness being concentrated in Greece, Portugal and to a lesser extent Ireland.

DAVID CRAIG:  Right.  Okay.  Now, domestically, data just came out that showed that housing had its steepest decline in the first quarter since 2008.  What do you think it will take to turn that around?

JIM KEEGAN:  Well, it’s interesting because the report you are referring to there is the report from Zillow where it showed that home prices fell 3% in the first quarter, which would put them down 8.2% year over year, but the more telling statistic than prices being down actually in the first quarter was the number of homeowners who are underwater with negative equity.  This rose to over 28% in the first quarter, and that really is the crux of the problem.  It gets to the whole issue of an excessive supply and demand imbalance. 

DAVID CRAIG:  Right.

JIM KEEGAN:  For the housing situation to cure itself.  It’s not about interest rates.  It’s not about affordability.  It’s really about allowing the markets to clear, and by that I mean, the government with good intentions is stepping in with all different kinds of programs whether they be real programs or moral suasion in the name of assisting the housing markets, but in the end what it all boils down to is the market finding clearing prices based on real underlying supply and demand dynamics.  I think we are a ways away from that, and our view, as you know, is that housing is in the process of taking another leg down.  We would not be surprised if housing prices fell another 10% to 15%.

DAVID CRAIG:  Okay.  Now another big story in the media has obviously been the rising gas prices and how consumers are actually starting to drive less.  Do you think this will have a major ripple effect throughout the economy?

JIM KEEGAN:  I think you are already starting to see some demand destruction there.  I was reading last week that food and fuel is now consuming about 23% of consumer income, which is pretty high.  I guess at this point, if there is a surprise it’s that the $4 a gallon gasoline has not had more demand destruction thus far, but the real story as it relates to these higher food and fuel prices is the fact that it exposes this income deficit that the consumer sector has. 

DAVID CRAIG:  Right.

JIM KEEGAN:  I mean real median income fell 5% in the decade of the 2000s, which is just an incredible statistic when you think about it.  To put that in some context, it really does tell you how important it was as it related to economic growth and consumption that consumers were really living beyond their means, and how were they doing that?  They were taking on more and more debt. 

DAVID CRAIG:  Right.

JIM KEEGAN:  So, this food and fuel inflation problem is a real issue for the consumer sector.

DAVID CRAIG:  Okay.  Are there any other commodities you think people should be watching? 

JIM KEEGAN:  Yeah, I think that you have got to be watching the whole commodity space, and I guess the commodity that I pay particular attention to is copper prices.  They seem to have peaked and rolled over here.  To a certain extend gold, which I had mentioned reached a new record 14 out of 22 trading days in the month of April. 

DAVID CRAIG:  Now, let’s end with a bit of an outlook.  Last month you mentioned that the response to the end of QE1 was much different than people were expecting.  What do you think the response to the end of QE2 next month will be?

JIM KEEGAN:  Well, you know unfortunately David, we don’t have much history to gauge the end of any quantitative easing program.  In fact, the only history that we have as it relates to the end of quantitative easing was what I talked about last month with the end of QE1, which ended back in March 2010, and what happened there was interest rates fell, stock prices went down, credit spreads widened, the dollar rose a bit, commodities with the exception of gold dropped and volatility went up.  I would say, at this point, we’ve just experienced a 60 basis point rally in ten year rates from their February high, but our view has been that we would be in a trading not trending market.  By that I mean we are largely going to be in this 3% to 4% trading range.  The fundamentals as it relates to the credit space, where we have our largest overweights, the fundamentals are good.  The technicals are very good in this Fed induced 0% interest rate policy environment that we are in.  The end of QE1 did lead to some risk-off, if you will.  So, we would not be surprised if there was a bit of a correction in risky assets after QE2 has ended, and what I would say is security selection will be ever important in that environment.

DAVID CRAIG:  Okay.  Great.

JIM KEEGAN:  The question really becomes, do you view that as a buying opportunity, and I’d say selectively it probably will be.

DAVID CRAIG:  Okay.  Great.  Well thanks again for your insights Jim.

JIM KEEGAN:  Thank you David.

 

The Equity Market 5

DAVID CRAIG:  Good afternoon and welcome to the Equity Market Five.  It’s the week of May 9^th, and I’m with Don Wordell of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund, to talk about what’s going on in the equity markets.  Don, entering earning season last month, you were hoping to see more revenue growth in companies and increased loan demand within banks.  Did you see what you were looking for?

DON WORDELL:  Yeah, we sure did.  About 90% of the S&P 500 has reported earnings, and we are seeing a large majority of those companies that have reported, beat analysts’ estimates on revenues, on earnings, or both revenues and earnings.  And as it pertains to the banks, we are seeing some incremental signs of loan growth in commercial real estate as well as C&I (commercial and industrial) lending.  Overall loan growth is still a little tepid because most of the banks are still trying to bleed down their mortgage portfolios.

DAVID CRAIG:  Okay.  What were some of the other highlights from last month?

DON WORDELL:  The biggest thing that I would pick up on would just be the commodity price and volatility and the impact it can have on consumers.  You know oil prices had spiked up to into the $112 - $113 range and last week pulled all the way back below $100, so that volatility is something that we need to watch for the long-term impact on the consumer because it’s essentially higher oil prices act as an increased tax on consumers.

DAVID CRAIG:  Okay.  And this ties right into that, but you mentioned in last month’s podcast that the price of oil was getting to a level of demand destruction.  The current data is showing that gas sales have started to decline as consumers are actually starting to drive less.  Do you think that this will have a major ripple effect throughout the economy as a whole?

DON WORDELL:  I do.  I do.  I think that if, you know, oil prices were to continue to move higher, it would have a very negative impact on the economy, because like I said, it’s clearly as a tax on the consumer, but near term we’ve seen a pullback in oil, and that’s been very positive, so it’s something that we’re monitoring very closely in our stock selection process.

DAVID CRAIG:  Okay.  Are there other commodities that you think people should be watching?

DON WORDELL.  Absolutely.  I think it’s important to watch copper.  Copper is such a global commodity, and it’s clearly an indication of demand in the emerging markets and the developing markets around the world.  I think copper is very important.  I also think it’s important to watch cotton and coffee because those are highly tied to the consumer.

DAVID CRAIG:  Okay, alright.  Now employment continues to be mixed as hiring seems to be increasing a bit, the unemployment rate actually ticked up this past weekend, so what types of companies do you think will do well in this environment?

DON WORDELL:  Employment has always been a lagging indicator, always.  But if we can get this employment to continue to get better over the next twelve to eighteen months, which is what we expect, it’s not going to be a straight line down for unemployment or up for employment, but we think that as employment gets better as consumer and CEO confidence gets better, we think that consumer discretionary stocks are going to be one of the biggest beneficiaries simply because it’s going to lead to an increase in disposable income.  We also feel like the banks will be big beneficiaries because it’ll help people to continue to make good on whatever credit they have out there.

DAVID CRAIG:  Okay, great.  Let’s end with a bit of an outlook.  You were pretty positive about the coming three to six months when we talked last month.  Did anything happen in April to change that?

DON WORDELL:  Absolutely not.  I’m still positive when I look out over the next even three to six or even longer because again I come back to balance sheets are in great shape, debt-to-cap is as low as it’s been since the last business cycle, and there’s lots of cash on corporate balance sheets.  Earnings are in line to better than the market is looking for, and we still have tremendous fiscal and monetary stimulus as well as you have a president that really wants to get re-elected, and so he’s going to do whatever he can to facilitate employment and consumer confidence.  So I think you’ve got a lot of things working in your favor, and we’re still very constructed along the equity markets.

DAVID CRAIG:  Great.  Alright, well thanks again for your insights Don.

DON WORDELL:  You’re welcome.

 

The Style Class Focus 5

DAVID CRAIG:  Hello and welcome to Style Class Focus Five. This is the week of May 9^th, and I’m talking with Chad Deakins, President and CIO of Certium Asset Management, subadvisor to their RidgeWorth International Equity Funds.  Chad, looking at mutual fund flows, it’s clear that international funds have seen less outflows and more inflows since the bottom in the S&P 500 back in March 2009.  Why do you think there’s been that trend?

CHAD DEAKINS:  Well, I think its investors starting to come out of their shell.  In the downturn international equities were one of the sources of funds investors exited as they got more defensive.  Now that the economy has started to rebound investors are seeking higher returns.  The international equities have higher growth rates and lower valuations than the U.S. equities.  Plus most international currencies have been appreciating against the dollar which is an added benefit to a U.S. investor.

DAVID CRAIG:  Now given the completion of Quanitative Easing 2 and the expectation of a domestic inflationary environment.  How can investors protect their wealth as the dollar becomes less valuable?

CHAD DEAKINS:  Well inflation is a problem to investors.  It reduces the buying power of a currency over time.  There are two basic hedges against inflation.  One is hard assets like timber, real estate, or commodities.  The other is business or enterprise.  The easiest way to get exposure to enterprise is through the purchase of common stocks. 

DAVID CRAIG:  I noticed you mentioned hard goods as well, such as commodities.  Do you think that hard good are a better choice in equities in this environment? 

CHAD DEAKINS:  Hard goods or hard assets have several caveats, each one differently.  Commodities, for example, are very volatile and they’re prone to bubbles.  Timing of entry and exit points are very vital and this can be difficult for individual investors, as well as professional investors.  Real estate is in over supply in the United States, and so it is not going to, it’s going to actually probably continue to depreciate until that is cleared.  That doesn’t look like a good place to invest right now.  The timber market relies on home building, which shouldn’t regain strength until after the housing market clears.  Right now I think equities that have exposure to higher growth parts of the global economy are a better option than hard assets.

DAVID CRAIG:  Ok, now do you think the domestic inflationary environment might actually be good for international equities?

CHAD DEAKINS:  I do think that the international markets look very attractive here.  You have the continued dollar weakness relative to most of the rest of the global economy because the differential in interest rates.  You’ve got attractive valuations outside the U.S. with continued expansion in the international economy. 

DAVID CRAIG:  Are global economies in inflationary environments as well?

CHAD DEAKINS:  They are, the biggest inflation is currently in the emerging markets, as oil and energy prices, as well as commodity prices and food prices continue to escalate.  In the developed markets the real estate and low job growth bring down the inflation overall.  So inflation is lower in the developed world and higher in the emerging world.  However, we’re starting to see inflation tick up especially in Europe.

DAVID CRAIG:  What is your outlook for international equities over the next three to six months?

CHAD DEAKINS:  Well I think we’re kind of at a juncture here where we’ve had a big rebound in earnings of most global companies, and we’ve continued to see year over year growth that was improving, coming off the bottom, and now it is starting to stabilize at more of a trend level, so we’re at a little bit of an inflection point.  The next three to six months I think will be kind of choppy and sideways with different leadership, but after that I think we’ll continue to see an expansion in the global equity markets, especially the international markets look attractive here. 

DAVID CRAIG:  Great, well thanks for your insights Chad.

CHAD DEAKINS:  Thank you.

 

The Plan Advisor Tools 5

DAVID CRAIG:  Welcome to Plan Advisor Tools Five, it’s the week of May 9^th, and I’m with Daniella Moiseyev, Retirement Segment Marketing Manager for RidgeWorth Investments to talk about retirement planning committees.  So Daniella, we recently released a whitepaper about the best practices of retirement plan committees.  Why does RidgeWorth believe these committees are important?

DANIELLA MOISEYEV:  Well David, for many plan sponsors managing a 401(k) plan can be an overwhelming job.  In many cases, especially in the small plan market, the so called committee or the person running the retirement plan, is one overworked HR manager with many, many other responsibilities. Let’s face it, with the regulatory environment and the economy being what it is, that’s a big job.  We at RidgeWorth feel strongly that a 401(k) committee staffed by qualified internal members, and advised by knowledgeable external advisors, can serve to both mitigate a plan’s fiduciary challenges and to create a better plan to help employees reach their retirement goal.

DAVID CRAIG:  What are some of the best practices and steps?

DANIELLA MOISEYEV:  David we’ve outlined a step-by-step process for creating, structuring, and managing a 401(k) committee in our whitepaper that’s available for downloading at planadvisortools.com, but I can touch on a few of those day.  First, you need to determine if there was previously a committee in place, perhaps by looking through old paperwork, trying to determine if there is a charter or some sort of bylaws that you can look at, and that’s a great place to start if there is one existing you can kind of modify what’s already been done.  Now if not, the next step is really to get buy-in from senior management.  If you don’t have that then your committee is never going to get off the ground.  The next step after that is to determine who should be on the committee, and there’s more specific guidance on how you determine who should be on that committee in our whitepaper.  Then you should really establish clear bylaws.  You should outline the purpose, the responsibilities, the logistics, who’s required to attend, who are optional attendees.  You should document the proceedings and all your additional meetings.  Perhaps the best thing to do is to vote on those bylaws and bring them in in your first meeting.  Then you need to think about the fiduciary basics, and that’s kind of what you should cover in your early meeting.  A big part of your meeting should be the investment review and there are all kinds of other issues that can be covered, and again we go through this in much more detail in our whitepaper available for download on planadvisortools.com. 

DAVID CRAIG:  So are retirement plan committees a requirement, and if they’re not what percentage of companies do you think actually have a retirement plan committee?

DANIELLA MOISEYEV:  They’re definitely not a requirement, although we really truly believe that they are a fiduciary best practice.  There aren’t necessarily statistics on what percentage of companies have a retirement committee in a formal sense, but definitely on the small plan size market there’s less retirement plan committees, and often the committee is really just one person, either the employer, the owner of the company, or perhaps their HR person.  We feel strongly that it needs to be a broader audience to make that committee be really important and really work well for the plan.

DAVID CRAIG:  How can an advisor help his or her plan sponsor clients or prospects in creating a committee?

DANIELLA MOISEYEV:  Well no single individual possess all of the legal investment and administrative knowledge needed to master all the complexities of managing a 401(k) plan on their own, so bringing in the knowledge and expertise of a qualified team together can help provide oversight.  A knowledgeable advisor can help guide their plan sponsor to create a committee that will make their plan better.  It also creates a more consultative role for the advisor, which is what I think all of us in the market really want to be, we want to be a trusted consultant to the plan.  Helping them structure a retirement plan committee that’s going to make their plan better is really a great step to getting there. 

DAVID CRAIG:  Great, alright well thanks again for insights Daniella.

DANIELLA MOISEYEV:  Thank you David.  

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

 

 

Fixed Income Market Five

DAVID CRAIG:  Good afternoon.  Welcome to Fixed Income Market Five.  It's the week of April 4th, and I'm with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadvisor of the RidgeWorth Investment Grade Bond Funds, discussing what's going on in the fixed income market.  So Jim, at the beginning of the year you expected high-yield and investment grade corporates to continue their strong performance throughout this year.  It certainly happened the first quarter.  Was it for the reasons you expected?

JIM KEEGAN:  Yeah, actually, David, the returns of both high-yield and investment-grade corporates exceeded our expectations, and it was for all the reasons that we cited.  We talked about, you know, strong balance sheets within the corporate sector; and despite all the exogenous shocks that we had, whether it be the Middle East and North Africa, the European sovereign debt/banking crisis, and the tragedy in Japan; “risk on” was really the theme of the day as it related to the investment landscape.  And as we've been saying for awhile, in this zero interest rate policy environment the Federal Reserve has us in where income-starved investors are being pushed out of cash and into riskier asset classes, two of the asset classes that have benefited have been high-yield and investment-grade corporate.  And then something that we've seen in the industry and we've been the beneficiary of it here has been in bank loan funds.  There has been a tremendous amount of inflows into bank loan funds for the industry and within our franchise. 

DAVID CRAIG:  You mentioned some, but there are quite a few major global events that occurred during the quarter, but all the markets performed pretty strongly.  Do you think investors are behaving rationally right now?

JIM KEEGAN:  Well, I mean as we like to say, "let's leave those comments to the talking heads" to determine whether or not investors are behaving rationally.  I think what you have to recognize here is that there are investors, but there are also a lot of traders that are moving markets around.  In our opinion, you know, investors are responding to the landscape that we've faced with the extraordinary measures that have been taken by the Federal Reserve.  The massive amounts of liquidity have provided to the markets some very profitable opportunities as it relates to risk, but our assessment is ultimately that very little has been done fundamentally to solve the underlying problems in the U.S. economy, and I'm specifically referring to massive debt and leverage, massive overcapacity both in physical and human capital, high structural unemployment, stagnant incomes on the part of workers in the U.S., and then housing, which is experiencing another leg down.  Those are just some of the big macro issues that we still have to contend with, but liquidity can do an awful lot to keep markets buoyant. 

DAVID CRAIG:  Now we've got an equity perspective on this next question in our Equity Market Five, but as for the overall economy, are you concerned that even as hiring is picking up housing prices continue to drop? 

JIM KEEGAN:  Yeah, I mean housing prices are really more a function of, in our view, there's a massive supply/demand imbalance.  And while an improving employment situation will help on the margin, it doesn't really get at the massive supply/demand imbalance of known inventory and then shadow inventory.  I mean, to put the employment situation in perspective, you know payroll growth has improved, but really the improvement has been marginal since the end of last year.  If you look at the three- and six-month moving averages, at the end of the year they were running around 139,000 on the three-month and 47,000 on the six-month.  As of the end of March 2011, the same rates have picked up 159,000 on the three-month and 149,000 on the six-month, so that's barely exceeding the natural growth in the labor force.  So, you know, we dug ourselves a big hole as it related to employment, I mean from January of 2008 to June of 2009, and that's the period were the NBER tagged the recession that we went through.  Payrolls in the U.S. declined just under 7.5 million jobs, and so the recovery to the expansion from July of 2009 to March 2011, which is the most recent payroll data that we have, we've generated a grand total of 245,000 jobs in that period.

DAVID CRAIG:  Not much of a dent.

JIM KEEGAN:  So not much of a dent.

DAVID CRAIG:  So what is your outlook for the fixed income markets for the balance of the year?

JIM KEEGAN:  Well, for the balance of the year, you know, we've been of this mindset that we're going to be in this risk on/risk off environment, so there's going to be a tug of war between the technical factors already in play due to this zero interest rate policy environment and what that does and the desire for income against the backdrop of what happens after the end of QE2, quantitative easing 2.  Sadly, many market participants have chosen to focus only on what the end of QE2 may mean for the treasury market, but when you consider the performance of all risk markets since last August, when Chairman Bernanke announced that he was going to pursue QE2, the more valid question is how does risk reprice after QE2 is scheduled to end on June 30, 2011.  You know, you may recall what happened to risk markets after the conclusion of QE1.  What's very interesting is that yields actually fell, and if we look at the performance of different asset classes post QE1, stocks went down within the stock market, defensive stocks tended to outperform, commodity prices went down, volatility went up, and the ten-year treasury rate fell over 100 basis points.  We went from 384 to 266.  Since the start of QE1 back in March of 2009, there's been an 86% correlation with the size of the Fed's balance sheet and stock prices.  So if there was only one indicator as a stock market investor that you would have wanted to have access to over the last two years, it would've been the change in the size of the Fed's balance sheet.  So in other words, if the Fed is expanding its balance sheet, stock prices have tended to go up; and when the Fed is shrinking their balance sheet, it has tended to go down.  So I'm not sure that everything that's being discounted in the markets right now is actually what's going to be at play post QE2.

DAVID CRAIG:  Okay, interesting.  Well, thanks again for your insights, Jim.

JIM KEEGAN:  Thank you, David. 

 

The Equity Market 5

DAVID CRAIG:  Good afternoon and welcome to the Equity Market Five.  It’s the week of April 4^th, and I am talking with Don Wordell of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund about what is going on in the equity markets.  Don, going into the quarter you were cautiously optimistic about equities.  Now that we are looking back on the first quarter, what met or exceeded your expectations and what didn’t?

DON WORDELL:   Well, I would say that the thing that met my expectations and exceeded them most was earnings.  It was really great to see these companies that we own and companies in the market overall continue to print earnings on a quarterly basis that exceed analysts’ expectations.  The other thing that really exceeded my expectations was the continued strength in the balance sheets of these companies.  We’re very much excited about how strong the balance sheets are coming out of the crisis we were in two years ago. 

DAVID CRAIG:  Okay, anything not meet your expectations? 

DON WORDELL:   You know, I guess the thing that probably left me a little worried would be the pricing power.  We haven’t seen the level of pricing power that we were expecting yet, but we are confident that the companies that we own have that pricing power.  We are still cautiously optimistic on that. 

DAVID CRAIG:  Okay, great.  Were you surprised by how the market reacted to the major global events that occurred in the quarter?

DON WORDELL:   Yeah, I was as surprised as everyone else.  The market has been able to really show a lot of resilience over the last three months with all of the things going on, and I think it just speaks to the demand for equities in what is going to be an inflationary environment going forward.

DAVID CRAIG:  Now, last month you said that some of the macro things you were keeping your eyes on included commodity cost and deficit suspending.  Oil just hit a 30-month high, and it looks like getting a budget through that addresses the deficit through Congress is not going to be an easy thing.  How are these factors impacting your outlook?

DON WORDELL:   It is keeping me cautiously optimistic.  I think that oil here is getting very close to the level of demand destruction, and if you look at our portfolio you will see that we are underweight the consumer stocks, and that is because we are very cautious on the impact that higher oil prices, which just translate to higher prices at the pump which really translate into just an increased tax on the consumer.  We are cautiously optimistic.  So, we think that you are going to reach here, real soon, a point where when you have demand destruction; it will bring the price of oil down aggressively.  As far as the government and deficit spending, you know that is something that does bother me, and it is something that I am very, very cognitive of and keep close tabs on because that could have a big impact on a lot of macro interest rates, dollar, and I know these are macro factors, but they have an impact on a lot of the industrial and multinational companies.  So, it is something that we continue to monitor quite closely.

DAVID CRAIG:  Great.  Now, as for the overall economy, are you concerned that even as hiring as picking up, housing prices continue to drop. 

DON WORDELL:   No, because of the housing price data that we see, and I don’t know if you are referring to the Case-Shiller index or some other index, that data is not statistically significant as well as we just had a very, very difficult winter where we had tremendous snowfall and extreme cold all across even the southeast.  Where here in the northeast there is a true seasonal factor, but in the southeast where even you can still see homes bought and sold during that time period, that came to a halt.  So, I am not at all concerned about a couple of months of price data.

DAVID CRAIG:  Okay.  Now what are you expectations for the second quarter and the balance of the year?

DON WORDELL:   Our expectations continue to be quite positive.  I mean, I think that we are a couple of weeks away from the beginning of earning season again, but you know look, one of the things that we didn’t hit on a second ago about the first quarter that we like about the second is you are beginning to see revenue growth.  You’re beginning to see loan demand on the income statements of banks, and you are beginning to see some revenue growth as well as those companies, those larger cap or bigger companies that can’t grow identically have great balance sheets and huge cash balances to go out and make acquisitions, and they are going to buy mid-cap stocks.  So, you know, we are optimistic about the next three to six months in the equity markets. 

DAVID CRAIG:  Great.  Alright, well thank you for your insights Don. 

DON WORDELL:   You are welcome.

 

The Style Class Focus 5

DAVID:  Hello, welcome to Style Class Focus Five.  This is the week of April 4^th, and I’m talking with Michael Sansoterra, Senior Portfolio Manager with Silvant Capital Management, subadvisor to the RidgeWorth Large Cap Growth Stock Fund about growth investing.  Michael, after a pretty long run for Value, Growth has quietly come back into favor and now leads Value over the one, three, and five-year time periods according to Russell.  What happened?

MICHAEL:  Well David, as we were talking to clients in June of 2007, we had seen the Value index outperform the growth index for an unprecedented seven years in a row and at that point we started to notice that the growth stocks had just become too cheap whether you were measuring on a free cash flow basis, price-to-earnings expected, price-to-earnings trailing.  Ultimately, these companies have growth prospects and traditionally do very well when the market is getting better and we just got to that final point where the growth stocks had just become too inexpensive to ignore.  Then in 2007 we saw that start to reverse itself and with the short break I guess with the recession where Value kind of peaked its head back up, we have noticed that Growth has continued to do well and we think it will continue to do well.

DAVID:  Now, let’s take a step back.  How does Russell define growth and how do you think growth portfolio managers like yourself would define it?

MICHAEL:  Sure.  You know we look at Growth a little bit different than Russell does.  Russell traditionally looks at Growth from a long-term growth rate perspective of stocks as well as their price-to-book valuation in comparison to Value stocks.  That is sort of the historic way they’ve done it.  Now Russell is changing that a little bit by looking at the IBES two-year growth rate and the historical sales to a five-year number which we think will bring a little bit shorter timeframe in a horizon which actually might do a better job of capturing the change as companies go from Value to Growth.  They’re still going to stay consistent with their price-to-book valuation measure, but at Silvant Capital Management and in the RidgeWorth Large Cap Growth Fund we are focused on growth more as a condition than we are a style.  We believe all kinds of stocks can have growth periods, cyclical stocks, and secular stocks.  There are opportunities in every sector at certain times where they would be growing their business so we don’t look at it quite the way Russell does.  We view it more like a condition. 

DAVID:  Okay.  So, how would other managers do you think that aren’t at it as a condition, what would they look at?

MICHAEL:  Yes, I think a lot of growth managers fall into one of a few camps be they momentum investors, growth momentum or GARP investors, growth at a reasonable price.  We tend to not look at the world that way.  Again, when we look at the stocks in the Large Cap Growth Fund, we don’t just look at the Russell 1000 Growth.  We look at the entire Russell 1000 and we’re really looking for companies that can beat expectations from investors, so companies whose earnings, revenue, margins, products are growing more so than the investing public would believe and we think those types of companies can have momentum, can be growth at a reasonable price, but don’t necessarily have to be and we think that opportunity set opens us up a little bit more and gives us an opportunity to outperform in both up and down markets.

DAVID:  You’ve mentioned a couple of things.  You mentioned cyclical, secular, momentum, growth at a reasonable price.  Which type of growth do you think has been leading the way recently?

MICHAEL:  Recently we’ve seen momentum doing very well.  Stocks that have had a premium on their growth continue to do so and have had good success price action and that price actions begets more price action.  So, we’ve seen growth momentum do pretty well lately and that’s fine.  Those periods usually run their course.  That’s I would say the most recent run up in the market has been more momentum stocks.

DAVID:  And then what type of growth do you think will outperform going forward?

MICHAEL:  Well, we look forward to 2011 and 2012 as potentially the continuation of this bull market and the market probably grinds higher and in that case what traditionally happens as GDP slows is growth companies become a little scarcer to find and therefore get a slightly higher premium so we believe the companies ultimately that will be beating expectations, in other words higher earnings than the market expects, higher revenue, better product sales, etcetera, will be the ones that outperform and that’s traditionally the kind of companies we’re investing in the Large Cap Growth Fund. 

DAVID:  Great.  All right well thank for your insights Michael.

MICHAEL:  You got it David, take care. 

 

The Plan Advisor Tools 5

DAVID CRAIG:  Welcome to Plan Advisor Tools Five.  It's the week of April 4^th, and I'm with Daniella Moiseyev, Retirement Segment Marketing Manager for RidgeWorth Investments, talking about benchmarking.  So Daniella we've seen a renewed focus plan fees lately and a lot in the industry press about benchmarking.  Why do you think that's happening?

DANIELLA MOISEYEV:  Well the SEC and FINRA and the Department of Labor and lots of other regulatory bodies have been very active lately.  Everyone knows that new regulations are on the horizon.  These new regs including the 408(b)(2) provider fee disclosure regulations, the 404(a)(5) participant fee disclosure regulations and a myriad of other new regulations are all coming down the pike.  They're really going to change the industry.  But one point more than that, they're going to send plan sponsors and participants scrambling for answers and then for help and understanding of the plan fees and plan features.  With this new focus on transparency comes a great opportunity for advisors to provide clarity on what these fees mean and how they compare and what they can do.  I think that segues very nicely into the benchmarking.

DAVID CRAIG:  Okay.  How does benchmarking play into that?

DANIELLA MOISEYEV:  Well, one of the most important functions of an advisor to retirement plans is to help their clients meet their fiduciary duty.  As an advisor to the plan, they want to make sure that the retirement plan is the best that it can be and that the plan sponsor is providing for their employees in a way that really helps them meet their retirement readiness goals.  Plan benchmarking gives sponsors a better way to understand their plan relative to their peers.  The Department of Labor has a clause that says fiduciaries should establish and follow a formal review process at reasonable intervals to decide if it wants to continue using current service  providers or look for replacements.  Regular benchmarking can really help meet that so called formal review process standard.

DAVID CRAIG:  So what types of benchmarking can an advisor do and how do you think they add value?

DANIELLA MOISEYEV:  I think there are two main types of benchmarking.  The first is benchmarking plan design features.  That can really help plan sponsors understand how their plan compares to others of similar sizes as well as the overall industry.  It also shows what plan design features might not be common among their peers and it helps them to understand and evaluate their service providers and the services that they currently receive.  The other type that is the main type of plan benchmarking is fee benchmarking.  We've heard so much about that in the industry lately.  Benchmarking of plan fees can show plan sponsors how competitive their plan is on overall fees as well as different components of those fees.  It can create leverage to negotiate the best deals with their service providers, and it can enable the plan sponsor to compare their plan costs to costs of other plans in their peer group.  Plan fees cannot be looked at purely in a vacuum because it really needs to look at in the light of or relative to participant outcomes.  So we at RidgeWorth have a plan fee benchmarking tool available at planadvisorstools.com that does just that.

DAVID CRAIG:  So if I'm a retirement plan advisor, RidgeWorth has a tool, what are some other sources I could use to benchmark:

DANIELLA MOISEYEV:  There's lots of industry research and industry consultants and all kinds of ways to do it out there.  We work with Fiduciary Benchmarks, there's also the BrightScope folks, there's lots and lots of vendors that do this.  We really feel that it's important for an advisor to do that.

DAVID CRAIG:  Okay, can you provide a summary for all of this for us. 

DANIELLA MOISEYEV:  Absolutely.  We at RidgeWorth really believe that plan sales and plan servicing on the advisor side has changed from that merely of a participant enrollment coordinator or someone who recommends funds or evaluates funds for the plan to that of an industry expert.  Plan sponsors are looking for guidance.  As an advisor to a plan, you can guide the plan sponsor to the mirky waters of plan optimization and service provider negotiation.  Benchmarking is a big part of that.  We also feel that plan benchmarking is one of the building blocks of being a true consultant to a plan.  It gives sponsors a better way to see their plan, to look at their plan, and it allows them to figure out and help you make their plan the best it can be.  We think of positions of advisors as a trust expert and it can be a big part of the consultive sales process and ongoing service of the plan.  It also differentiates the advisor services and can lead to new opportunities and new plan sponsor clients.  Not many advisors can offer a plan sponsor in an unbiased look at their plan, and it really positions them as a true expert which are very strongly that's a win/win both for the advisor, the plan sponsor and the plan clients - the participants at the end.

DAVID CRAIG:  Thanks for your insights, Daniella.

DANIELLA MOISEYEV:  Thank you, David.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

 

The Fixed Income Market 5

DAVID CRAIG: Hello and welcome to the RidgeWorth Commute for March 2011.  In this edition of our podcast, we have Jim Keegan discussing domestic and global factors that are having an impact on the fixed income markets in our monthly “Fixed Income Market Five”, Don Wordell talking about the strength of company balance sheets in the “Equity Market Five”, Brian Nold discussing the strong start for high yield in the “Style Class Focus Five” and David H. Williams talking about the new 408(b)2 regulations in the “Plan Advisor Tools Five.”  Each of these is also available as a standalone monthly podcast if you are only interested in one of the specific topics.

DAVID CRAIG:  Good afternoon, welcome to Fixed Income Market Five.  It’s the week of March 1^st  and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors, and subadvisor of the RidgeWorth’s Investment Grade Bond Funds discussing what’s going on in the fixed income market.  So, Jim, there have been a lot of headlines about Egypt and Libya this year.  How has that news been impacting the fixed income markets?

JIM KEEGAN:  Well, it’s impacted the fixed income market in the sense that what it does to the oil market, the commodity market, and the potential supply shock from oil and it really, it started in Tunisia, went to Egypt, Libya, and the concern really, is Bahrain, which is home to the Navy’s Fifth Fleet, and ultimately Saudi Arabia.  Many of these protests started out as protests over high food prices, but if you look at the demographics of a lot of these countries; they’re very young populations with not a lot of opportunity, and that can quickly turn into social unrest, dissatisfaction with the government, and potentially overthrowing of the government, and part of the food story is related to droughts and weather, and floods, but part of it is the unintended consequences of quantitative easing, which is you put all this liquidity into the system, it results in higher asset prices, higher commodity prices, which then work it’s way through food, and with the unrest in the Middle East, you get potential supply shocks and higher oil prices, so the combination of higher food and oil prices can put some pressure on markets.

DAVID CRAIG:  Okay.  Let’s take a specific look at February.  Corporates, both investment grade and high-yield seemed to do especially well.  Why was that?

JIM KEEGAN:  Well, I think it relates to a theme that we’ve been talking about for quite a while David, which is this demand for income in this 0% interest rate policy environment that we find ourselves in, and are going to be in for a while as we’re told by the Federal Reserve, and the Chairman in particular, you know, when you look at the Corporate sector, in particular the balance sheets are in very good shape.  Within the high-yield sector, high-yield companies have been able to take advantage of this insatiable demand for yield in both the bond and loan markets, several companies have been able to term out maturities, and thereby improve their credit quality and liquidity, and if you look at, specifically, within the high-yield market; and again, this relates to this massive infusion of liquidity that we have going on through quantitative easing, the best performing parts of the high yield market were the lowest quality, lower dollar priced parts of the marketplace.

DAVID CRAIG:  Was there anything that happened in February that was cause for concern for you? 

JIM KEEGAN:  Well, I mean, broadly speaking, yeah, the geo-political risks obviously are elevated with the trouble in the Middle East and North Africa, the U.S. budget deficit; we have a projection through fiscal year end 2015 that will be Federal deficits in excess of $4 trillion; the most recent Obama budget for fiscal 2011 puts the deficit this year at $1.6 trillion, which equates to 11% of GDP, and we’re not even paying lip service; our politicians that is, to doing anything to really solve the structural deficits in the U.S.

DAVID CRAIG:  Right.

JIM KEEGAN:  Then you look at housing prices, they’re down five months in a row; clearly taking another leg down as we thought they would.  The employment situation; we had a good initial claims number today, but the unemployment rate and the underemployment rate needs to come down.  You’ve got a record 43.6 million people in the food stamp program, using the food stamp program, which is about 15% of the population, and then the GDP report; the second revision for the fourth quarter, nominal GDP came in at 3.2%, which is something that I think you’ve got to be concerned about.

DAVID CRAIG:  What do you think investors should be keeping an eye on right now?

JIM KEEGAN:  I think there’s a lot of things investors need to pay attention to, so let’s try and boil it down to what we think are the most important thing.  We would say the employment situation is very important, so pay attention to unemployment, the underemployment rate, the initial claims data, housing prices, as I said, are extremely important given the fact that they are the largest asset on the consumers balance sheet.  Bank credit is important, loan demand, consumer spending, gasoline prices, and then geo-politics.  I’d say you’ve got to watch what’s going on in the Middle East and North Africa, but Europe; there are several important EU meetings that are taking place in Europe this month alone; March.  On the 11^th, there’s a special summit in Brussels.  The European Finance Ministers meet on the 14^th and the 15^th.  The European Bank Authority will publish it’s stress test criteria for the banks on the 18^th, and then there’s the full EU summit as it relates to the peripheral countries and the bailout on the 24^th and the 25^th, and then finally, there’s two state elections in Germany this month, but the real important one is on the 27^th, and then you’ve got to pay attention to the newly elected government in Ireland, and what demands they might put on the EU as it relates to their bailout package, and what concessions the EU may give to Ireland, and then finally, on the inflation front; the emerging market inflation and the tightening in the emerging markets is something that I think investors should pay attention to.

DAVID CRAIG:  So, maybe investors should just pick a professional money manager.

JIM KEEGAN:  That’s highly recommended.

DAVID CRAIG:  Thanks for your insights Jim.

JIM KEEGAN:  My pleasure.

DAVID CRAIG:  We’ll talk to you again next month.

JIM KEEGAN:  Great.

 

The Equity Market 5

DAVID CRAIG:  Good afternoon, welcome to the Equity Market Five.  It’s the week of March 3^rd, and I’m talking with Don Wordell of Ceredex Value Advisors and sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund about what is going on in the equity markets.  Don, when talked last month we were in the middle of earning season.  Now that we are through it, what’s your assessment of the general health of companies?

DON WORDELL:  It’s been our thoughts down here, and our research has said that these companies are in good shape.  You know, corporate earnings are in good shape.  The companies over the last three years, back when we were staring into the abyss in late 2008 or late 2009 of the great recession, restructurings, shuttering high cost, manufacturing, shuttering nonproductive SKUs, selling non-core businesses.  Companies just went through massive restructuring, and that is now clearly coming to the forefront when we look at earnings where margins are better than expected.  So, we are still very comfortable with corporate earnings.

DAVID CRAIG:  Good.  Last month you talked a little bit about Financials.  Are there other sectors that are looking particularly strong with you?

DON WORDELL:  Yeah, right now we really like the Industrials.  We are finding just tremendous opportunity, many, many stocks that seem to have such low expectations according to our work in the industrial space that we think over the next two years that there is just a tremendous amount of opportunity in industrials land.

DAVID CRAIG:  Great.  Now, in February growth outperformed value for both mid and small-caps but value outperformed for large-caps.  What happened there?

DON WORDELL:  You know, I think that was probably driven by, it seems like, the most recent push, I hear, in the market place is just looking for high-yield stocks.  So, most of the companies that are dividend paying stocks are in the value land, are considered value stocks, and so large-cap value you saw some rotation of money out of fixed income and into equity.  The first thing they are going to buy when they rotate out of fixed income into equity is they are going to buy large-cap value, the big dividend payers.  In the mid-small space the growth there was probably just a catch up because I think it was the exact reverse in the fourth quarter where the value did very well in the fourth quarter relative to growth.  So, I wouldn’t read too much into it. 

DAVID CRAIG:  Okay, is there anything that happened in February that caused you concern?

DON WORDELL:  Oh, I mean absolutely.  I think you see it on the news every day.  The thing that really bothers me is just the price of oil.  The unrest in Tunisia, which then spilled into Egypt, which has now spilled into Libya, is very disconcerting to me.  It is something that we have to be very, very cautious of.  While, in the long-term I think it will be very beneficial because you are creating markets that will hopefully become democratic, and that will lead to better and more stable economic growth out of that region, but at the same time, in the near-term there is a tremendous amount of concern over the ability to supply oil.  So, you know, we are still dependent on that region of the world for our oil, and you’ve seen oil move here from here somewhere around the high $80s to today, as we are talking about it, it is at $103 and that is WTI.  Brent crude is probably closer to $120.  So, that gives me concern because at the end of the day, higher oil prices do translate into, essentially, a tax on the U.S. consumer because every time you go to the pump to fill your car or your boat or your lawnmower with gas you are paying more for it.  So, it’s something that really concerns me right now.

DAVID CRAIG:  So higher priced oil could almost stall the recovery you think?

DON WORDELL:  Yeah, it’ll take some steam out of it.  How about that.  It’ll really hurt the lower-end consumer relative to the higher end.  I mean, those are the folks that I’d be most concerned about because they are the ones that are still struggling with maybe mortgage payments or homes that are worth less than they owe on them and it’s just something that you really want to be cautious of right here.

DAVID CRAIG:  Okay.  What are some of the key things you have your eye on right now?

DON WORDELL:   The things that we’re looking at on a stock basis are we’re really looking for companies that have pricing power, technological innovation.  Those are things that we’re very interested in.  On a more macro level, the thing that I’m laser focused in, on top of what we just talked about which would be the commodity cost, is the deficit spending and the impact that could have on the U.S. dollar and interest rates over the longer term.  So, we’ve got a lot of things we worry about on a daily basis, but those are probably the most important.

DAVID CRAIG:  Okay.  Well, thanks for insights Don.

DON WORDELL:  You’re welcome.

 

The Style Class Focus 5

DAVID CRAIG:  Hello and welcome to the Style Class Focus Five.  This is the week of March 7^th and I'm talking with Brian Nold, of Seix Investment Advisors, subadvisor to the RidgeWorth High Income Fund, about the high-yield market.  Brian, high yield has had a strong start to 2011.  What part of the high yield market has been driving that and why?

BRIAN NOLD:  Sure David.  It's really, we've seen strength across all different kind of asset sectors within high yield based on rating class.  However, the lowest rating class CCC's outperforming then B’s then BB's.  All parts of the market are positive for the year and this continues on from strong performance in 2010 as well as 2009.

DAVID CRAIG:  Is there anything specifically driving the lower quality portion?

BRIAN NOLD:  Well, we've seen access to capital being fairly robust for companies so liquidity is freely available.  Companies are able to refinance any kind of maturities.  So the CCC market generally is more dependant on access to capital than the higher rated portion of the market which usually has access to capital.  So the fact that the new issue market is wide open is allowing companies that had previously been perceived as having more risk from a liquidity standpoint, those companies are able to access capital.

DAVID CRAIG:  Great.  Are there specific industries that have been particularly strong this year?

BRIAN NOLD:  Every sector is actually up year to date.  There are no sectors that are down.  The ones leading the way:  radio broadcasting is actually up, that's 8.2%, that's a small sector.  Really probably the most meaningful industry that is up the most is Energy which is up 4.8%.  Building products is up 4.5%.  Most likely building products is up on a rebound in confidence that the U.S. economy is turning around, energy is obviously moving up with energy prices.  On the down side, or I guess on the lagging side, retail is only up about 0.9%, tech is up about 1.6%, packaging up 1.7% due to its exposure to raw material cost.  All of the sectors are actually positive.  So generally the backdrop within high yield is a very positive one.

DAVID CRAIG:  Okay, great.  Are the headlines about Egypt and Libya having a measurable impact on high-yield performance?

BRIAN NOLD:  Not really, other than moving the equity markets around and moving oil prices up, the specifics of Egypt and Libya really don't have a direct impact on the high-yield market.  High yields generally are a U.S. driven market with some Western European exposure, but countries like Egypt and Libya don't have a direct impact.

DAVID CRAIG:  Okay, what are the primary risks that you think invertors should be aware of with the high-yield market?

BRIAN NOLD:  Well, being fixed income we obviously have some link to treasury rates with treasuries being volatile and potentially widening out this year, that is a risk.  I will say offsetting that is we still have a significant amount of spread which is basically the incremental yield within high yield above the underlying treasury rate.  That is there is a significant cushion still within that spread that will allow us to absorb some further volatility in treasury rates.  Then another risk would be the economy really accelerating even further and making equities very attractive as an asset class, and then I think investors would have to weigh what is more attractive, the equity market, high-yield market or the higher quality investment grade market.  I still think high yield is in a pretty good position there because we have equity like characteristics.  So in a stronger growth environment, high yield should actually perform fairly well.  So I think high yield is in a pretty good position right now between higher quality asset classes and the equity market.

DAVID CRAIG:  Okay.  What's your outlook for high yield for the balance of 2011?

BRIAN NOLD:  Well, we're off to a pretty strong start already in terms of positive performance on returns.  Our general view is we believe returns can probably be in the 7% to 10% range this year.  We started the year at around a 7% yield and we've tightened in from that since the beginning of the year, but the underlying backdrop in fundamentals within high-yield companies is very strong.  Companies are paying down debt, they're improving their balance sheets, they're seeing some mild revenue growth, but they’ve significantly improved their cost structure, so they're seeing very strong profitability.  So that's leading to a very low default rate which is probably in a 1% to 2% range over the next twelve months which is extremely low practically non-existent.  So we expect that to continue and so it's setting up for a fairly positive year for high yield.

DAVID CRAIG:  Thanks for insights, Brian.

BRIAN:  Thank you David.

 

The Plan Advisor Tools 5

DAVID CRAIG:  Good afternoon, welcome to Plan Advisors Tools Five, it’s the week of March 3^rd and I’m with David Williams, attorney with Schiff Harden, discussing the 408(b)2 regulations.  So David, can you give me a very high level overview of what 408(b)2 is?

DAVID WILLIAMS:  David, thanks, I will.  The Department of Labor that governs retirement plans has promulgated this new regulation that is addressed to a variety of service providers, that is individuals and companies that provide services to retirement plans.  This regulation is going to require these various service providers to disclose the plans to the fiduciaries of those plans the services that the service providers are going to provide to the plans and the compensation that the service providers are going to receive for those services, direct compensation that they’re going to receive from the plans, as well as indirect compensation the service providers are going to receive in the forms of various types of revenue sharing, and the other ways that the service providers can be compensated.  This is all now going to be have to be transparent disclosed to the fiduciaries so they know from the service provider what are they getting for their money, and what’s the service provider getting paid, and who’s paying them. 

DAVID CRAIG:  What do you think financial advisors should pay special attention to?

DAVID WILLIAMS:  I think that financial advisors have to fundamentally be concerned with whether or not this regulation even applies to them and consult with their advisors or their legal counsel about whether the rules apply.  For example, if you are a fiduciary providing fiduciary services to a plan, these disclosure requirements apply to you.  If you’re a financial advisor, the type of financial advice you may be giving may make you a fiduciary under ERISA or it may not.  It depends upon the kind of advice and the understanding that you and the plan have about whether the plan’s going to rely on that advice, so you may think you’re not a fiduciary, somebody may have told you that you are not and were not, but you might be nonetheless because of what you’re doing.  So you ought to first of all, day one, decide whether the regulation applies to you or not. 

DAVID CRAIG:  What do you think is the best way for an advisor to prepare for the implementation of this rule?

DAVID WILLIAMS:  David, I get asked that question more than any, and my advice is in two categories.  If you are affiliated with a large organization, a nationwide organization, a wirehouse for example or some similar organization, you need to stay in close touch with your home office, with the compliance department of the home office.  They are struggling right now with coming up with compliance programs, and I can assure you they are going to tell everybody, all their advisors how those advisors are going to have to comply and exactly what the advisor can do or not do as it interacts with retirement plan clients.  On the other hand, if you’re an advisor with a small organization, and there is no home office so to speak or no compliance department, then you’re going to be tasked with getting ready yourself.  How do you do that?  This regulation is a sea-change in fee disclosures for service providers, so I think it behooves you to spend the resources it’s going to take to get legal counsel advice on how to pull together your compliance requirements and how to deliver them.  I think you need to stay in touch with the product people whose products you sell or advise on, mutual funds for example, because you’re going to have to start gathering compensation data from them, on the compensation revenue sharing for example that they pay you, and then together with counsel come up with a disclosure agreement to give to the fiduciaries of the plan that describe the services you’re performing and the pay you’re receiving.  Working as a team with your legal counsel and the organizations whose products you sell will help you deliver what’s required.

DAVID CRAIG:  Great, thanks.  For those of you listening to Podcast, David did a 45 minute webinar on the 408(b)2 regulations, so it’s obviously a lot more than just a five minute conversation.  Did this last week.  investment professionals can access this by going to planadvisortoolsvkc.com.  David, thank you very much for your insights.

DAVID WILLIAMS:  Thank you, I enjoyed being with everybody.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG: Hello and welcome to the RidgeWorth Commute for February 2011. In this edition of our podcast, we have Jim Keegan discussing housing and the fixed income markets in our monthly “Fixed Income Market Five”, Don Wordell talking about the strong start for mid and large caps in our “Equity Market Five”, George Goudelias reviewing the bank loan market in the “Style Class Focus Five” and Brandon Shea talking about characteristics of successful retirement plan advisors in the “Plan Advisor Tools Five.” Each of these is also available as a standalone monthly podcast if you are only interested in one of the specific topics.

DAVID CRAIG: Good afternoon and welcome to Fixed Income Market Five. It’s the week of February 1st and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadvisor of the RidgeWorth Investment Grade Bond Funds discussing what’s going on in the fixed income market. So, Jim, one thing you’ve been saying is key to a change in your economic outlook is the unemployment situation. The Administration and Congress have been saying a lot about jobs and job creation lately. Do you think what they’re doing will work?

JIM KEEGAN: It remains to be seen David. The rhetoric is clearly changed to the point where it seems like job creation is moving to the front burner, but you really have to question the moves so far as to what we’re doing to create jobs. Jobs in the U.S., job creation that is, is all about small business. So, we need to put an environment in place where small business formations start to rise, and then small businesses in general start to increase head count. It seems to me, if you look at the most recent moves, i.e., the payroll tax holiday on the employee side that was part of the stimulus package that included the extension of the Bush era tax cuts, with that being focused on the employee side rather than the employer side, that was more about consumption than it really was about job creation. I’d be somewhat concerned that they’re still focused on consumption and asset inflation rather than trying to really put an environment in place where employers start to hire more workers. The second thing that I point to is the commission on jobs and competitiveness where the CEO of General Electric was appointed to lead that committee. It seems to me that if I were trying to create jobs here in the U.S., I would not have selected somebody from a multinational corporation that has been moving more of his employers off shore rather than on shore, and in fact now more than half the employees of General Electric actually work outside the U.S.

DAVID CRAIG: Okay, thanks. Now, the unemployment situation is obviously having an impact on housing. Do you think we’re anywhere close to a recovery in housing?

JIM KEEGAN: We don’t, David. We’re of the opinion that housing would take another leg down, and in fact, that’s what we’ve seen since the end of the home buyer tax credit. All these stimulus packages do, whether you’re talking about home buyer tax credits or cash for clunkers, is they don’t increase demand. They just pull demand forward. We saw that with respect to housing and home prices. Our concern and the reason why our view is that not only are home prices taking another leg down, but our view is that they likely have another 10% to 15% to decline is a function of not only the existing inventory but the shadow inventory. There’s a massive supply and demand imbalance that leads us to believe that prices are going to decline, like I said, another 10% to 15%. Then we’ll reevaluate. The reason that’s important to us is because while the stock market has gone up since the Fed started quantitative easing, the home is really the largest asset on the consumer’s balance sheet. We think that plays very much to consumer confidence and consumer spending. That’s one of the reasons why we’re somewhat sanguine on the sustainable economic outlook at this point.

DAVID CRAIG: Let’s move on to January returns for the fixed income markets. How did things play out last month?

JIM KEEGAN: Last month was a good month for fixed income. We had a decline in short-term interest rates, a little bit of a rise as you went out the curve with the long end being the under performer. The yield curve steepened during January. If you look at the broad asset classes, corporate bonds did well, commercial mortgage-backed securities did well. Within the high-yield space, both the high-yield market and the bank-loan market did particularly well. So it was a good market for risk assets in general, stocks, and credit. As you know, we remain overweight credit and commercial mortgage-backed securities, so that was a good play for us here. Our view is that as long as the Fed is pursuing their money printing exercise called “quantitative easing,” that risk assets will probably outperform, although we would say that as we get closer to the end of QE2, that we’re likely to see some heightened volatility.

DAVID CRAIG: Let’s just end with, did anything happen in January that would impact your outlook for 2011?

JIM KEEGAN: Well, I guess the one concern that we’d have at this point is that the price of both food and energy is starting to become an issue, particularly in the emerging markets. The reason why that’s important is because that in the emerging markets, consumers tend to spend a lot more of their monthly income, or weekly income for that matter, on food and to a lesser extent energy. It’s much higher in the emerging markets than it is here in the U.S. We started to see that that’s a nascent problem in China, India. I’ve been interested to watch here that the India stock market was down almost 11% in January. The Brazilian market was down. The Chinese market was down slightly. We think that’s a function of the fact that these economies are probably going to have to tighten monetary policy in here so that inflation does not become a problem for them. In addition, China likely wants to slow their economy a bit and try and soft land the economy over there.

DAVID CRAIG: Very well. Thanks for your insights, Jim. I look forward to talking to you next month.
JIM KEEGAN: Thank you David.

DAVID CRAIG: Good afternoon and welcome to the Equity Market Five. It’s the week of February 1st, and I’m talking with Don Wordell at Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund, about what’s going on in the equity markets. Don, large-caps and mid-caps had a very strong start to the year. To what do you attribute that?

DON WORDELL: I would say that the strong start to the year for those two asset classes is going to be driven by earnings. We’ve really gotten a tremendous amount of large-cap and mid-cap earnings reported year-to-date, as well as portfolio rebalancing. Small-caps had a very strong move coming off the bottom in 2009 and 2010, so there’s probably been some rotation into large-caps, mid-caps, as well as like I mentioned before their earnings being better than most analysts have estimated, and so therefore you are going to get some good rotation of money and the stocks working and doing better.

DAVID CRAIG: Great and you touched on this, we’re in the middle of earnings season, so have there been many earning surprises?

DON WORDELL: I would tell you that overall most of the earnings surprises have been to the positive. Of course you always have one off stocks that surprise negatively, but overall it’s been our experience so far through earnings season that earnings have been inline to better than analyst's estimates.

DAVID CRAIG: Now in the headlines there’s been a lot of news about what’s going on globally. How does what’s going on globally impact the way you manage a domestic equity fund?

DON WORDELL: Well it has a tremendous impact. I mean take for example just the issues in Egypt from the last ten days or so. That has a tremendous impact on the commodity prices, especially the price of oil. As oil prices move up that has a huge impact on the U.S. domestic consumer, primarily prices at the pump. Oil prices are directly correlated to prices at the pump, and so as prices move higher gas prices move higher and that impacts consumer discretionary dollars. As a portfolio manager it is clearly a part of my job, and a very important part of my job, is to maintain a watchful eye over what’s going on globally and how it can impact stocks domestically.

DAVID CRAIG: Did anything happen in January, you mentioned Egypt as one, that has impacted your outlook for 2011?

DON WORDELL: Going back to what we eluded to earlier, I think what happened in January was the relatively strong earnings reports. We were cautiously optimistic coming into earnings reporting season and by and large most of the earnings reports have been better than expected, as well as getting the updates on corporate balance sheets, that’s also a very important part of earnings, and the corporate balance sheets are in great shape, better than they were coming out of the last cycle back in 2003. With $2 trillion in cash on the balance sheets of corporate America, we’re very excited about the M&A opportunities, as well as the increase in capex (capital expenditure) spending that we expect from all the accommodative fiscal and monetary policies, which all these things work to drive a higher equity market, we think, in 2011.

DAVID CRAIG: Ok, great. We talk about earnings and how most of them were higher. Is there any particular sector where earnings surprises have been more prevalent or has it been pretty broad based?

DON WORDELL: One sector is Financials, and what we saw through reporting of fourth quarter earnings in January was that the earnings of these, what you call the super regional, or we’ll call them mid-cap banks, were better than expected. Credit has stabilized; loan growth has bottomed and is beginning to grow again. The capital position of these banks is all in good shape, they’re going to start growing their dividends soon, and their valuations are extremely attractive. Overall we think that financials are a place that you’re going to see earnings upside surprises over the next twelve to eighteen months.

DAVID CRAIG: Great, well thanks for your insights Don, and I look forward to getting an update from you next month.

DON WORDELL: Great David.

DAVID CRAIG: Good afternoon. Welcome to Style Class Focus Five. This is the week of February 7th and I’m talking with George Goudelias of Seix Investment Advisors, subadvisor to the RidgeWorth Floating Rate High Income Fund about the bank loan market. George, my guess is not everyone listening to the podcast has a deep understanding of bank loans. Can you explain exactly what they are and where they fit into the capital structure?
GEORGE GOUDELIAS: Sure David. Bank loans are senior secured in the capital structure, so within a company’s typical capital structure that might include bank debt, bonds, preferred, and equity. A bank loan would sit at the top of the capital structure, meaning they’re first in line in the event the company has to restructure, bank debt would have first claim on all assets and cash. That would have to be paid off first before anyone else in the capital structure gets paid off.
DAVID CRAIG: Great. Now there’s been a tremendous amount of flows going to bank loan funds so far this year, including your own. Could you put this use flows into some perspective?
GEORGE GOUDELIAS: Sure. The year 2010 was a fairly active year relative to 2009, and we’ve seen really continued flows in the year-to-date period. Put that into perspective, we had $3.4 billion of inflows into the bank loan mutual fund category in 2009. That number went up dramatically in 2010 to roughly $12.5 billion, and if we look at just the short five-week period thus far in 2011, we are over $4 billion, about $4.3 billion for 2011. We’ve already surpassed all of 2009 in the year-to-date period.
DAVID CRAIG: Now, last year there was a lot of talk about a huge number of bank loans coming due in 2013 and 2014 which could lead to liquidity issues. Is that still a concern?
GEORGE GOUDELIAS: It’s much less of a concern given how proactive companies have been in addressing their maturities over the last 24 months. To give you some numbers to wrap around that, at the end of 2008 there was roughly $500 billion of cumulative maturities through the end of 2014. By the end of 2010 companies proactively issued bonds and refinanced bank debt such that by the end of 2010, for the next four years, so again through 2014, that $500 billion number was knocked down to about $265 billion, so almost cut in half still with four years to go. While we don’t think everyone will make it, we believe the large majority of companies have bought enough liquidity to allow their business to grow into their capital structure.
DAVID CRAIG: Supply was an issue last year, wasn’t it?
GEORGE GOUDELIAS: Supply was moderate, but as a result of all the refinancing, the market actually shrunk by about $30 billion last year, from about $535 billion to about $505 billion. We would expect this year will be a little more balanced such that supply and demand will likely be in line, and we are unlikely to see the market shrink again.
DAVID CRAIG: Okay, great. Finally, what’s your outlook for the category in 2011?
GEORGE GOUDELIAS: For 2011 we think the market should have another good year. Last year we were calling for 6% to 8% for the asset class. Did a little bit better at roughly 10%. This year we think the market will likely do 5% to 7%. We’ve actually started off the year on relatively strong terms here, close to 2% for the first month. While you can’t extrapolate that for the rest of year, we think 5% to 7% is a good range to think about, and a good conservative range to use for this year.
DAVID CRAIG: Great. Well, thanks for your time George.
GEORGE GOUDELIAS: Thank you David.

DAVID CRAIG: Good afternoon, welcome to Plan Advisor Tools Five. It’s the week of February 7th, and I’m with Brandon Shea, managing director and DCIO team lead for RidgeWorth Investments, discussing attributes of successful retirement plan advisors. So Brandon, you’ve worked with a number of retirement plan advisors over the years. What are some of the characteristics you think have been consistent among the top advisors.

BRANDON SHEA: David, one think I’ve seen is that the top advisors have a business plan in writing and it is something that they revisit. If they work with a team, that whole team can articulate what that business plan is. It might sound pretty obvious, but as I travel in a calendar year and work with over 1,000 financial advisors, I found that it’s only one out of every four or five advisors actually have a business plan where they’ve identified a niche that they want to go after, they’ve articulated a specific value proposition that they want to bring to that niche, they’ve set asset goals, and then they’ve structured a tactical plan to acquire those assets. So in other words the top advisors I’ve seen out there in the retirement plan space are very intentional about how they go after the growth. In terms of service model characteristics, the top advisors tend to offer four main benchmarking services to their clients, and they are investment due diligence, plan expense analysis, compliance due diligence, and 401(k) provider benchmarking. Now circling back to the investment due diligence, they typically offer the service quarterly. What they’ll do with the plan sponsor is identify what funds do or do not pass the monitoring criteria that they set with the plan sponsor. They’re either using a proprietary system provided by the broker dealer, or they’re using a third party service like FI360. What they’ll do is they’ll produce a copy of the quarterly investment due diligence for the client, which there by kind of justifies their fee providing that quarterly service; they’re using that as a branding tool, and also a fiduciary tool. They’ll also produce a second copy and put it in a fiduciary audit file so if the Department of Labor ever comes knocking and asks to see what process they had in place to monitor the funds, they can furnish that in short order. In terms of the second benchmarking service is that they are very clear about plan expense analysis with their plan sponsors. They explain what 408(b)2 means and best practice associated with that to kind of talk about what appropriate fees and what services should look like. In terms of compliance due diligence, they explain what 404 (c) is and best practices associated with it. In terms of provider benchmarking, typically about every three years they’ll go to market to ensure that their clients have the best access to tools and technology offered by the industry. Now additional characteristics of top advisors I’ve seen is that they stay on top of relevant regulatory changes and communicate ERISA guidelines with their clients, because top advisors recognize it’s very important that their clients view them as a conduit of information, and it’s a business risk if another advisor is providing your client with regulatory insights. Another characteristic is they’re very flexible with their pricing models, and they tend to be very transparent about the fees they receive and the services they offer. They offer co-fiduciary status if clients want that. The last two characteristics is one, they’re very process oriented in terms of client communication and service. So what I mean by that is they focus intently on helping their plan sponsors create a strong DEC. What I mean by that is the D stands for Documentation, E stands for Education, and C stands for Communication, because if a Department of Labor representative comes in during an audit, if you can talk about the documentation, the education, and the communication you’ve had with the plan, that’s really a good start. The last characteristic is that top advisors provide and implement an educational game plan. They typically do that about 36 months out, because what that means is you’re managing the plan sponsors expectations in terms of when they can expect communication and educational meetings for their plan participants over that three year time frame. By doing something like that you serve two purposes, number one you manage your expectations, but number two, you also provide a plan sponsor with a score card to benchmark the services you said you were going to do. If you fulfill those, that plan’s most likely going to stay with you. If you don’t fulfill that score card and all the services you said you were going to provide, very likely that plan is going to go market and you might lose that.

DAVID CRAIG: Great, that’s great information Brandon. So Brandon, what value do you think you and your team bring to these retirement plan advisors?

BRANDON SHEA: David, I’m confident we bring a lot to the retirement focused advisors. This RidgeWorth DCIO team I have the pleasure of managing, lives, eats, and breaths their retirement plan space. RidgeWorth external wholesalers have on average thirteen years industry experience. Our internals have on average eleven years industry experience, so when you combine our six externals and or five internals, that’s 133 years of experience. Now I put that against any asset manager in the business, but an advisor should ask why should that even matter to me if I focus on the retirement plan space. We use that experience at RidgeWorth to put ourselves in the shoes of 401(k) advisors to come up with tools to help them grown their practice, and help them run that practice more efficiently. So case in point, at RidgeWorth we want to be a voice of clarity to 401(k) advisors and retirement platform wholesalers on what the new 408(b)2 regulations will mean for their businesses. We’ve come up with a whole suite of 408(b)2 materials, which includes a white paper, a PowerPoint presentation, and handouts that bullet point what the regulatory changes mean for advisors and where the opportunity will be moving forward. Also, on February 24, 2011, from 3:00 – 5:00 p.m., EST, we’re hosting a retirement focused webinar, from 3:00 – 4:00 p.m. EST, we’ll present tools and technology to help 401(k) advisors grow their practice. From 4:00 – 5:00 p.m., EST, we’ll host a 408(b)2 webinar conducted by David Williams. He’s an ERISA attorney with the law practice of Schiff Harden. You can register for this at www.planadvisortoolsvkc.com. There will be a time at the end of that webinar that you can also ask questions to David. So another way we’re adding value is by helping advisors benchmark existing or perspective plans with our plan and fee benchmarking tools. If you haven’t seen these yet you can visit the tools at www.planadvisortools.com. Finally, in any given year my wholesalers and I will work with over 1,000 financial advisors in our respective territories. My team is equipped with knowledge that there are specific things you need to think about for your personal branding efforts and your marketing pieces to resonate with your clients. If you haven’t already, contact your local RidgeWorth DCIO wholesaler to hear our perspective on personal branding. If you have not been introduced already to a RidgeWorth wholesaler, call the following number at 866-595-2470 and we’ll get you connected.

DAVID CRAIG: Great, well thanks for your time Brandon.

BRANDON SHEA: My pleasure, thank you David.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

Hello and welcome to the RidgeWorth Commute for January 2011. In this edition of our podcast, we have Jim Keegan reviewing the fixed income markets in our monthly “Fixed Income Market Five”, Don Wordell discussing the sectors he likes in our “Equity Market Five”, Ron Schwartz explaining November’s muni volatility in the “Style Class Focus Five” and Daniella Moiseyev discussing 2011 regulatory issues for the retirement plan marketplace in the “Plan Advisor Tools Five.” Each of these is also available as a standalone monthly podcast if you are only interested in one of the specific topics.

DAVID CRAIG:  Hello and welcome to Fixed Income Market Five.  It is May 4, 2012, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadvisor of RidgeWorth Investment Grade Bond Funds, discussing what is going on in the fixed income markets.  So Jim, after a very strong first quarter for high yield bonds and corporate bonds, it looks like Treasuries started the second quarter the strongest.  What drove that?

JIM KEEGAN:  Yes, Treasuries led the way after underperforming in the first quarter David and particularly the long end of the curve with 30-year Treasuries up 4.8%.  I think it was a function of Europe coming back into the headlines with concerns in the periphery, as well as economic data which had surprised here in the U.S. to the upside of January and February came off rather sharply in the March/April period.  The first quarter though was all about “risk on”; it was all about Central Bank liquidity, the ECB’s LTRO Program (European Central Bank’s Long-Term Refinancing Operation), Chairman Bernanke saying that he is ready, willing and able and assuring the market that he will do more money printing if stock prices fall or the economy slows, and then probably one of the things that didn’t get talked about a lot in the first quarter was just significant bond fund flows continue.  We had $100 billion in bond fund flows year-to-date in taxable bond funds and these numbers are staggering; $900 billion, almost $900 billion since 2007.  So I think it is consistent with our investment theme of safe income at a reasonable price in a zero interest rate policy environment. 

DAVID CRAIG:  Okay.  Now last month you mentioned that China is something we should be keeping our eyes on.  In April, the Chinese Stock Market stormed back from the big drop in March and data released this week, including an increase in export orders and a slowing decline in factory output suggests to some that China may have hit bottom the first quarter.  Would you agree with that?

JIM KEEGAN:  I think in the case of China David, one should be very careful about extrapolating too much from the latest moves in the stock market.  Much of the rallies are due to the expectations of monetary policy easing and that is true in China.  There is widespread expectation that the Central Bank in China will cut reserve requirements for banks.  The government has clearly been encouraging banks in China to lend aggressively to municipalities to counter the slowdown in economic activity, but China has significant problems in their banking system due to very aggressive lending, non-performing assets are bloated, have significant exposures to non-viable projects that were initiated by these local governments, so there is significant structural problems in our view yet to play out in China.  The recent PMIs (Purchasing Managers Index) are somewhat misleading at the headline level.  The improvement in the headline by our read is that it was precisely due to the explosion in bank loans to local governments.  While you saw the headline rise, more importantly you saw new orders dropped, so it remains to be seen whether China can manage a soft landing or not, but the problems there we think are pretty serious and the biggest question is going to be unavoidable that they have some problems somewhere down the road, but as to timing it is going to be very difficult. 

DAVID CRAIG:  Okay.  Now let’s move to Europe.  Polls are showing that Francois Hollande, the French Socialist Candidate, will probably be the new French President after the run off against Nicolas Sarkozy this Sunday.  If that happens, what do you believe are the ramifications for France specifically and Europe in general? 

JIM KEEGAN:  Well we think that Mr. Hollande will likely win the election as you indicated and he will move toward the middle after elected.  Hollande has little choice but to continue with the implementation of the economic reform for austerity.  There might be some implementation delays due to his anti-austerity and pro-growth stance, which will likely add to the volatility in Europe and he may give further leverage to those in Europe that are advocating against austerity, which again could potentially lead to uncertainty amongst investors, which markets typically do not like.  We don’t think at this point that his victory will be the catalyst for a big “risk-off” trade.  You know, it is going to be very clear that he is going to have to work with Germany, so I’m sure shortly after he is elected he will probably take a trip to Germany.  The more important thing, you talked about this French Election on Sunday.  The more important election to us is really the Greek Election, which is also on Sunday.  If the pro-European coalition, which is polling at about 37-38% does not win a solid victory, I think that potentially puts the IMF (International Monetary Fund) Program at risk and raises the likelihood of a Greek exit from the Euro, and that to me would be a more significant catalyst to a “risk-off” environment and then you got to wonder if that happens then do Ireland and Portugal look at that and say hey, maybe we should take that route as well.  You mentioned the Chinese Stock Market being up in April.  One of the other markets that had a nice run in April was Iceland and you might remember Iceland was the one country that knew its debt was unsustainable, defaulted and were just upgraded to investment grade by one of the rating agencies and the economy is doing pretty well there. 

DAVID CRAIG:  Now are there any other notable highlights for April? 

JIM KEEGAN:  Well, you know April the austerity continues to take hold and unemployment is up in Europe.  There is now talk led by ECB President Draghi of a growth compact.  You might recall that he talked about a fiscal compact last December, but the unemployment situation in the periphery is just getting significantly worse.  You have got an unemployment rate in Spain of 24%, with young people, what they call youth unemployment at 51%, while in Greece the unemployment rate is around 22%, and again, you have a similar 51% of the youth in Greece unemployed.  The two things that stood out to me was the fact that German rates repeated record lows throughout the course of April and U.S. rates which tested 2.4% in March fell back to well below 2%.  The other thing that I had mentioned was Australia, which unexpectedly cut rates 50 basis points, and specifically cited slowing global growth and China in particular and Australia, has been one of the growth wonders primarily due to the trade that they have with China. 

DAVID CRAIG:  Now what are the things that investors should be keeping their eyes on now?

JIM KEEGAN:  I think in the short term the things I would cite are three or four things; the election obviously in countries like France and Greece, and more importantly, this goes to both politicians and policy makers, it is going to be much more important to follow what they do rather than what they say.  The fundamentals will always be important and watch the unemployment rates, the fiscal deficits in the peripheral parts of Europe, European Stock Markets I think should be paid close attention too, and the European Bank situation continues to worsen and non-performing loans continue to go up.  So we would expect that the European Banks will be under significant pressure from the rating agencies at some point.  Then, the growth compact; what I mentioned before, you see the President Draghi or more of the Europeans are pushing back against austerity and talking about a growth pact.  We don’t exactly know what they mean by a growth compact.  They have cited using the European Investment Bank to do some infrastructure spending, but we are talking about $60 billion worth of loans which is really not going to do a lot.  Then the question becomes how does this growth compact, however, that is defined, mesh with austerity and the Germans continued insistence on austerity.  As always in Europe, watch the bond auctions in the periphery, particularly auctions where the maturities go beyond three years.  It is very easy for the Europeans to auction debt within the LTRO maturity window of three years, but it gets more difficult as you go out beyond three to ten years in particular. 

DAVID CRAIG:  All right, well Jim thanks for your insights.

JIM KEEGAN:  Thank you David.   

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advice. May not represent the opinions of the entire firm, and may not be relied upon for individual investment purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered and is not intended to be authoritive. All information contained here is believed to be correct. Accuracy cannot be guaranteed. This information may coincide or conflict with activities of portfolio managers. It is not intended to be and should not be construed as investment, global, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice. Bonds offer are relatively stable level income, although bond prices will fluctuate, providing the potential for principal gain or loss. Intermediate term, higher quality bonds, generally offer less risk than longer term bonds and a lower rate of return. Past performance does to guarantee future results. For performance data current to the most recent month end, visit our website at www.ridgeworth.com. An investor should consider the funds investment objectives, risks and charges and expenses carefully before investing or spending money. This and other important information about the RidgeWorth funds can be found in the funds prospectus. To obtain a prospectus, call 1-888-784-3863 or visit www.ridgeworth.com. Please read the prospective carefully before investing. Mutual funds are not FDIC insured, have no bank guarantee and they lose value. Copyright 2012 RidgeWorth Investments. RidgeWorth Investments is the trade name for RidgeWorth Capital Management Incorporated, an investment advisor registered with the SEC and the advisor to the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors LLC, which is not affiliated with the advisors. Seix Investment Advisors is a registered investment advisor with the SEC and a member of the RidgeWorth Capital Management Incorporated network of investment firms.

DAVID CRAIG:  Hello and welcome to the Fixed Income Market Five.  It is April 9, 2012, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and Subadvisor to the RidgeWorth Investment Grade Bond Funds, discussing what is going on in the fixed income market.  So Jim, High Yield Bonds, Investment Grade Corporates and Equities continued to lead the way in March and rounded out a very strong first quarter.  What drove that? 

JIM KEEGAN:  I think it was a continuation of the “risk on” that started last October when Mario Dragi took over the ECB (European Central Bank), so the first quarter if you just look at the S&P 500 was up around a little over 12%, which followed a similar 12% in the fourth quarter, so you have had 24% to 25% increase in the S&P 500 in the last two quarters.  I think it is all related to Central Banks telegraphing that they want to keep policy easy, continue to do quantitative easing, front door – back door, and by that I mean ECB with their LTRO (long-term refinancing operations) programs; they did their second one in February.  The takedown was around $1.3 trillion equivalent.  The market’s view is that, should the economy weaken or our stock prices decline, the Fed will do more QEs (quantitative easing) – so QE3, and the ECB will conduct more held LTROs, but I think you need to be somewhat concerned in here because I think there is a level of complacency that has developed in the marketplace.  The one fly in the ointment though David in March was the Chinese Stock Market fell 6.8%.  While risk and assets broadly did well, I think that is something we want to pay attention to. 

DAVID CRAIG:  Right.  Now given the relatively strong economic data that has been coming out, you referred to QE; it appears that the Fed is less likely to have another round of QE.  Do you think that will have a measurable impact on the markets this year?

JIM KEEGAN:  Well I think it already has.  I think the economy, if I had to characterize the economy in the first quarter it was okay and as we move throughout the quarter the economic surprise indices fell.  The economy was surprising, or the data was surprising less on the positive side.  So to us we think the question is the same question which we have been asking for a while, which is one of sustainability.  The other impact which I started to talk about last month is the weather; the pull forward effect from a very, very mild winter weather season.  We won’t know until the summer whether or not that is the case.  Argued at this point is it looks like the mild weather in the winter did actually lead to some pull forward effect and I think the markets are clearly looking at the Fed, and in particular, Mr. Bernanke and Mr. Dudley.  It is very clear from their public statements that they want to do QE3, but to your point they may not have the cover.  Although having said that, I think that Mr. Bernanke and Mr. Dudley and vice chair, Janet Ellen Carey, have a disproportionate say within the Fed, so it is argued at this point that the Fed will likely announce a QE3 probably telegraphing it by June because that is when Operation Twist is due to expire.  If the data comes in strong, I think it is going to be more difficult for Bernanke to carry the bidding of QE3, although at this point I have to say that he will carry the bid. 

DAVID CRAIG:  Okay.  Now let’s move to Europe.  Spain raised less debt than hoped last month and we still have the French election that you have been referring to coming up this month; how do you believe these and other European issues might impact the fixed income market?

JIM KEEGAN:  I still believe that Europe is the source of instability to the global markets and the global economy.  Remember we talked about LTRO, Long-Term Refinancing Operations, that the ECB conducted in December and February, but we got to recall that that is a liquidity tool and so what it did was it allowed the EU (European Union) to kick the can so to speak and put off the potential problems with bank debt maturities, and sovereign rollovers, but it didn’t do anything to deal with the excessive debt problem, growth problem or the competitiveness problem that Europe suffers from, and I think what we have got to start thinking about is the fact that there are going to be some unintended consequences and you may recall a few years back that I referred to when the history books are written that this crisis is going to be known as the crisis of unintended consequences, specific unintended consequences of what has gone on in Europe with respect to the LTROs is it shortened the maturity profile, as most of the issuance that has been done by the peripheral European economies has been done inside the three-year LTRO maturity window.  The other thing is because the banks have been using some of the proceeds, particularly in Spain, Italy and Portugal, they have been the buyers playing carry trade here using the proceeds of the LTRO to buy maturities inside the three-year window, but what that does is it concentrates the sovereign debt in the hands of local banks and so if you think about this vicious circle, you have got zombie sovereigns being supported by zombie local banks being propped up by these zombie sovereigns.  The last unintended consequence is the ECB balance sheet is comprised of what I would argue at this point is very, very risky collateral.

DAVID CRAIG:  Now did anything happen in March that changes your outlook? 

JIM KEEGAN:  Not so much changed our outlook.  I think the things that we would note at this point, and again a lot of it relates to what is going on globally; in March, China reduced its 2012 growth target to 7.5% from 8%, which is the first time that has happened I believe since 2005, which increases the risk of a hard landing in China.  One of the things that didn’t get a lot of publicity is that in China’s five-year plan they reduced their five-year GDP outlook to 7%.  Then if you look at industrial profits, they fell for the first time since 2009; that is Chinese Industrial Profits.  Greece you know did their private sector involvement, haircut if you will, 86% went along and then the Greek Government triggered tax which brought it up to about 95%, but the new Greek ten-year debt is trading at around 21.5%, which I think is the market’s indication that Greece will again in our view likely have to default and restructure at some point down the road.  Portugal is likely to need a restructuring.  Spain, as you pointed out, is under pressure again.  We have got the Greek elections which are scheduled to take place at the beginning of May – does the incoming government continued to go along with the program.  You mentioned the French elections which looks like there is going to be a change in government there.  Ireland has a referendum on May 31, 2012, as it relates to the fiscal union in Europe and then last, but not least, stay tuned, it is believed that the Supreme Court will announce its decision related to Obamacare sometime in June.  So there is a lot of things out there that keep us of the view that the economy at this point is flying just above tree line and it is going to take a lot to cause risk assets to come under some pressure here.

DAVID CRAIG:  All right, well Jim thanks again for your insights. 

JIM KEEGAN:  Okay David, thank you; talk to you next month.   

DAVID CRAIG:  Hello and welcome to Fixed Income Market Five.  It’s March 9, 2012, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors, and sub-advisor to the Ridgeworth Investment Grade Bond Funds, discussing what’s going on in the fixed income market.  So, Jim, high yield bonds, investment grade corporates, and equities all had relatively strong returns in February; what drove that? 

JIM KEEGAN:  I think since December, David, what’s been driving risky assets is central bank liquidity.  The most recent version of Central Bank liquidity has been the ECB (European Central Bank) conducting its long term refinancing operations; they just conducted the second of two where the takedown was about $530 billion Euros.  You have the Bank of Japan (BOJ) that has announced that it has increased its balance sheet expansion for quantitative easing, as well as the Bank of England, which increased its quantitative easing by $50 billion Sterling, and to put that in some context, we all know that the Fed’s done two versions of quantitative easing; QE1 and QE2, and then Operation Twist, and that’s taken the Fed’s balance sheet up to $2.9 trillion, but in the context of looking at Central Bank’s balance sheets relative to GDP of the four central banks, that being the ECB, Bank of England, and the BOJ, the Fed has the smallest balance sheet relative to GDP, so that puts in context the money printing or quantitative easing that’s been done by the four major central banks.

DAVID CRAIG:  Right.

JIM KEEGAN:  You’ve also got the prospect for QE3 here on top of the Fed, the dollar SWAP lines, which during February, rose to the highest level since May of 2009; that’s where foreign central banks borrow dollars from the Fed, and then – long winded answer – but European Government bond options went off reasonably well.  The Greek private sector involvement SWAP, and CAC legislation; collective action clauses, went through, and finally the prospect of the potential combination of the EFSF (European Financial Stability Facility) and the ESM (European Stability Mechanism) bailout fund running simultaneously, at least from the market’s perspective, that’s what’s gotten risk assets doing pretty well here.

DAVID CRAIG:  Okay.  Now, last month we talked about the strong jobs report, and today, the February jobs report that was released was a fairly strong encore.  On the other hand, you have Challenger, Gray releasing a report yesterday that shows that the year-to-date announced layoffs are over 100,000, where it’s announced hirings were less than 20,000.  How should we be reconciling those two reports?

JIM KEEGAN:  Well, I think you bring up an interesting point here; there’s a lot of data points that you can look at where on the one hand things look like they’re getting better, and then on the other hand they look like they’re getting worse.  Now, the layoff announcements are kind of prospective, whereas the jobs data is kind of what’s already happened.  But to be fair and balanced here, we are and have been impressed most by the initial claims data, which appears to have normalized. 

DAVID CRAIG:  Okay. 

JIM KEEGAN:  And the payroll data, as you point out, that came out today has definitely improved both when we look at the three month moving average, six month moving average, and twelve month moving average, all three of those data points are about the best that they’ve been since 2006.  The key or point about mixed data, the Gallop Organization, which does a non-seasonally adjusted calculation of the unemployment rate, the under-employment rate, and they do this every day, continuously, so there’s not a survey; they do a daily, weekly, and monthly, and it’s based on 30-day rolling averages.  Their data in February indicated that the unemployment rate rose to 9.1% from 8.6%, so up 0.5%, and then their under-employment rate rose to 19.1% from 18.7%.  Now, there may be a silver lining in there in the sense that those numbers may be going up because more people are feeling encouraged and looking for work, but only time will tell, and then the other thing that I think is important when you’re looking at any data right now is because we’ve had such a mild winter, the seasonal adjustment factors that normally account for the bad weather; in our view they may be artificially goosing the data to make it look better than it is, but we won’t know that until we start to get the April, May, and June data.

DAVID CRAIG:  Okay; now as far as Europe, you mentioned the other three central banks; what is impacting the fixed income market the most, and what should investors be keeping their eyes on? 

JIM KEEGAN:  Well, I think the Greece situation; certainly that saga is no-way, in fact, over.  As a matter of fact, the Greek Government released today, that they had almost 86% participation in the private sector SWAPs, where they're going to be issued new debt, and what's interesting the debt hasn't started officially trading, but in the gray markets.  The new debt that investors will receive, which has a longer maturity of lower coupon, and has a principal write-down of 53% is already trading in what we call the gray markets or the unofficial market, anywhere from 17% to 25%, so Greece is not out of the woods yet, and may in fact have to be back for another restructuring within six to twelve months.  Greece, we got their revised fourth-quarter GDP data today, and the economy contracted in Greece at a 7.5% rate, which compares to a 5% contraction in the third quarter.  Eurozone GDP fell 3/10 of a percent in the fourth quarter, quarter over quarter, with Germany down 2/10, and Germany has been the workhorse in Europe, and Italy actually officially fell into a recession; their GDP was down 7/10 of a percent in the fourth quarter, which now, just to put this in some context, Italy is now experiencing its fourth recession since 2001.  The interesting thing in light of everything that's gone on in peripheral Europe, the one country in Europe that had a banking sector problem and realized that it made no sense for them to bail out the banks was Iceland and Fitch actually, during February, upgraded Iceland to investment grade, so countries like Ireland may want to take a look at that; Ireland and Greece.

DAVID CRAIG:  Right.

JIM KEEGAN:  But I would say, from an investor's perspective.  The thing that I would say pay most attention to, as it relates to Europe specifically, but risk markets in general, is the upcoming French election.  The first round takes place April 22nd 2012, and the way the election works over there, if nobody garners 50.1%, there's a second round, and if you extrapolate out from the recent data in the polls, which hasn't changed much.  The Socialist candidate will win in a landslide over the incumbent, Sarkozy, and the Socialist is basically campaigning against the fiscal compact that the EU has just agreed to.  The reason why I think that's important is because the fiscal compact is less than two months old, and Spain, last Friday, has already announced that it will not abide or adhere to the requirements under the EU's fiscal compact, as in their view, it will be too austere on their economy, so Europe is by no means solved yet.

DAVID CRAIG:  More to come on that.  Did anything happen in February that really changes your outlook? 

JIM KEEGAN:  No, not really.  From a longer-term perspective, as you know, we still remain of the view that we're going to stay with lower rates for longer, so our investment strategy is safe income at a reasonable price.  In this zero interest rate policy world that the Fed has conditionally committed to until the end of 2014, and were contending with the mild winter here and the seasonals; high oil prices are problematic here, and the interesting thing, David, just to put this in some proper context.  A lot of economists have these tracking models where they take each and every data point that feeds into the GDP calculation, and they come up with what they call a tracking model and most tracking models have GDP for the first quarter of 2012 tracking at below 2%. 

DAVID CRAIG:  Okay; not robust

JIM KEEGAN:  So another interesting data point that I'll leave you with is we had the flow of funds data released by the Federal Reserve were showed a year on year contraction in household net worth, and I haven't verified this, but I was reading a strategist, who said that we have never had a year-over-year decline in household net worth where we didn't have a recession, so.

DAVID CRAIG:  Okay.

JIM KEEGAN:  That's one piece of information; I haven't verified it, but it's an interesting thing.  If in fact it's true. 

DAVID CRAIG:  All right, well, Jim thanks again for your insights.

JIM KEEGAN:  Okay, thank you.  David, talk to you next month.

DAVID:  Welcome to the Fixed Income Market 5.  It’s the week of February 6, 2012 and I’m with Jim Keegan, CEO and CIO at Seix Investment Advisors and subadvisor to the RidgeWorth Investment Grade bond funds, discussing what’s going on in the fixed income market.  So, Jim, high yield bonds and corporate bonds did very well in January.  What drove that? 

JIM:  Well, I think all risk assets, David, were largely driven by a couple of things, but I think the most important thing that got the risk markets to rally here was the ECB’s (European Central Bank) long-term refinancing operation, whereby they offered unlimited funds for three years at 1%.  That has been interpreted as back door quantitative easing and I think that’s what got the rally started in December, and then it carried over into January for all risk assets, including high yield and corporate bonds, in particular bank and finance bonds.  And then you’ve got the classic, it’s January-new-performance-year risk on and the I-can’t-miss-a-rally mentality.  So, when you couple that with the fact that our Fed and Mr. Bernanke has made it clear that he wants to do QE3 (quantitative easing, part 3), I think is what’s at the end of the day driving it, and the data has come in better than expected and the question is: is that data going to continue, and what is it based on, and is it sustainable, and I think the jury is still out on that.

DAVID:  Okay, okay.  Now the jobs report that was released last week was much better than anyone expected.  Do you think that the private sector is prepared to spur the recovery?

JIM:  The jobs report, to your point, was a constructive report, no doubt.  Not only was it a constructive report, but the three-month moving average in new jobs created was the best since last April, but one of the things that we have to be aware of is the January employment report has a lot of noise associated with it because it relates to benchmark revisions.  This one was more complicated by the fact that it was the first time that they had the ability to use the data in the 2010 census.  So, good report, but we’ve got to see if it’s a trend that’s sustainable.  Remember, during the Great Recession, which lasted eighteen months, starting in December 2007, we lost seven and a half million jobs over eighteen months, and since the recession was officially declared to have ended in July 2009, we’ve added back 1.9 million jobs, but there’s a caveat there because a million of those jobs are a function of an estimation model that the Bureau of Labor Statistics puts together, called the Birth-Death Estimation Model.  So, we’re not necessarily sure that the underlying growth in jobs is as strong as it is.  I’ll make one more point on employment, which I think is somewhat important here.  The initial claims data, which I think is more important than the non-farm payroll data that comes out monthly, the initial claims data is a weekly series, and that’s moved down and has started to normalize.  So, that’s more impressive to me than what we’ve seen so far in the employment report.  But I will say that the Challenger job cut announcements (consulting firm Challenger, Gray & Christmas) are up 40% year-over-year following being up 32% year-over-year the month before.  We saw today that PepsiCo, one of the more successful consumer products companies, is laying off 8,700 workers, or 3% of their workforce.  So, I’m not sure that we’re completely out of the woods here yet.

DAVID:  Okay.  Now, in his State of the Union, President Obama said he was going to try to expand the refinance program.  Do you think that will have any impact on the housing situation? 

JIM:  Here we go again.  No.  I mean, this is the fourth or the fifth attempt by politicians to somehow goose the mortgage market and any impact, in our opinion, will be at the margin.  It’s not going to be the silver bullet that cures what’s wrong in the housing market.  I mean, as you’ve heard us say many times, the problem in the housing market is a supply-demand imbalance.  The home ownership rate is mean reverting back to its long-term average.  Underwriting standards have normalized and, by that, I mean you now have to put 20% down if you’re going to apply for a mortgage.  The negative equity phenomenon is very important here and if housing prices drop another 5% or more, you’ll push many more homeowners who have a little bit of equity into negative equity, and then the last thing I’d mention is that as the baby boomers retire, it is likely that they will be downsizing, which will put potentially more supply on the market, more pressure on the market, probably at the higher end of the market.  I think longer term, and this is a secular view that we’ve had, is that housing going forward is going to be looked at as a place to live, rather than an investment vehicle.

DAVID:  Right, exactly.  Now, did anything else happen in January that you think investors should be keeping their eyes on?

JIM:  Yeah.  I mean, the European situation is, I think, the most important thing to be paying attention to, at least in the first half of the year.  So far, the European bond auctions have gone pretty well.  Europe’s got about $1.1 trillion in sovereign debt that needs to be rolled over this year and European banks have another trillion Euros in liabilities that are up to mature this year.  While the auctions have gone well so far and yields are down, let’s use Italy as an example.  Italy had $16 billion, almost $17 billion Euros in debt that was maturing and needed to be rolled over in January, and they got that done very successfully.  But, for the next three months, Italy has to roll over $63 billion this month, $52 million in March and $47 billion Euros in April.  So, I’m not sure they can declare “mission accomplished” yet but so far the auctions have gone well, and we attribute that entirely to the LTRO (long-term repo operation) program being conducted by the ECB.  Greece is something that you want to pay attention to.  Greece has a $14.5 billion maturity on March 20.  That’s going to be critically important.  Can they agree, and get the parliaments and the people to agree, to the austerity measures that are going to be associated or conditional to getting the second bailout.  And then we’ve got the French elections.  The first round is in April.  So, there are a lot of important things to pay attention to here.  LTRO at the end of the month, the ECB will conduct their second LTRO operation, February 29.  The market speculation is that could be as high as a trillion Euro, and that would probably continue this broad risk rally that we’ve had. 

DAVID:  Okay.  Anything happen that changes your outlook?

JIM:  Well, out outlook has been that interest rates will stay lower for longer and the Fed seems fixated on aggressive policy, regardless of fundamental improvement.  So, as you know, our strategy has been to look for safe income at a reasonable price because we believe the demand for income will continue to be there in the zero interest rate policy environments that we find ourselves in, and the Fed has conditionally committed to until the end of 2014.  I think at the end of the day, it all boils down to, the issue is sustainable growth and we haven’t seemed to be able to generate sustainable growth in here.  If you go and look at the GDP (gross domestic product) data for 2011, we come into the 2011, market consensus was looking for 3.5-4% and we ended up with less than 1.6%.  We think there is significant headwinds as it relates to the global economy.  We believe that there is a significant global synchronized slowdown here in the world, and it’s spreading, but the ECB with their LTRO program and the strategy of trying to kick the can continually down the road on the sovereign debt banking crisis, it doesn’t solve any of the problems in Europe, which is excessive debt, too little growth and a lack of competitiveness within the periphery.  But, what it does do is it allows the banks to potentially roll over these big maturities that they have, but it doesn’t really assist them in the deleveraging process.  So, in our view, fixed income will continue to do well, but we do believe that because of policy actions both here and aboard by our Federal Reserve and by central banks in Europe and England and Japan, that we’re going to continue to remain in this binary risk on, risk off environment.  We just happen to be, at least in the last couple of months, in a risk on environment, which will probably continue through this next LTRO auction process.

DAVID:  Alright, Jim.  Well, thanks for your insights. 

JIM:  Thank you, David.  Good to talk to you.

DAVID CRAIG:  Good afternoon.  Welcome to Fixed Income Market Five.  It’s the week of January 2^nd and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and sub-advisor to the RidgeWorth Investment Grade Bond Funds discussing what’s going on in the fixed income market.  So Jim, coming into 2011, you were predicting volatility in the fixed income markets due to the macro issues, and potentially a decline in long-term rates when others were projecting a rising interest rate environment.  Both of those things came to pass, but was it for the reasons you expected?

JIM KEEGAN:  Yeah David.  I’d say generally speaking, our view was correct in the macro forces you were talking about is this continued deleveraging, the fact that the economy was weak in general and that the banking system issues, both here and abroad, were still front and center, and I’d say maybe the sequencing was a little bit off in the sense that we got hit with higher commodity prices early in the year, the weather, the tsunami, but generally speaking, our theme has been and remains we’re in this risk off, risk on environment, zero interest rate policy, the Fed on hold for the next few years, is still in play, and that was our view coming in to 2011, so our investment strategy really comes down to safe income at a reasonable price, and the ability to trade the markets in really 2011, came down to were you positioned properly for the third quarter, and if you were like we were, you won, and if you weren’t, it was pretty costly, but to your point, we expected a coupon clip-type year, which was going to be generated by a carry game rather than a capital appreciation in a range-bound interest rate market and, as you may recall, we felt that the rates market would be range-bound most likely, but if there was a breakout, that it would be to the downside and the way we played the lower rates was really almost an options-like strategy in the sense that we had a yield curve flattener which benefited from the decline in long-range since short rates were so well anchored and where our view really became confirmed was with the major benchmark revisions in GDP that came out in the third quarter, which confirmed our view that the economy remained troubled and that, in fact, the great recession was actually deeper than initially thought and therefore, the recovery weaker and the trajectory of growth less promising.

DAVID CRAIG:  Okay and you mentioned the coupon clip.  You did think at the beginning of the year that 2011 wouldn’t be able to match the strong returns of 2010.  As it turns out, most fixed income sectors had a better 2011.  Why was that? 

JIM KEEGAN:  Well, from a total return perspective, it was actually mixed in the sense that mortgage-backed securities and Treasuries actually had a better 2011 than 2010.  Corporates actually a little bit less, and then CMBS (commercial mortgage-backed securities), which had a gangbuster year in 2010 of being up over 20%, came in at 6%, so it was somewhat mixed.  What we always have to bear in mind is that when corporates and Treasuries with their longer duration will generally outperform the other sectors in a declining interest rate environment like we had last year.  The clear laggered in fixed income in 2011, though was high yield, which came in at just under 5% versus 2010 where it had a total return in excess of 15%. 

DAVID CRAIG:  Okay, now what were some of the other significant things that happened in 2011?

JIM KEEGAN:  Well, I actually was thinking about that and there’s three things that really come to mind from our perspective and they’re not necessarily going to be in order in terms of sequencing, but the U.S. lost its AAA rating from S&P in the beginning of August and just like everybody coming in to 2010 was predicting higher interest rates, even after an S&P downgrade, interest rates only continued to fall.  What’s interesting to note is I’ve been in this business a long time and it seems like every year you come in, everybody’s projecting higher interest rates.  As a matter of fact, I went back and looked at the Wall Street Journal consensus.  Coming in to 2011, the consensus was that we’d end the year at 370 and, in fact, we ended the year under 2%, and then this year coming in to 2012, the Wall Street Journal consensus is looking for 275 on the ten-year by year-end 2012.  We’re going to take the under on that one.  The other thing that comes to mind as being somewhat significant is the Arab Spring which seems has been forgotten, and the reason we think that’s important is that was driven by a lot of confluence of a lot of factors, but the pressure that was put on commodity prices and food prices in particular, were in some ways responsible for some of these governments being overthrown, and served as somewhat of a catalyst to incite the change in changing governments in some African and Middle Eastern regimes, and it’s interesting in that the Fed will argue that QE2 was responsible, or at least partially responsible, for the rise in stock prices and you might remember my comments about the Fed chairman referring to the Russell 2000 when he references QE2, and he cites the rise in stock prices, but yet the Fed completely absolves itself of QE2 having anything to do with commodity price rises, and you can’t pick and choose which one you want to look at here because they are inextricably linked and I would venture to say, we would venture to say that quantitative easing and money printing lifted all asset prices, including commodity prices, and then the last thing that’s related that I’d say was significant in 2011 was the end of QE2 and the market’s misinterpretation of what the end of QE2 meant and again, we’ve talked about this throughout the course of 2011 in the sense that everybody in the consensus was of the view that once you took out the largest buyer of Treasuries, that being the Fed, that interest rates had only one way to go and that was up, and I think what they missed and what we didn’t miss was the fact that people were focused on that part of what QE2 was, but they missed the other part which we felt was more important which was the mechanics of the way quantitative easing works as the Fed goes in and buys Treasuries but infuses cash into the markets which are clearly designed for that cash to go into other risky assets, most prominently stocks, and once you removed that liquidity and cash from the marketplace, that the implications for risky asset prices was that they would come under pressure and wallah, that was the reason that we took our beta down and materially reduced our exposure to financials, and banks in particular, at the end of the second quarter. 

DAVID CRAIG:  Okay.  Now let’s look ahead to 2012.  How do you think the best income markets will perform this year?

JIM KEEGAN:  Well, it’s interesting.  I’ve been doing this long enough that I don’t attempt to predict the future.  That is fraught with peril, but what we do attempt to do is allocate capital based on relative values in the context of the macroeconomic and geopolitical environment so, if we look at 2012, let’s start with interest rates.  We have been and remain of the view that interest rates will remain lower for longer.  That has been our view.  We continue to see no reason to change that view.  That was a lonely place to be coming in to 2011.  It’s probably not as lonely here at the beginning of 2012, but as I mentioned before, the consensus, as per the Wall Street Journal, is still calling for higher interest rates out the yield curve by year-end 2012.  As far as the yield curve goes, we remain of the view that the yield curve will remain directional, and by that I mean during times when rates are rising, the yield curve will steepen, and during times when rates are falling, the yield curve will flatten.  From a sector perspective for 2012, with the Fed in the zero interest rate policy environment and on hold for what looks like well into 2014 now, the Fed’s are going to be revising their communication strategy with the next FOMC meeting in a couple of weeks, we’ll find out if, in fact, we are right and that they’re going to remain on hold, at least at this point, until 2014.  The need for income is still critically important as real incomes continue to fall.  So, once again, we’re advocating what we call SIRP, which is Safe Income at a Reasonable Price, in a ZIRP world, which is Zero Interest Rate Policy.  Our positioning in this SIRP/ZIRP world, if you will, remains residential mortgage-backed securities (RMBS) are our largest overweight, and we just view agency RMBS as solid income against the front-end of the yield curve, and we remain very comfortable navigating against all the DC policy initiatives that have and will be put in place in the name of trying to help the homeowner.  Second favored largest position for us is the investment grade corporate sector, but our focus remains there in the defensive industrial and utility-type exposures.  We have a modest overweight to CMBS and that’s remained in the seasoned paper near the top of the capital structure, and then finally, we’ve got a neutral position in high yield in the total return fund, and that’s just about generating some income and yield, and at this point, we prefer to own high yield risk in lieu of bank paper, and we say in lieu of U.S. and international bank exposure, given where we are in the credit cycle, and to do that trade, we can actually, we feel more comfortable and we can pick up some yield, so that seems to make a lot of sense to us.

DAVID CRAIG:  Okay, so these are some of the opportunities you see.  What are some of the greatest risks that you see?

JIM KEEGAN:  I tell you, at this point, the greatest risk and the greatest opportunity depend on your view and your perspective.  I would have to say that the number one issue facing the markets in the global environment is the European sovereign debt banking crisis, and I say that that way because they are inextricably linked; that being sovereign debt and the banking crisis over in Europe, because they’re effectively one and the same in the sense that the problem is we have too much debt and too little income, too little economic growth, and once again, policy makers are attempting to solve an insolvency problem with liquidity-type solutions, so you have what boils down to several insolvent banks that are being propped up by several insolvent sovereigns who are being propped up by a highly levered central bank with a balance sheet of questionable collateral, that being the European Central Bank.  So the optimistic view as it relates to Europe is that the ECB will become like the Federal Reserve and start massive money printing operations, but our view at this point is that the bar for the European Central Bank to start to act like the Fed and conduct massive money printing operations is very high and very risky in the sense that the Germans may blink and allow the ECB to print like the Fed, or they may choose to end the monetary experiment, and what I think we need to bear in mind from the American’s perspective, is that money printing and quantitative easing to the Germans is like the Great Depression is to Americans.  It’s just something that is in their psyche that they don’t want to ever face again because money printing from Germany led to the hyper inflation of the 20s and that is in the German psyche just like the Great Depression is to the Americans.  The other risk or opportunity and risk relates to we think the election cycle is going to be very important as it relates to both policy deliberations and decisions here.  Obviously being in the U.S., everyone knows that we have a Presidential Election this year in November, but there are quite a few elections around the globe that are going to be pretty important here.  France has the first round of their elections in April.  Greece is supposed to have an election in February, but that doesn’t look like it’s going to come to pass and the speculation is that they’re postponing that until April.  Russia later this year has an election where Vladimir Putin is going to try and become President again, and what we have to bear in mind is that governments have turned over in all of the European countries that have had elections since the crisis over the last 18 to 24 months, and specifically I’m referring to Ireland, Portugal, Spain.  You know that we have two unelected EU appointed technocrats running Italy and Greece right now.  So, thus far, every government has been overturned by the electorate in Europe and I’d say, Mr. Sarkozy, watch out. 

DAVID CRAIG:  Any final thoughts you want to leave listeners with?

JIM KEEGAN:  We still think it’s an environment where it’s much more important to be focused on the return of capital rather than return on capital, and again, we maintain that the risks are at this point, that we’re going to be in a low return-type environment for the next several years with, and again, I know I sound like a broken record, but this is a deleveraging cycle unlike anything that we’ve seen in the postwar period.  

DAVID CRAIG:  Great, well, Jim, thanks for your insights. 

JIM KEEGAN:  Thank you, David.  

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time and are for informational purposes only are not intended as individual or specific advice, may not represent the opinions of the entire firm and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, is provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be and should not be construed as investment, legal, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice.  Bonds offer a relatively stable level of income although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate term higher quality bonds generally offer less risk than longer term bonds and a lower rate of return. Past performance does not guarantee future results.  For performance data current and most recent month end, please visit our website at www.RidgeWorth.com. An investor should consider the funds investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth Funds can be found in the fund prospectus. To obtain a prospectus, please call 1-888-784-3863 or visit www.RidgeWorth.com. Please read the prospectus carefully before investing. Mutual funds are not FDIC insured, have no bank guarantee and may lose value.  Copyright 2012 RidgeWorth Investments.  RidgeWorth Investments is a tradename for RidgeWorth Capital Management, Inc. an Investment Adviser registered with the SEC and the adviser to the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors, LLC, which is not affiliated with the advisor. Seix Investment Advisors is an Investment Adviser registered with the SEC and a member of the RidgeWorth Capital Management, Inc. network of investment firms.

DAVID CRAIG:  Welcome to Fixed Income Market Five.  It’s December 7^th, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadviser of the Ridgeworth Investment Grade Bond Funds, discussing what’s going on with the fixed income market.  So, Jim, in our July Fixed Income Market Five, you said that you thought June was a brutally binary month.  It seems that it applies to November as well.

JIM KEEGAN:  November was incredibly binary, David.  If you recall, we came into the month, it started with the surprise referendum that Greece was going to hold on the bail-out package.  Then Greece was threatened by the EU, that they’d be thrown out of the Euro potentially and that only to be followed by a political crisis in Italy which led to within two weeks two democratically-elected prime ministers ousted by unelected bureaucrats in Brussels only to be replaced by two unelected technocrats that have connections to the experiment knows as the Euro.  That got the markets obviously bothered to the downside as it relates to risk assets.  All risk was off for most of the month and then towards the end of the month and the last day of the month in particular where you saw risk assets rally led by stocks which were up over 4% on the coordinated action by the Fed and five other central banks to reduce the rate on dollar swap lines to foreign banks and extending the program by six months out to February of 2012.  It was just that global coordinated central bank action which had a big effect on risk assets.  Ultimately all they did was reduce the cost of banks that are in need of dollar funding so they might alleviate some stress on the margin and potentially slow the deleveraging process that needs to occur in Europe at the margin, but it really doesn’t solve any of the fundamental problems. 

DAVID CRAIG:  Okay, that was my question.  With the Fed and European Central Bank moves, do you think they’d have a meaningful impact on European issues?

JIM KEEGAN:  No, I think the impact is to buy some time, but it doesn’t change the dynamics of the structural problems that the European Union has particularly in the peripheral countries although it’s pretty obvious that the contagion has hit the core with Italy definitely and potentially France down the road.

DAVID CRAIG:  Okay.  Now you’ve been saying all along that housing and employment were two things to keep an eye on.  The BLS just reported last Friday that the unemployment rate dropped to 8.6% which is the lowest rate since March 2009.  So the question is what were the causes of that drop and do you see that as a positive side of the economy?

JIM KEEGAN:  Well, I’d say the employment report was okay, but it wasn’t great.  You need to understand the employment report in the context of the entire report and then understand an okay report, but in the context of we’re two plus years into this “recovery.”  Yet the reason the unemployment rate or a big part of the reason why the unemployment rate dropped from 9.0 to 8.6 is because you had 315,000 people leave the work force.  Two years into recovery, people should be encouraged about finding work and you should have people joining the work force, not going the other way.  We did have a 140,000 increase in private payrolls with revisions to overall payrolls for the prior two months of around 72,000.  What I was probably most encouraged by was the household survey where the three-month average gain has been 318,000.  To put that into some context, the six months average was 134,000 and the twelve-month average pretty similar at 139,000.  If you look at the core of the report as it gets into the consumer and as it relates to income, and you talked about housing, but average hourly earnings actually fell during the month.  And the average duration of those that are unemployed increased by a week and a half to 40.9 weeks which is almost ten months.  So the average duration of unemployment is going in the wrong direction.  The other thing that I would point out is that of the 140,000 jobs that we got in the month, two-thirds of those jobs were in retail, leisure and hospitality and temporary help which tend to be lower pay.

DAVID CRAIG:  And seasonal probably, too.

JIM KEEGAN:  There’s definitely some seasonality to that.  So the report was okay, but we’re going to need a lot more jobs to be created to bring this unemployment rate down and adjusting for that 315,000 that left the work force if you had added them back in, the unemployment rate would have been 8.8%, not 8.6%.

DAVID CRAIG:  How many jobs need to be added each month just to keep up with population growth?

JIM KEEGAN:  Well depending upon who’s survey you pay attention to, it’s somewhere between 125 and 150,000.  So the population, the work force grows by about 125,000 per month.  So just to keep the unemployment rate flat, we’d need to create 125,000 jobs.  This month we got 120 because we had 140 in the private sector and we lost 20 in the government sector.

DAVID CRAIG:  Okay.  Anything that happened during the month change your near or long-term outlook for fixed income? 

JIM KEEGAN:  No, I think we’re still in this binary risk on, risk off environment.  Our view which has been that rates would stay lower for longer remains intact.  I’d say about the only certainty that we see out there is high volatility.

DAVID CRAIG:  Right.  Well, Jim, thanks again for your insights.

JIM KEEGAN:  Okay, David, good talking to you.

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time and are for informational purposes only are not intended as individual or specific advice, may not represent the opinions of the entire firm and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, is provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be and should not be construed as investment, legal, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice.

DAVID CRAIG:  Hello, and welcome to Fixed Income Market Five.  It’s November 4^th, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadviser for the RidgeWorth investment grade bond funds, discussing what’s going on in the fixed income market.

So Jim, last month we talked about the significant macro headlines, but in October, there’s a pretty big move to the upside for both equities and Treasury yields.  What happened?

JIM KEEGAN:  Well, basically, what we had, David, was the risk markets, equities being the most prominent, were oversold from the short-term technical perspective.  So what became pretty obvious in October was that financial markets were trading off headlines rather than anything else, as you could see from correlations rising. 

The economic data came in okay and better than expected.  Earnings started to be released for the third quarter, and I believe coming into the third quarter, we’re looking for 13% year-over-year growth in S&P 500 earnings, and it looks like they’re tracking at about a 16% rate so better than expected.

Also, at the beginning of the month, many stock markets, including ours, were down 20% from a peak earlier this year, and that occurred either October 3 or 4.

Then, what happened was, you had, again, this headline risk driving markets.  Bernanke, in his Congressional testimony, told Congress and the financial markets that the Fed is prepared to take further action.  In other words, turn the printing presses on again as appropriate, and then you just had all of the European headlines.  “Yeah, we understand that we have to put a concrete solution on the table,” and they continue to say they plan to have a plan, kept postponing what that plan was, and then they came out with the plan, but no details.  So that was what led to the heightened volatility in both risky assets and Treasuries.

So when risk assets are going up, generally the dollar’s weakening and Treasury yields are rising, and that’s what we saw in October.

DAVID CRAIG:  Okay.  Now surprise news this week was that Greece was going to put the European ballot to a vote.  What impact do you think that has?

JIM KEEGAN:  Well, obviously you could see that once the Prime Minister of Greece, Papandreou, surprised the European bureaucracy that he was going to actually put the bailout plan to a referendum, which seems to be the logical thing because the austerity that’s being imposed on the Greek people at this point is really leading to a deep recession, which could turn into a depression.  So it seems to me that is something that the Greek people should want to make a decision on.

The fact is that the Europeans almost mounted, the best way to say it is, an international coup, where they threw the Prime Minister under the bus and started negotiating with people in his party and the opposition’s party so the Prime Minister pulled back, but there’s a confidence vote scheduled for tonight, six o’clock East Coast time, 12 o’clock midnight in Greece, where we’ll know whether or not we have a government.

Now the question will be when we come in on Monday, what will that government consist of?  The issue, I think as far as the markets are concerned, is the markets do not want another election.  So are they able to cobble together some deal between the ruling party and the opposition, which are both very unpopular in Greece right now, or is there an election which may bring in a far left or a far right party, even further right and left than the two main parties?

DAVID CRAIG:  Okay.  Now the not so surprising news is the Fed has adjusted its outlook lower, predicting growth of a little more than 1.5% for 2011 and 2.5% for 2012.  Do you think the Fed will make any more moves that you think is stimulative? 

JIM KEEGAN:  I don’t expect that you’re going to see anything from the Fed for the balance of this year in the way of either increasing Operation Twist or doing Quantitative Easing 3, although I think they’re clearly laying the groundwork for Quantitative Easing 3, and I think the reason why we think that’ll be a 2012 event is because the chairman is very motivated to do more quantitative easing.

Right now, he’s got three voting members of the FLMC who have dissented with both respect to quantitative easing and Operation Twist, and they will be leaving or rotating out as voters in 2012.  They will be replaced by three doves.  So the environment will be much more conducive to a Bernanke-led mindset; not to mention the fact that in 2012, it being an election year that Congress may be distracted by the election and Bernanke may be able to thwart QE3 on the system.

DAVID CRAIG:  Okay.  And for those listening, Jim went into much more detail on that in the Seix Perspective which is on ridgeworth.com about what’s going on with the Fed.

So Jim, what’s in with your outlook?  Did anything happen in October to change your outlook for 2011 and 2012? 

JIM KEEGAN:  Well, David, as you know, we’ve been of the view that we’re going to be in this risk on, risk off environment, and there’s nothing that happened in October or anything that’s happened in 2011, or 2010, for that matter, that changes our view that we’re going to continue to be in a risk off, risk on environment.  Unfortunately, we’re subject to this headline-driven risk where markets perceive things as beneficial to risk assets in the short-term or negative to risk assets in the short-term, and that’s really what’s going to drive markets.

As I said earlier, Europe at this point plans to have a plan, but there are no details.  So once again, they’re long on promises, short on details, and as I always like to say, the devil’s always in the details and the biggest issue as it relates to the European sovereign debt banking crisis is where’s the money going to come from?  They keep talking about levering up this European financial stability fund, recapitalizing the banks and forcing Greece to take a haircut, but where is the money going to come from?

And then finally, as it relates to the US, we’re not at all dealing with the structural problems that we have in this country, and monetary policy does not lend itself to solving the structural problems that we have.  So we anticipate that we’re going to continue to be in a pretty volatile environment, and I think you’re going to hear more and more about this too big to fail concept globally.  When you think about too big to fail, it’s really an idiosyncratic concept, and we’re starting to ask the question and have been for awhile, as you know, that if there’s institutional, too big to fail solvency issues, is it really too big to save and therefore that’s what the volatility is indicating to the markets.

DAVID CRAIG:  Right.  Alright.  Well Jim, thanks again for your insights.

JIM KEEGAN:  Thank you, David.

DAVID CRAIG:  Hello, welcome to Fixed Income Market Five, it’s the week of October 3^rd, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and sub-advisor for the Ridgeworth Investment Grade Bond Funds, discussing what’s going on in the fixed income market.  Jim, in your end of 2010 Seix Perspective you wrote that “We remain hardened skeptics of the hope trade.  By the middle of 2011 the headwinds with the moribund housing market and intensifying drag emanating from state and local government spending, and an unemployment and underemployment rate incapable of sustained downtrend will be sobering reminders in how different this recovery cycle is.  In short, there is nothing normal about it, new or old.”  Now the headwinds you referenced, in addition to the European issues, have certainly seemed to impact the equity markets in the third quarter.  How did they impact the fixed income market?

JIM KEEGAN: Well David, they’ve impacted the fixed income market primarily through the manifestation of the consensus once again coming into this year being wrong, and what I’m referring to there is that the expectation coming into this year is that GDP would be on the order of 3.5% to 4%, we’d have higher rates and a steeper curve, etc., etc., and the end of QE2 would just lead to higher interest rates and a steeper yield curve.  In fact what’s happened is as we said in prior Fixed Income Market Five’s in addition to the quarterly perspectives is that the end of QE2 was likely going to be no different than the end of QE1.  What happened was interest rates fell and the yield curve flattened, and that was very much an out of consensus view.  The reason is, if you think about the mechanics of QE2 or QE1 for that matter, what the Fed does is every day at 11 a.m. is they go into the market, they buy treasuries and take treasuries out of the market but infuse cash into the market, and that cash was designed to go into riskier assets, i.e., stocks, commodities, high-yield bonds, high-yield bank loans, corporate bonds, etc., etc.  Our view was that once you removed that cash that was coming in as a result of quantitative easing, that the bigger implication would be for risky assets, like stocks, and commodities, and that’s in fact what we’ve seen and rates have in fact fallen.  In fact they’ve fallen over 120 basis points if you look at the ten year treasury during the third quarter.

DAVID CRAIG:  Ok, so the ten year treasury fell more than 100 basis points during the quarter, which is a big move.  Now that should have pushed bond prices and bond fund values higher.

JIM KEEGAN:  Oh exactly, I mean if you think about bond math, interest rates go down, bond prices go up, so you know treasuries lead the way in the third quarter with the big decline we had in treasury rates.  In fact while the US Treasury or the US Government was downgraded by S&P.  If you think about bonds and the Lehman Ag was up a little over 3.8% while stocks were down anywhere from 14% to 20% in the third quarter.  I think what you need to find from your fixed income manager is that they better have a positive return in an environment like that serving as the anchor of the portfolio.  Our performance here at Seix was quite good and we were overweight spread product.  But it’s this safe income at a reasonable price that we’ve been talking about.  The other thing that I’d say about the third quarter is the dispersion of returns that we say in the third quarter amongst bond funds is very reminiscent of what we saw in 2008.  It doesn’t seem like a lot of lessons were learned.

DAVID CRAIG:  Now with interest rates where they are, they’re bound to go up from here right?

JIM KEEGAN:  No, not necessarily David.  Again, that was the consensus, that’s been the consensus for the last several years, ok.  Now here at Seix we’re not market timers so we’re not trying to time interest rates, but we do have a view on the interest rate market.  Look, three things can happen to rates right, they can stay low for a longer period of time, they can head lower, or they can head higher. The consensus view for the last several years is they got to head higher because they’re so low.  In our view there’s a higher probability that rates stay low like they are right now for a longer period of time and an extended period of time, or they even head lower, given the fundamental backdrop and the structural problems that our policy makers globally refuse to acknowledge, let alone address.  Policy makers seem to think that they can create a pain free crisis, or get us through a pain free crisis.  And the amortization strategy and the dragging out of the deleveraging process, really not allowing markets to clear based on true fundamental underlying supply and demand, supports our investment strategy that at minimum rates are going to stay low for longer, but they can potentially go even lower. 

DAVID CRAIG:  Isn’t that what the fed is actually trying to do now, push them lower?

JIM KEEGAN:  Well through their Operation Twist the Fed is trying to bring down long-term interest rates, and by definition that’s going to flatten the curve because there’s not much they can do on the short end with their zero interest rate policy environment.  The housing market is not about low rates, because we’ve had low rates for the last three years, and it doesn’t seem to be doing much for the housing market, so on the margin yeah the Fed will Operation Twist will potentially lower interest rates, but it’s not going to solve what’s fundamentally wrong with the economy.  It’s the structural problems that I talked about in prior Fixed Income Market Fives, and that being excessive debt, a savings problem in this country, unemployment and an underemployment that is not easily solved by monetary policy, housing prices that remain under pressure, and then trillion dollar plus deficits as far as the eye can see.  Monetary policy can not solve those problems. 

DAVID CRAIG:  Let’s move to Europe.  You’ve been warning people about the sovereign debt crisis since the middle of 2009, you talked about it being a competitiveness issue not a fiscal one.  Is Europe addressing its competitiveness?  

JIM KEEGAN:  Well I mean, the easiest way, let’s take a step back and something that I said a couple years back, when everybody was focused on well Greece only represents 0.5% of global GDP.  If you remember, I made the point that you know folks this is not about Greece, this is about the fragility of the global banking system.  Yes, peripheral Europe has a competitiveness problem, and the problem that they have is they don’t control monetary policy because they’re part of a monetary union called the Euro.  Then as a result of that they’re tied from a currency standpoint to that Euro.  The easiest way for these countries to solve the competitiveness problem would be through a lower exchange rate, but given the fact that the Euro has remained artificially high as a result of Germany primarily, I guess the easiest for a peripheral Europe to solve its competitiveness problem would be for Germany to leave the Euro.  While that may be something that happens down the road, it seems like the politicians throughout Europe are wetted to this experiment called the Euro.

DAVID CRAIG:  In let’s end with your outlook, what is your outlook from here?

JIM KEEGAN:  Well as I said, you know the structural problems are still with us, our politicians and policy makers refuse to make hard decisions, and at the end of the day we think that we’re going to continue to be in this below trend growth environment that’s largely driven by inadequate policy responses of allowing markets to clear.  I’m talking about stocks, housing, etc., and you know paying down debt and deleveraging in general.  This cycle is unlike any cycle that we’ve seen in the post-war period, which is why we’ve had a more skeptical view as it relates to the economy, interest rates and risk asset prices. Corporate sector to us is the one sector, and we’ve been singing this song for the last several years.  We took our corporate position down at the end of the second quarter, and we took our beta down when we did that trade, which 20/20 hindsight has worked out quite well.  Having said that though, the corporate sector is in pretty good shape from a liquidity standpoint, from a leverage standpoint.  Does not have the excessive debt problem that the household sector has, that the financial sector has, and that the government sector has as they have transferred a lot of this private sector debt to the public sector.  We still like the corporate bond sector, with a defensive orientation, agency mortgage backed security paper we think makes some sense here, and then certain aspects of the commercial mortgaged backed securities sector as well.  Again, the theme to us is safe income at a reasonable price, because as Chairman Bernanke has conveyed, we’re going to be in this zero interest rate policy environment for quite a long time. 

DAVID CRAIG:  Jim, thanks for your insights.

JIM KEEGAN:  Thank you David. 

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID:  Welcome to Fixed Income Market Five.  It’s the week of September 5^th, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadvisor for the RidgeWorth Investment Grade Bond Funds, discussing what’s going on with the fixed income market.  So Jim, in August we had the debt ceiling deal, the U.S. debt downgrade, huge volatility in the equity markets, significant turmoil in Libya, Chairman Bernanke saying that the economy is worse than he expected, but the Fed wouldn’t be doing anything and Hurricane Irene.  How does the fixed income market respond to all that?

JIM:  Well, the reaction of the fixed income markets David was a fight to quality bid in the risk-free asset class, that being treasuries.  So the downgrade really didn’t come into effect.  We had a widening in risk premiums for the spread sector in the markets.  I think you have to step back here for a second and think about this in the context of what we’ve been through in the last four years.  People were still dealing with the aftermath of the financial crisis.  In 2008 it was led by U.S. Banks and in 2011 it’s pretty obvious it’s being led by the European sovereign debt/banking crisis.  The bottom line is this all in our view stems from the fact that the global banking system remains extremely fragile.

DAVID:  June 30^th seems like ages ago, but in the past two months have you seen any impact of the end of QE2?

JIM:  Well, you know we saw and continue to see exactly what we anticipated which was wider risk premiums and lower treasury yields.  The market seemed to be completely focused on potential for interest rates to rise in the absence of treasury buying on the part of the Fed, but that missed the critical point that QE2 was promoted and designed to lead to risk taking in both the equity and the bond markets.  Remember the mechanics of quantitative easing is the Fed would go in every day and buy treasuries in the secondary markets and thereby taking out treasury supply, but injecting cash into the system through those U.S. treasury purchases.  Cash was meant to be used to buy riskier assets.

DAVID:  Right.  Now let’s switch and talk about housing.  Jim, you’ve been saying housing will be a key data point to watch.  According to the latest Case-Schiller data, home prices have actually increased in the past three months.  Do you think that’s just a seasonal affect or is there more to that?

JIM:  No, this is definitely a seasonal affect, David, and something that will likely dissipate over the coming months.  We anticipate that the Case-Schiller index will decline again and in all likelihood make a new cycle low over the next year or two.  While we haven’t completely updated the internal focus here, we would not be surprised by a further decline of 10% to 15%.  The index currently corresponds to the pricing of homes back to June of 2003.  So if we went down another 15%, that would correspond to October 2001 pricing.  That would give us a lost decade in housing prices which would join the lost decade that we already have in jobs, real household income and stock prices.  The three-month rise as you pointed out in June was up 2.7% on a year-over-year basis, but it’s still down 4.5%.  This spring’s seasonal rise is lower than last spring’s seasonal rise of 3.2% so there’s definitely seasonality here.

DAVID:  Okay, great.  Now another area you said keep an eye on is the employment picture.  The President is introducing his ideas about a new jobs program this week.  Do you think this could have a measurable impact on employment?

JIM:  Unfortunately we’re not too optimistic here as it seems that both political parties seem to be trying to gain the upper hand for the 2012 election.  That seems to be at the heart of each iteration, each proposal, so I think we’ll take the under as it relates to this week’s speech.

DAVID:  Jim, you’ve covered a lot of topics this call.  Did anything that happened in August really change your outlook?

JIM:  No, actually events over the past summer and August have essentially ratified what’s been our view for the last couple of years.  The risk rally prompted by QE2 last fall has begun to unwind as it was not rooted in fundamentals.  Neither is the consensus expectation for a second half bounce after the 0.7% GDP growth that we’ve had in the first half of the year.  The economy we have to remember is gripped by deleveraging.  It’s probably not even half over.  The healing is not going to be accelerated by monetary policy be it conventional or unconventional as low rates will not prompt additional borrowing and spending which is what the Fed seems to be trying to do.  It seems to be trying to put Humpty Dumpty back together again and Humpty Dumpty being consumers that borrow, spend, borrow, spend and just increase their leverage.  We think that that was the exception rather than the rule.  Then when you incorporate demographics and the fact that 77,000,000 baby boomers are going to be retiring over the next eighteen years and they have inadequate savings we think as I said before, many times before, that we think there’s penned up demand to save rather than to spend.  As for fiscal policy, a decade plus with multiple wars, additional entitlement programs, ineffective stimulus programs have left our country stretched.  That GDP ratio is approaching 100% so without major entitlement and tax reform there’s no real avenue for fiscal policy to be enacted to offer any assistance to this cycle.  So at the end of the day it comes down to time.  There’s going to be austerity and unfettered capital markets are the key ingredients to the repair process.  Our political process just does not seem to allow for the right mix of these ingredients to work and allow the system to heal.

DAVID:  Jim, thanks again for your insights.

JIM:  Thank you, David, talk to you next month.

 

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG:  Good afternoon, welcome to Fixed Income Market Five.  It's the week of August 1st and I'm with Perry Troisi, Managing Director and Senior Portfolio Manager at Seix Investment Advisors, sub-advisor to the RidgeWorth Investment Grade Bond Funds, discussing what's going on in the fixed income market.  So Perry, in July fixed income and equity securities really headed in different directions?  Why was that?  

PERRY TROISI:  Good talking to you, David.  July was driven by several cross-currents, some technical and some fundamental.  Then initially rates were able to move lower in the beginning of July, largely as a sort of technical retracement of the spiking rates we saw at the end of June.  When the Euro debt crisis was seemingly not put to bed but somewhat alleviated, there was like a 39-basis point rise in five-year rates and about four trading sessions at the end of June.  We came into July and rational investors began to realize that that debt crisis is far from over.  And then, we sort of left the technical and moved on to the fundamental when we got the June jobs report which came out on July 8th and that really set the tone for what turned out to be some weak fundamental data points.  We got weak retail sales, weak consumer confidence, a continued firming and core inflation metrics and then by July 29th, we got the GDP data with the pretty negative benchmark revisions and it was pretty clear that the economy was in a pretty bad place and that's really what gave the fixed income market the ability to advance the way it did, and then throughout the month, too, we had to deal with the debt ceiling cloud.  As the month wore on and we had difficulty in reaching an agreement added to the gloom of the outlook, and the view really sort of evolved into a fear of not getting a deal which, ironically, prompted a flight to quality into treasuries.  Even though likelihood of a deal ultimately getting done really meant just more austerity, which means stronger head winds for growth, and that further sort of gave a bid to fixed income securities, particularly treasuries, and that's really what gave  the fixed income market the juice for returns.  This whole month of anxiety basically only produced about a 2% negative month for the S&P.  Had you told me everything that went on, I might have guessed it would have been worse.

DAVID CRAIG:  Now in fixed income, corporates really stormed out to start the second half of 2011, leading all the other categories in fixed income, what are investors seeing there?

PERRY TROISI:  Well, during the middle of the third year of ZIRP, which as you know is a zero interest rate policy, as dictated by the Fed.  I mean that environment, safe income at a reasonable price, remains a really valuable commodity for many investors, both retail and institutional.  Risk averse investors, which include many retired savers, have seen their income potential just diminished by the Feds' pinning of short rates to zero.  So many retirees were used to achieving some income objective in money market funds or short duration bond funds, and having seen those opportunities disappear, there's been a bit of migration in the funds that offer some incremental yield albeit with some additional risks and that has been going on for the better part of two and half years and it continues today, and you can even see it when you look at retail investor flows as they're published by the Investment Company Institute, it supports this ongoing shift.  Additionally, balance sheets for most of non-financial corporate America came into this downturn in much better shape than I would assume or the government sector.

DAVID CRAIG:  Right.

PERRY TROISI:  And they've been able to navigate the cycle for cost controls and opportunistic capital market issuances that provides relatively lower funding costs.  Most of these institutions endured a far more trying period of overinvestment and too much debt in the early 2000's and most of these corporate CFOs prepared their balance sheets before the Great Recession really arrived. Two other smaller things that are going on. A lot of these large multinationals, these are entities that have a fair amount of exposure to some of the developing market regions that really possess probably the best growth profile going forward and investors are looking for that type of exposure and then the last thing is the corporate bond market does have, in aggregate, a longer average duration than the other primary bond market sectors, so when rates decline the way they did in July, their price appreciation reflects that longer duration.

DAVID CRAIG:  Right, okay, that's great.  Now you mentioned the debt ceiling and the debate that went on there, how does the U.S. debt, and attempts to reduce government spending over time, impact the fixed income market?

PERRY TROISI:  Well, at a very macro level; the primary influence comes from the austerity it's going to impose on government spending.  This will become a powerful headwind for growth and it will essentially only get bigger over time should real reform ultimately get passed.  Now the current fragility of our economy is certainly not a secret to anyone in Washington, so efforts to push the spending cuts to the out years of the current 10-year projection period, is preferable to many politicians, and if you look at the agreement that was passed, the initial agreement called for $917 billion in deficit reduction with another $1.2 trillion to be formulated through a Joint Fiscal Commission.  Of that $917 billion, only 13% takes place in the first three fiscal years of that 10-year projection period, and then in the next three years, it was only about 28.5% so the majority, 58+% were in the final four years of that.  So my expectation is that the additional savings that will come through the Joint Fiscal Commission recommendations will follow a similar model; so now we're talking about austerity and lower growth, it's largely further out in the projection years.

DAVID CRAIG:  Delayed?

PERRY TROISI:  But, yeah, delayed.  No one seems to really be of the mindset that our economy is prepared to handle much, if any, tightening in the short run from a fiscal standpoint but at the end of the day, this move toward austerity means lower long-term potential GDP, all other things being equal, and in that environment, rates probably can stay lower a lot longer than most people anticipate, and while risk assets will face a more challenging environment, it's still not unreasonable to expect investment grade sectors to continue to benefit from that same sort of desire for safe income at a reasonable price, and it's not too different than the same forces that have been in play for the last two years.

DAVID CRAIG:  Okay, great, and let's end up, did anything in July really change your outlook for 2011?

PERRY TROISI:  I would say not particularly.  I think that a lot of what we've experienced certainly in the second quarter, sort of ratified our own belief that the economy was not in a great place and that we were not dealing with something that was, in essence, a transitory soft batch.  I think it is worth noting that what we did find out in July, as it relates to the European sovereign debt crisis, is that it's moving to a different phase.  The crisis for the most part of the last year centered on Greece, Ireland, Portugal, and Spain, but Italy has now been brought into focus.  Now Italy is the eighth largest economy in the world with well over $2 trillion in outstanding debt.  This brings the crisis into a whole new perspective, because the ability to reason, to contemplate, a bail-out of that magnitude, is a very different conversation than anything contemplated up to this point, and in fact, everything that has been done for the other countries up until now, have been done with an eye toward satisfying the market in a way that keeps Italy out of the debate, and clearly, it hasn't worked up until now and we're going to have to pay even closer attention to these developments going forward.  So while we have been wary of what the second half is going to produce, both economically in a fundamental way, as well as what that means for the investment grade bond market, I would say it was probably dealt yet another body blow right from the European crisis that we're going to have to monitor closely going forward.  So things are panning out sort of how we foresaw, rates can stay low longer than most people expect, and the search for income at a reasonable price will be sort of everyone's mandate for the time being. 

DAVID CRAIG:  Gotcha.  All right, well, Perry, thanks for your insights.

PERRY TROISI:  Nice talking to you, David.  Have a great day. 

DAVID CRAIG:  Good afternoon, welcome to Fixed Income Market Five.  It’s the week of July 4^th, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors, sub-advisor of the Ridgeworth Investment Grade Bond funds, discussing what is going on in fixed income market.  Jim, we’re half way through 2011 now, and we’re between a 2.5% and 3% return for investment grade and nearly 5% for high yield.  Is that what you expected coming into the year?

JIM KEEGAN:  No David, to be perfectly honest it’s a little bit ahead of where we thought we’d be now.  We have six months left to go in the year so a lot can change, and we may end up where we thought we would be.  We were looking for something better than a coupon clip year, but not necessarily annualizing what we’ve had thus far, particularly on the high-yield side, so reasonable chance for some capital appreciation, but things may have gotten a little bit ahead of themselves, but nevertheless in a zero interest rate policy environment our view is that bonds and credit and high yield were the place to be.  If you look at the excess returns that were generated, whether it be corporate bonds, mortgage backed securities, commercial mortgaged backed securities, high-yield; it was a pretty good first half of the year.

DAVID CRAIG:  What were some specific highlights for June and particular in the first half of the year in general?

JIM KEEGAN:  Well June was interesting because June was really a microcosm of what we’ve seen in the markets for the last year to year and a half.   By that I mean we’ve been in this risk on, risk off environment.  One quarter it’s all about risk on, the next quarter it’s about risk off.  And June really represented that in a really exaggerated way. One of my colleagues referred to it as a “brutally binary month” from a risk on, risk off standpoint.  It really was the first three weeks of the month and then the last week of the month.  In the first three weeks of the month it was about risk off.  It started to be driven by fundamentals by the weak May payroll report, which was on June 3^rd.  Today we got the June payroll report which was an unmitigated disaster.  Then in the middle of the month it became about Greece and the European debt crisis, banking crisis came back into everyone’s view at that point.  Then when the Greek parliament approved the austerity measures, which were expected in the market place in order for them to get the fifth tranche of the $110 billion Euro bailout package, all of a sudden it became about risk on. What’s interesting, the last week of the month saw the five-year treasury rise 38 basis points.  In one week it rose 38 basis points, which on a percentage basis is the biggest move ever in the five-year treasury to the upsided deal.  The S&P 500 in the last week of June rallied 5.6%, which is the 29^th best week every going back to 1950.  That would put it in the top 1% of weekly moves going back to 1950.  I really wonder is everything that we saw in June reflective of the top 1% market moves in stocks and then such a big move in bonds.

DAVID CRAIG:  Domestically, there is a lot of talk about the U.S. debt ceiling.  Does that have an impact on the way you invest?

JIM KEEGAN:  Not particularly in the short run.  We’re sure to witness a tremendous amount of political theatre and brinkmanship over the next few weeks, but ultimately an agreement will be reached.  What’s good when you look at what’s been brought into focus here is deficit reduction.  That’s positive and a positive change to the political landscape in this country.  We had been spending as a nation like drunken sailors.  Just this unsustainable level of spending, particularly when you view it as a percent of GDP.  Unfortunately it took this debt ceiling issue to bring this issue to the fore.  With trillion dollar deficits forecasted for the next decade, some credible action is required and required sooner rather than later because we’re in a market environment right now where interest rates are low, and if we wait too long and don’t deal with the spending problem and particularly within entitlement spending, we’re not going to be able to kick this can down the road anymore, and we’ve got to address these real underlying structural deficits that we have, otherwise the old bond vigilantes will reemerge and take interest rates much higher.  That’s not our forecast, but that is the risk if we don’t deal with these problems over the next year or two. 

DAVID CRAIG:  You mentioned the dismal June jobs report that just came out today.  Housing and employment continue to be a very big drag on the overall economy.  Do you see that changing anytime soon? 

JIM KEEGAN:  Unfortunately David, you’re probably aware as well as anybody, our view has been that we would be in this extended period of below trend growth that would largely be driven by the fact that the job engine would not kick in the way it would need to kick in to bring the unemployment rate down and put people back to work.  Ultimately this is about income and the ability of people to be employed, earn an income, spend some money, save some money, and you couple the fact that we have not had really strong job growth, in addition to the fact that the largest asset on the consumer’s balance sheet, which is their home, is depreciating.  Our view has been that we would double dip in housing this year.  That was an out of consensus view coming into the year, it is more consensus-like now, but the reality of the situation is that the confluence of those two events lead us into this environment where we believe we’re going to be in this below trend growth environment for an extended period of time, which really shouldn’t surprise people when you examine this business cycle.  This was not your typical business cycle recession that was an inventory correction.  This was a financial crisis, orders of magnitude greater that we’ve seen since the Great Depression.  The resulting balance sheet repair process is going to be measured in years not quarters.

DAVID CRAIG:  At the beginning of the year you mentioned that you were expecting a coupon clip here for 2011.  Has anything changed your outlook?

JIM KEEGAN:  Not really, from this point on we expect it’s going to be more of the same, we think we’re going to be in this risk on, risk off environment, but we would say that there is probably a greater risk that markets may react more negatively to a second half of the year that doesn’t make up for the disappointment that we experienced in the first half of the year from an economic growth standpoint.  Remember we came into this year and the consensus forecast for first quarter GDP was 3.5% and some estimates had it at 4% and higher, and it actually came in at 1.9%.  What you then saw was, well we’ll make it up in the second quarter.  We obviously are not making it up in the second quarter, and now it’s all about the second half.  Our view is that the forecast for this “catch-up over the second half of the year” remain the consensus and should this soft patch prove to be more than transitory and as a result of the lack of an organic underlying strength in the economy, we think markets may be prone to some disappointment and underperformance in the second half of the year.

DAVID CRAIG:  All right well thanks again for your advice Jim.

JIM KEEGAN:  Thank you David, good to talk to you.

DAVID:  Good afternoon.  Welcome to Fixed Income Market Five.  It’s the week of June 6^th, and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and sub-advisor of the Ridgeworth Investment Grade Bond Funds, discussing what’s going on in the fixed income market.  Jim, you’ve been saying that yield-oriented investments would likely outperform this year, given the zero interest rate environment.  In the first quarter, high yield led the way in fixed income, but there seems to have been a slight shift to high grade this quarter.  Do you think that’s significant?

JIM:  You know David, as we’ve indicated for quite some time, we have been of the view and remain of the view that we’d be in the risk on, risk off mode.  As you know, we’ve been saying that the fundamentals as it relates to corporate, particularly non-financial corporates, have been very strong and demand for income in the zero interest rate policy environment that we find ourselves in, which we expect to remain in for an extended period of time, would keep high quality corporates and high-yield corporates in good demand here.  But you have to recognize that we’ve had quite a run here, particularly in high yield.  It’s interesting to note that High-Yield is probably up, depending upon whose index you look at, about 90% in the last two years, and then in May the High-Yield index reached its all-time record low yield of 6.61% on May 16, so I’m not surprised that there’s some profit taking in here. 

DAVID:  So, you mentioned the High Yield market and what’s been going on there, but there seems to be a pretty big disconnect between economic data, like housing and unemployment, and corporate data, like earnings and cash and balance sheet.  To what would you attribute that?

JIM:  Well, I think it’s what we’ve been saying all along, which is that there is this tale of two cities, if you will.  We’re dealing with the recovery, if you can call it that, from the largest financial crisis since the Great Depression, and that financial crisis was driven by excessive debt, particularly in the consumer sector and the financial sector and as we’ve been saying for quite some time, and remain of the view, that this is a balance sheet repair process that we have not experienced in this country in decades.  It’s going to take years.  When you think about what happened as consumers took on more and more debt was we really confused as a society debt with income and I think what we’ve done is we pulled demand forward, particularly in that last phase of the cycle 2002-2007 and we pulled demand forward on consumption and economic growth and it’s payback time so we’ve been of the view that we would be in this below trend growth for an extended period of time and it’s playing out that way.

DAVID:  Okay, so let’s take a look specifically at May.  Were there any highlights in the fixed income markets?

JIM:  Yeah, we had quite a few.  The data came in on the soft side and I think what really surprised the markets were the ISMs, particularly the services.  Now we did have some indication, if you looked at the new orders to inventory level from the prior month, which had indicated a slowdown was coming, earlier this month in June we got the May report and the ISM fell from 60.4 to 53.5, which is a really big jump.  If you look at the services component, it deteriorated.  Initial claims again jumped over 400,000 on a four week moving average basis.  The leading indicators were down.  We’ve got a Portugal bail out that was announced in May.  There is now talk of having to bail Greece out for a second time in less than a year, after their $110 billion Euro “shock and awe” bail out just about a year ago.  The housing and employment data, as you pointed out, continues to significantly disappoint and now we’ve started to see economists ratchet down their expectations for 2011 growth.

DAVID:  Okay, so given that, what is your outlook for the balance of 2011?

JIM:  Our outlook continues to be that we’re going to be largely in this trading range rather than trending market, if you will, so if you look at ten year treasury yields, we think we’re largely going to be in this 3% to 4% range most of the time, but we could go below three and above four periodically and that in this environment it’s clear to us that the Fed is going to remain on hold, that we’re going to be in the zero interest rate policy environment for an extended period of time.  QE2 will end at the end of June and we think that you’re seeing some front running of the end of QE2 and if we go back to when QE1 ended, interest rates actually fell and the economy weakened, so as a result of that, we continue to see this demand for income on the part of investors, so we do see continued demand for fixed income, whether it be investment grade corporate bonds, bank loan funds and High Yield, particularly high quality High Yield.  Because the fundamentals, as it relates to corporate America and defaults…I mean, we pushed out a lot of maturities within the High Yield market, so there isn’t a lot of potential here in the next 6-12 months for defaults to kick up materially.  So, it’s a pretty good environment for credit risk assets.

DAVID:  Alright, Jim.  Well, thanks again for your insights.

JIM:  Thank you, David.  Good to talk to you again.

DAVID CRAIG:  Good afternoon.  Welcome to Fixed Income Market Five.  It's the week of May 9th, and I'm with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadvisor of the RidgeWorth Investment Grade Bond Funds, discussing what's going on in the fixed income market.  So Jim, it seems like domestic fixed income markets had a relatively quiet but strong month in April.  What did you see as some of the highlights?

JIM KEEGAN:  Yeah David, that is a very good way to put it.  It was pretty much a continuation in April of what we saw in the first quarter.  Where there was the risk-on versus this seesaw that we have between risk-on, risk-off.  Both stocks and credit did particularly well as did commercial mortgage backed securities.  You saw commodities led by silver were up very big in the month.  The dollar was down pretty big on the month, 4% for the month.  Oil and energy prices up.  As I said, silver led the way, up 28%.  It’s given some of that back since then. Then, I guess the last thing was it was the weakest month for the peripheral parts of the European market since last November with most of the weakness being concentrated in Greece, Portugal and to a lesser extent Ireland.

DAVID CRAIG:  Right.  Okay.  Now, domestically, data just came out that showed that housing had its steepest decline in the first quarter since 2008.  What do you think it will take to turn that around?

JIM KEEGAN:  Well, it’s interesting because the report you are referring to there is the report from Zillow where it showed that home prices fell 3% in the first quarter, which would put them down 8.2% year over year, but the more telling statistic than prices being down actually in the first quarter was the number of homeowners who are underwater with negative equity.  This rose to over 28% in the first quarter, and that really is the crux of the problem.  It gets to the whole issue of an excessive supply and demand imbalance. 

DAVID CRAIG:  Right.

JIM KEEGAN:  For the housing situation to cure itself.  It’s not about interest rates.  It’s not about affordability.  It’s really about allowing the markets to clear, and by that I mean, the government with good intentions is stepping in with all different kinds of programs whether they be real programs or moral suasion in the name of assisting the housing markets, but in the end what it all boils down to is the market finding clearing prices based on real underlying supply and demand dynamics.  I think we are a ways away from that, and our view, as you know, is that housing is in the process of taking another leg down.  We would not be surprised if housing prices fell another 10% to 15%.

DAVID CRAIG:  Okay.  Now another big story in the media has obviously been the rising gas prices and how consumers are actually starting to drive less.  Do you think this will have a major ripple effect throughout the economy?

JIM KEEGAN:  I think you are already starting to see some demand destruction there.  I was reading last week that food and fuel is now consuming about 23% of consumer income, which is pretty high.  I guess at this point, if there is a surprise it’s that the $4 a gallon gasoline has not had more demand destruction thus far, but the real story as it relates to these higher food and fuel prices is the fact that it exposes this income deficit that the consumer sector has. 

DAVID CRAIG:  Right.

JIM KEEGAN:  I mean real median income fell 5% in the decade of the 2000s, which is just an incredible statistic when you think about it.  To put that in some context, it really does tell you how important it was as it related to economic growth and consumption that consumers were really living beyond their means, and how were they doing that?  They were taking on more and more debt. 

DAVID CRAIG:  Right.

JIM KEEGAN:  So, this food and fuel inflation problem is a real issue for the consumer sector.

DAVID CRAIG:  Okay.  Are there any other commodities you think people should be watching? 

JIM KEEGAN:  Yeah, I think that you have got to be watching the whole commodity space, and I guess the commodity that I pay particular attention to is copper prices.  They seem to have peaked and rolled over here.  To a certain extend gold, which I had mentioned reached a new record 14 out of 22 trading days in the month of April. 

DAVID CRAIG:  Now, let’s end with a bit of an outlook.  Last month you mentioned that the response to the end of QE1 was much different than people were expecting.  What do you think the response to the end of QE2 next month will be?

JIM KEEGAN:  Well, you know unfortunately David, we don’t have much history to gauge the end of any quantitative easing program.  In fact, the only history that we have as it relates to the end of quantitative easing was what I talked about last month with the end of QE1, which ended back in March 2010, and what happened there was interest rates fell, stock prices went down, credit spreads widened, the dollar rose a bit, commodities with the exception of gold dropped and volatility went up.  I would say, at this point, we’ve just experienced a 60 basis point rally in ten year rates from their February high, but our view has been that we would be in a trading not trending market.  By that I mean we are largely going to be in this 3% to 4% trading range.  The fundamentals as it relates to the credit space, where we have our largest overweights, the fundamentals are good.  The technicals are very good in this Fed induced 0% interest rate policy environment that we are in.  The end of QE1 did lead to some risk-off, if you will.  So, we would not be surprised if there was a bit of a correction in risky assets after QE2 has ended, and what I would say is security selection will be ever important in that environment.

DAVID CRAIG:  Okay.  Great.

JIM KEEGAN:  The question really becomes, do you view that as a buying opportunity, and I’d say selectively it probably will be.

DAVID CRAIG:  Okay.  Great.  Well thanks again for your insights Jim.

JIM KEEGAN:  Thank you David.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG:  Good afternoon.  Welcome to Fixed Income Market Five.  It's the week of April 4th, and I'm with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadvisor of the RidgeWorth Investment Grade Bond Funds, discussing what's going on in the fixed income market.  So Jim, at the beginning of the year you expected high-yield and investment grade corporates to continue their strong performance throughout this year.  It certainly happened the first quarter.  Was it for the reasons you expected?

JIM KEEGAN:  Yeah, actually, David, the returns of both high-yield and investment-grade corporates exceeded our expectations, and it was for all the reasons that we cited.  We talked about, you know, strong balance sheets within the corporate sector; and despite all the exogenous shocks that we had, whether it be the Middle East and North Africa, the European sovereign debt/banking crisis, and the tragedy in Japan; “risk on” was really the theme of the day as it related to the investment landscape.  And as we've been saying for awhile, in this zero interest rate policy environment the Federal Reserve has us in where income-starved investors are being pushed out of cash and into riskier asset classes, two of the asset classes that have benefited have been high-yield and investment-grade corporate.  And then something that we've seen in the industry and we've been the beneficiary of it here has been in bank loan funds.  There has been a tremendous amount of inflows into bank loan funds for the industry and within our franchise. 

DAVID CRAIG:  You mentioned some, but there are quite a few major global events that occurred during the quarter, but all the markets performed pretty strongly.  Do you think investors are behaving rationally right now?

JIM KEEGAN:  Well, I mean as we like to say, "let's leave those comments to the talking heads" to determine whether or not investors are behaving rationally.  I think what you have to recognize here is that there are investors, but there are also a lot of traders that are moving markets around.  In our opinion, you know, investors are responding to the landscape that we've faced with the extraordinary measures that have been taken by the Federal Reserve.  The massive amounts of liquidity have provided to the markets some very profitable opportunities as it relates to risk, but our assessment is ultimately that very little has been done fundamentally to solve the underlying problems in the U.S. economy, and I'm specifically referring to massive debt and leverage, massive overcapacity both in physical and human capital, high structural unemployment, stagnant incomes on the part of workers in the U.S., and then housing, which is experiencing another leg down.  Those are just some of the big macro issues that we still have to contend with, but liquidity can do an awful lot to keep markets buoyant. 

DAVID CRAIG:  Now we've got an equity perspective on this next question in our Equity Market Five, but as for the overall economy, are you concerned that even as hiring is picking up housing prices continue to drop? 

JIM KEEGAN:  Yeah, I mean housing prices are really more a function of, in our view, there's a massive supply/demand imbalance.  And while an improving employment situation will help on the margin, it doesn't really get at the massive supply/demand imbalance of known inventory and then shadow inventory.  I mean, to put the employment situation in perspective, you know payroll growth has improved, but really the improvement has been marginal since the end of last year.  If you look at the three- and six-month moving averages, at the end of the year they were running around 139,000 on the three-month and 47,000 on the six-month.  As of the end of March 2011, the same rates have picked up 159,000 on the three-month and 149,000 on the six-month, so that's barely exceeding the natural growth in the labor force.  So, you know, we dug ourselves a big hole as it related to employment, I mean from January of 2008 to June of 2009, and that's the period were the NBER tagged the recession that we went through.  Payrolls in the U.S. declined just under 7.5 million jobs, and so the recovery to the expansion from July of 2009 to March 2011, which is the most recent payroll data that we have, we've generated a grand total of 245,000 jobs in that period.

DAVID CRAIG:  Not much of a dent.

JIM KEEGAN:  So not much of a dent.

DAVID CRAIG:  So what is your outlook for the fixed income markets for the balance of the year?

JIM KEEGAN:  Well, for the balance of the year, you know, we've been of this mindset that we're going to be in this risk on/risk off environment, so there's going to be a tug of war between the technical factors already in play due to this zero interest rate policy environment and what that does and the desire for income against the backdrop of what happens after the end of QE2, quantitative easing 2.  Sadly, many market participants have chosen to focus only on what the end of QE2 may mean for the treasury market, but when you consider the performance of all risk markets since last August, when Chairman Bernanke announced that he was going to pursue QE2, the more valid question is how does risk reprice after QE2 is scheduled to end on June 30, 2011.  You know, you may recall what happened to risk markets after the conclusion of QE1.  What's very interesting is that yields actually fell, and if we look at the performance of different asset classes post QE1, stocks went down within the stock market, defensive stocks tended to outperform, commodity prices went down, volatility went up, and the ten-year treasury rate fell over 100 basis points.  We went from 384 to 266.  Since the start of QE1 back in March of 2009, there's been an 86% correlation with the size of the Fed's balance sheet and stock prices.  So if there was only one indicator as a stock market investor that you would have wanted to have access to over the last two years, it would've been the change in the size of the Fed's balance sheet.  So in other words, if the Fed is expanding its balance sheet, stock prices have tended to go up; and when the Fed is shrinking their balance sheet, it has tended to go down.  So I'm not sure that everything that's being discounted in the markets right now is actually what's going to be at play post QE2.

DAVID CRAIG:  Okay, interesting.  Well, thanks again for your insights, Jim.

JIM KEEGAN:  Thank you, David.  

 

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

 

DAVID CRAIG:  Good afternoon, welcome to Fixed Income Market Five.  It’s the week of March 1^st  and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors, and subadvisor of the RidgeWorth’s Investment Grade Bond Funds discussing what’s going on in the fixed income market.  So, Jim, there have been a lot of headlines about Egypt and Libya this year.  How has that news been impacting the fixed income markets?

JIM KEEGAN:  Well, it’s impacted the fixed income market in the sense that what it does to the oil market, the commodity market, and the potential supply shock from oil and it really, it started in Tunisia, went to Egypt, Libya, and the concern really, is Bahrain, which is home to the Navy’s Fifth Fleet, and ultimately Saudi Arabia.  Many of these protests started out as protests over high food prices, but if you look at the demographics of a lot of these countries; they’re very young populations with not a lot of opportunity, and that can quickly turn into social unrest, dissatisfaction with the government, and potentially overthrowing of the government, and part of the food story is related to droughts and weather, and floods, but part of it is the unintended consequences of quantitative easing, which is you put all this liquidity into the system, it results in higher asset prices, higher commodity prices, which then work it’s way through food, and with the unrest in the Middle East, you get potential supply shocks and higher oil prices, so the combination of higher food and oil prices can put some pressure on markets.

DAVID CRAIG:  Okay.  Let’s take a specific look at February.  Corporates, both investment grade and high-yield seemed to do especially well.  Why was that?

JIM KEEGAN:  Well, I think it relates to a theme that we’ve been talking about for quite a while David, which is this demand for income in this 0% interest rate policy environment that we find ourselves in, and are going to be in for a while as we’re told by the Federal Reserve, and the Chairman in particular, you know, when you look at the Corporate sector, in particular the balance sheets are in very good shape.  Within the high-yield sector, high-yield companies have been able to take advantage of this insatiable demand for yield in both the bond and loan markets, several companies have been able to term out maturities, and thereby improve their credit quality and liquidity, and if you look at, specifically, within the high-yield market; and again, this relates to this massive infusion of liquidity that we have going on through quantitative easing, the best performing parts of the high yield market were the lowest quality, lower dollar priced parts of the marketplace.

DAVID CRAIG:  Was there anything that happened in February that was cause for concern for you? 

JIM KEEGAN:  Well, I mean, broadly speaking, yeah, the geo-political risks obviously are elevated with the trouble in the Middle East and North Africa, the U.S. budget deficit; we have a projection through fiscal year end 2015 that will be Federal deficits in excess of $4 trillion; the most recent Obama budget for fiscal 2011 puts the deficit this year at $1.6 trillion, which equates to 11% of GDP, and we’re not even paying lip service; our politicians that is, to doing anything to really solve the structural deficits in the U.S.

DAVID CRAIG:  Right. 

JIM KEEGAN:  Then you look at housing prices, they’re down five months in a row; clearly taking another leg down as we thought they would.  The employment situation; we had a good initial claims number today, but the unemployment rate and the underemployment rate needs to come down.  You’ve got a record 43.6 million people in the food stamp program, using the food stamp program, which is about 15% of the population, and then the GDP report; the second revision for the fourth quarter, nominal GDP came in at 3.2%, which is something that I think you’ve got to be concerned about.

DAVID CRAIG:  What do you think investors should be keeping an eye on right now?

JIM KEEGAN:  I think there’s a lot of things investors need to pay attention to, so let’s try and boil it down to what we think are the most important thing.  We would say the employment situation is very important, so pay attention to unemployment, the underemployment rate, the initial claims data, housing prices, as I said, are extremely important given the fact that they are the largest asset on the consumers balance sheet.  Bank credit is important, loan demand, consumer spending, gasoline prices, and then geo-politics.  I’d say you’ve got to watch what’s going on in the Middle East and North Africa, but Europe; there are several important EU meetings that are taking place in Europe this month alone; March.  On the 11^th, there’s a special summit in Brussels.  The European Finance Ministers meet on the 14^th and the 15^th.  The European Bank Authority will publish it’s stress test criteria for the banks on the 18^th, and then there’s the full EU summit as it relates to the peripheral countries and the bailout on the 24^th and the 25^th, and then finally, there’s two state elections in Germany this month, but the real important one is on the 27^th, and then you’ve got to pay attention to the newly elected government in Ireland, and what demands they might put on the EU as it relates to their bailout package, and what concessions the EU may give to Ireland, and then finally, on the inflation front; the emerging market inflation and the tightening in the emerging markets is something that I think investors should pay attention to.

DAVID CRAIG:  So, maybe investors should just pick a professional money manager.

JIM KEEGAN:  That’s highly recommended.

DAVID CRAIG:  Thanks for your insights Jim.

JIM KEEGAN:  My pleasure. 

DAVID CRAIG:  We’ll talk to you again next month.

JIM KEEGAN:  Great.

 

DAVID CRAIG: Good afternoon and welcome to Fixed Income Market Five. It’s the week of February 1st and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors and subadvisor of the RidgeWorth Investment Grade Bond Funds discussing what’s going on in the fixed income market. So, Jim, one thing you’ve been saying is key to a change in your economic outlook is the unemployment situation. The Administration and Congress have been saying a lot about jobs and job creation lately. Do you think what they’re doing will work?

JIM KEEGAN: It remains to be seen David. The rhetoric is clearly changed to the point where it seems like job creation is moving to the front burner, but you really have to question the moves so far as to what we’re doing to create jobs. Jobs in the U.S., job creation that is, is all about small business. So, we need to put an environment in place where small business formations start to rise, and then small businesses in general start to increase head count. It seems to me, if you look at the most recent moves, i.e., the payroll tax holiday on the employee side that was part of the stimulus package that included the extension of the Bush era tax cuts, with that being focused on the employee side rather than the employer side, that was more about consumption than it really was about job creation. I’d be somewhat concerned that they’re still focused on consumption and asset inflation rather than trying to really put an environment in place where employers start to hire more workers. The second thing that I point to is the commission on jobs and competitiveness where the CEO of General Electric was appointed to lead that committee. It seems to me that if I were trying to create jobs here in the U.S., I would not have selected somebody from a multinational corporation that has been moving more of his employers off shore rather than on shore, and in fact now more than half the employees of General Electric actually work outside the U.S.

DAVID CRAIG: Okay, thanks. Now, the unemployment situation is obviously having an impact on housing. Do you think we’re anywhere close to a recovery in housing?

JIM KEEGAN: We don’t, David. We’re of the opinion that housing would take another leg down, and in fact, that’s what we’ve seen since the end of the home buyer tax credit. All these stimulus packages do, whether you’re talking about home buyer tax credits or cash for clunkers, is they don’t increase demand. They just pull demand forward. We saw that with respect to housing and home prices. Our concern and the reason why our view is that not only are home prices taking another leg down, but our view is that they likely have another 10% to 15% to decline is a function of not only the existing inventory but the shadow inventory. There’s a massive supply and demand imbalance that leads us to believe that prices are going to decline, like I said, another 10% to 15%. Then we’ll reevaluate. The reason that’s important to us is because while the stock market has gone up since the Fed started quantitative easing, the home is really the largest asset on the consumer’s balance sheet. We think that plays very much to consumer confidence and consumer spending. That’s one of the reasons why we’re somewhat sanguine on the sustainable economic outlook at this point.

DAVID CRAIG: Let’s move on to January returns for the fixed income markets. How did things play out last month?

JIM KEEGAN: Last month was a good month for fixed income. We had a decline in short-term interest rates, a little bit of a rise as you went out the curve with the long end being the under performer. The yield curve steepened during January. If you look at the broad asset classes, corporate bonds did well, commercial mortgage-backed securities did well. Within the high-yield space, both the high-yield market and the bank-loan market did particularly well. So it was a good market for risk assets in general, stocks, and credit. As you know, we remain overweight credit and commercial mortgage-backed securities, so that was a good play for us here. Our view is that as long as the Fed is pursuing their money printing exercise called “quantitative easing,” that risk assets will probably outperform, although we would say that as we get closer to the end of QE2, that we’re likely to see some heightened volatility.

DAVID CRAIG: Let’s just end with, did anything happen in January that would impact your outlook for 2011?

JIM KEEGAN: Well, I guess the one concern that we’d have at this point is that the price of both food and energy is starting to become an issue, particularly in the emerging markets. The reason why that’s important is because that in the emerging markets, consumers tend to spend a lot more of their monthly income, or weekly income for that matter, on food and to a lesser extent energy. It’s much higher in the emerging markets than it is here in the U.S. We started to see that that’s a nascent problem in China, India. I’ve been interested to watch here that the India stock market was down almost 11% in January. The Brazilian market was down. The Chinese market was down slightly. We think that’s a function of the fact that these economies are probably going to have to tighten monetary policy in here so that inflation does not become a problem for them. In addition, China likely wants to slow their economy a bit and try and soft land the economy over there.

DAVID CRAIG: Very well. Thanks for your insights, Jim. I look forward to talking to you next month.

JIM KEEGAN: Thank you David.

DAVID CRAIG: Good afternoon and welcome to the Fixed Income Market Five. It’s the week of January 4th and I’m with Jim Keegan, CEO and CIO of Seix Investment Advisors, and subadvisor to the RidgeWorth Investment Grade Bond Funds, discussing what’s going on in the Fixed Income market. So Jim, how would you assess what the Fixed Income market did in 2010, given your expectations going into it?

JIM KEEGAN: Well, we were expecting a good year for Fixed Income in 2010 and we had a better than expected year, particularly for risk assets in 2010. As you know, we came into the year and remained overweight in credit and commercial mortgage backed securities, and they had very good years, but to be honest, had even better years than… a better year than we frankly expected. And when you think about it, in this liquidity-driven freight train called “quantitative easing” where all risk assets did well, we’re not surprised that they actually did better than we had forecast coming into the year.

DAVID CRAIG: Okay. Now high yield and investment grade corporates did have a strong year. Do you expect that to continue in 2011?

JIM KEEGAN: Yes, David. We don’t expect that 2011 is going to have quite the same return profile as 2010 or 2009, but our view remains that yield-oriented investments are going to be very much in demand in the zero interest rate environment that we expect to be in for the entire year of 2011 and beyond. If you think about the fundamentals for credit, they remain very favorable. And the valuations, while not as attractive as they were in 2009 or the beginning of 2010, still are reasonable to slightly cheap. So, again, coming back to this demand for income, you know the world we’re in zero interest rates, we think credit will be well bid in 2011. Having said that, though, we do believe that there will be volatility throughout the course of the year. We have significant structural issues this year in the U.S. that need to be dealt with – excessive debt in the deleverging, particularly within the consumer sector, structurally high unemployment and underemployment, and then housing prices are extremely important, given that they’re the largest asset on the consumer’s balance sheet. And in our view housing prices are in the process of double dipping here. Then if you overlay problems in Europe with the sovereign debt and banking crisis, problems in the state and local municipal arena here in the U.S., inflation problems, potentially, in emerging markets and China, and last but certainly not least, we’ve got to remember that this liquidity driven freight train called quantitative easing is expected to expire in June of 2011.

DAVID CRAIG: Okay. Now over the past two years you’ve really been focused on buying what people need rather than what they want. Is that continuing for you?

JIM KEEGAN: Yes, we do have a defensive orientation as it relates to our approach to credit and the rationale for that is largely this consumer phenomena where the balance sheet repair process is in the early stages rather than the late stages. And we do believe that with incomes not growing, the structurally high unemployment, the fact that consumers want to pay down debt rather than take on debt, that as a result of that, there’s going to be less spent on discretionary spending, given the higher commodity and input prices that we have. More spent on the things that people need rather than want.

DAVID CRAIG: Okay. And then given the move in interest rates in December do you think that provides an ominous outlook for bonds in 2011?

JIM KEEGAN: We don’t, David. We think you need to put December, like all Decembers, in some context. First of all, what I’d say is, one month does not a trend make. And if you go back and look at previous markets, and I’ll go back in a minute to December of 2009, but we’ve got to remember that market moves, up or down, and yields, or any asset price for that matter, can be exaggerated in illiquid markets. And year-end environments tend to be pretty illiquid, so flows one way or the other don’t have to be large to have exaggerated moves. And we think we had that in December of 2010. But just put that in some context, in December of 2009 interest rates rose across the yield curve. Ten-year rates rose 64 basis points in December of ’09 and in December of 2010 ten-year rates went up 50 basis points. The difference between ’09 and 2010 is that in ’09 short rates went up almost as much as long rates, so there was almost a, what we call a parallel shift in the yield curve. However in 2010 short rates didn’t go up as much and the yield curve steepened. So, we’ve got to bear this in mind, there’s still structural issues here. The Federal Reserve obviously is not doing quantitative easing to get interest rates up. As a matter of fact, they would make the argument that they’re trying to get rates to go down. So, our view is that let’s not exaggerate the move, or I should say extrapolate, the move in rates in illiquid markets to what we’re going to see in 2011.

DAVID CRAIG: Great. Great, well thanks for your insights, Jim. I look forward to talking to you next month.

JIM KEEGAN: Thank you, David.

DAVID CRAIG:  Hello, welcome to the Equity Market Five.  It is May 4, 2012, and I’m talking with Don Wordell of Ceredex Value Advisors, subadvisor to the RidgeWorth Mid-Cap Value Equity Fund, about what has been going on in the equity markets.  Now Don, after a very strong first quarter, the equity markets pulled back a little bit in April; why was that? 

DON WORDELL:  I wouldn’t get too caught up in the equity markets pulling back a little bit in April.  I mean, the first quarter we were up very, very strong and I just think that the market was digesting the big move off the lows of last October, as well as just digesting earnings that are starting to be reported in April.

DAVID CRAIG:  Okay.  Now from a S&P 500 sector perspective, Telecom and Utilities did extremely well for the month.  What are some of the reasons for that?

DON WORDELL:  I think the biggest reason is that Telecom and Utilities are defensive stocks and so with the market pulling back a little bit and then their underperformance during the first quarter, it was just a little bit of reversion to the mean; the stocks just did a little bit better in April and it was nothing more than that. 

DAVID CRAIG:  Okay, and then Financials and Technology were the laggards for the month; why was that? 

DON WORDELL:  I really think that that was a function of just a strong performance coming off the lows of October and then just the market beginning to digest the earnings reports, and the earnings reports that you get in April re primarily the Financials and even some of early Tech reports and so I think that while earnings were good, expectations were pretty high for that sector going into earnings. 

DAVID CRAIG:  Okay.  Now China has been interesting to watch over the past two months.  There is a big drop in the Chinese Stock Market in March and then a big bounce back in April.  What is happening in China and how does that impact the way you manage it in a domestic equity portfolio? 

DON WORDELL:  It definitely has an impact you know, what is going on in China is that you had an economy that was growing at 10-12% for many years and that growth is slowing somewhat and now it is a much bigger economy so it is growing off a larger base, but that growth is finally going to bottom out in the 7 to 8% range and we are just on the way down, so the markets are very nervous about China’s slowing economy.  As the economy slows, a lot of people get worried about China’s massive consumption of commodities and the impact that can have on inflation, and so really the world is just waiting to see where China’s economy bottoms.  We also have the Chinese New Year’s which really slows down things over there every year and it seems like every year in the first quarter, calendar quarter we get, all the Chinese economy worries come out because of the Chinese New Year slowing down the economy.  So I would tell you that it is the third largest economy I think in the world now and it is growing, 7.5% growth is still fantastic, but it does have an impact on how we manage money because a lot of our companies have exposure to China so it is something we have to be very concerned about. 

DAVID CRAIG:  Okay, and then finally, is there anything else that happened in April that impacted your outlook for 2012?  

DON WORDELL:  You know, the thing that has been the most impactful has just been earnings.  As people listen to these calls that I have done over the last couple of years, I sound like a broken record.  Corporate earnings are in good shape, corporate balance sheets are in good shape, and so I continue to believe that, and you have seen that with these earnings reports; you know, companies are meeting or exceeding expectations; at this point, something like 75% of the companies that have reported have exceeded analyst expectations.  Corporate balance sheets are in tremendous shape, and so I think that going forward if we can get past the macro concerns, if we can get past this election and get past the sequestration spending clip that could happen next year with the government, I think that this economy is going to do very well and the market should do very well.  So all the things I talked about are very near term issues for the next six months, which probably creates some volatility, but I come back and look at the bottom up fundamentals of these stocks and I’m encouraged by earnings and corporate earnings and balance sheets, and so we are still cautiously optimistic in the near term and very optimistic in the long term.  

DAVID CRAIG:  All right, well Don thanks for insights.

DON WORDELL:  You’re welcome.  

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time and are for informational purposes only are not intended as individual or specific advice, may not represent the opinions of the entire firm and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, is provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be and should not be construed as investment, legal, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice. Equity securities may be more volatile and carry more risks than other forms of investments, including investments in high grade fixed income securities. The net asset value per share of this fund will fluctuate as the value of the securities and portfolio changes. Mid capitalization funds simply carry additional risks since smaller companies generally have a higher risk of failure. Value based investments are subject to the risk that the broad market may not recognize their intrinsic value. Past performance does not guarantee future results. For performance data current to the most recent month-end, visit our website at www.RidgeWorth.com. An investor should consider the fund’s investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth Funds can be found in the fund’s prospectus. To obtain a prospectus, please call 1-888-784-3863 or visit www.RidgeWorth.com. Please read the prospectus carefully before investing. Mutual funds are not FDIC insured, have no bank guarantee and may lose value. Copyright 2012 RidgeWorth Investments. RidgeWorth Investments is a tradename for RidgeWorth Capital Management, Inc. an investment adviser registered with the SEC and the adviser to the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors, LLC, which is not affiliated with the advisor. Ceredex Value Advisors is an registered investment adviser with the SEC and a member of the RidgeWorth Capital Management, Inc. network of investment firms.

DAVID CRAIG:  Hello, and welcome to the Equity Market Five.  It’s April 4, 2012, and I’m talking with Don Wordell of Ceredex Value Advisors, subadvisor to the RidgeWorth Mid-Cap Value Equity Fund, about what has been going on in the equity markets.  Now Don we had another strong month with the equity markets in March that rounded out a very strong first quarter.  What were some of the highlights?

DON WORDELL:  The highlights for me in the month of March were the fact that China is clearly slowing and it’s probably slowing a little bit more than what some investors were anticipating.  The offset to that is that the Chinese government is going to use a very loose monetary policy to try and spur growth.  They’re doing things like helping the banks out over there.  What that’s going to do is probably surprise to the upside because it feels like the market was selling off because of it and we should get a nice rebound as China continues to improve. 

DAVID CRAIG: Okay.  Now from an S&P 500 sector prospective, Technology and Financials did extremely well for the month and the quarter.  What were some of the reasons for that?

DON WORDELL:  Well Financials are just continuing to rebound off the bottom, off the horrible recession that we went through in 2008.  That’s what is going on there.  Financials are beginning to see a steeping yield curve as the ten year yield backed up a little bit.  Financials are working through; most of the banks are beginning now to work through and really to get through the other side of their credit issues.  You’re continuing to see some tepid loan growth which is positive.  As far as technology goes, it’s Apple.  When Apple does well it brings the whole group up with them. 

DAVID CRAIG:  Okay.  Now, Energy, which did well in February had negative returns in March and had a pretty lackluster overall performance in first quarter.  Why was that?

DON WORDELL:  Well for two reasons and one I alluded to before was this slowing in China.  China seems to be the global indicator for commodity prices and so when China was slowing then it was a problem for the expectation for the consumption of energy globally; which is a very big worded way to say if China slows then the oil prices are going to go down.  The other thing too hurting some of the energy stocks was natural gas prices are setting ten year lows and that’s hurting the E&P (Exploration and Production) sector.  Then you had some of the big service names missed their earnings and guide lower which was hurting some of the service names.  You just had a real confluence of factors there that hurt them.   

DAVID CRAIG:  Okay.  Europe remains in the headlines.  Are European issues still having a dramatic impact on the domestic equity markets? 

DON WORDELL:   Yeah.  Yeah, they sure are and it’s frustrating.  I know Europe it’s going to have an impact a couple of different ways.  One, it’s going to have an impact on the perception of help that the markets are going to get from all the different fiscal and monetary tools out there.  Whether it is the ECB (European Central Bank) or the Fed printing money, it’s also going to have an impact on companies that operate in Europe.  Europe is probably in a recession right now, so that could have an impact on these multi-national industrial companies and their earnings outlooks; so yeah, Europe is still having an impact in more ways than one on our equity markets.  

DAVID CRAIG:  Finally, is there anything else that happened in March that impacted your outlook in 2012?

DON WORDELL:  I think the things that are really actually helping me and improving my outlook in 2012 is that it seems like the Fed, Ben Bernanke in particular, is really going out of their way now to be very transparent and let the markets know that we’re here to help if you need us.  I think that you know a lot of investors I think are still caught up on the dramatic moves in the market in liquidity that happened in 2008.  I think that those are not going to be the case for the foreseeable future.  I think that the tail risk has been diminished somewhat from that perspective.  I think that this economy while it continues to chug along at a slower recovery pace that what we’re used to, it is still getting better.  We continue to see jobs get created.  The weekly jobless claims data is at a new low for this cycle, which is great.  We’re continuing to see about 200,000 jobs month get created.  I am somewhat more positive about the overall outlook here in knowing that the economy is getting better.  I’ve got the Fed as backstop and there’s a tremendous amount of cash on the sidelines and corporate balance sheets and corporate profits still seem to be within expectations. 

DAVID CRAIG:  Great.  Alright, well Don thanks again for your insights.  

DON WORDELL:  You’re welcome. 

DAVID CRAIG:  Hello, welcome to the Equity Market Five.  It’s March 8^th, and I’m talking with Don Wordell of Ceredex Value Advisors, sub advisor to the RidgeWorth Mid-Cap Value Equity Fund, about what’s going on in the equity markets.  Now, Don, we had another strong month in the equity markets in February.  What were some of the highlights?

DON WORDELL:  I think the biggest highlights for February were two-fold; one just continued earnings expectations that are being beaten by most of the companies in the report, and the second is just continued…I think we’re something like 22 or 23 weeks of better than expected macro-economic data in the United States.  So that’s really what’s helping get this equity market going.

DAVID CRAIG:  Okay.  Now last month, large caps trailed mid and small caps, but they jumped out in front in February.  Why was that?

DON WORDELL:  I think a lot of it comes back to earnings.  You know, as the companies continue to report solid earnings and then the other thing, too, the large cap stocks have a tremendous exposure to the global macro environment.  So I think that that’s real positive as you see this continued macro-economic improvement as well as there seems to be commitment to resolution.  We can debate for hours the type of resolution you’re seeing in Europe, but there seems to be commitment to resolution in this European debt crisis situation, and that’s helping large cap stocks as well. 

DAVID CRAIG:  Okay, now from a sector perspective, Technology and Energy did quite well.  What led to that?

DON WORDELL:  I think Technology was really driven by Apple.  I know it’s not in mid cap stock, but you have to pay attention and Apple continues to knock the cover off the ball and that is the tide that lifts all the boats of technology.  Then for Energy, it’s just this continued movement up in energy prices.  I mean realistically if you look at the price of oil, you say to yourself – well, if the economy is really strong then the demand for oil should go up and we’re going to have strong prices there.  If the economy is weak, you’ve got a very aggressive monetary policy in place that will weaken the dollar and that will send commodity prices higher.  So really it’s a win/win situation.  Then you layer on some geopolitical things that nobody seems to be able to analyze; you know the Israel/Iran conflict that could really drive oil prices higher as well.  So there are a lot of positives for oil prices which then helps energy stocks. 

DAVID CRAIG:  Okay, then you mentioned Europe.  Still lots of issues over there and Greece has a big payment that’s due today that looks like it may be able to make.  How has what’s been going on in Europe affect the equity markets recently? 

DON WORDELL:  Yeah, again I come back to my earlier comment which is that we could debate for hours the structure of what they’re doing to solve the problem.  The thing that I like is that they’re doing something.  They’re not just sitting around and waiting.  They’re trying to work out a resolution, and I think the markets are just getting more and more comfortable with the fact that there are tremendous policies in place that the European Union and the European Central Bank have begun to ease.  That increase in liquidity and increase in monetary flowing and liquidity has helped the system.  So I think that that is just what people are focused on now and are comfortable that something is going to get done.  So it’s one less thing the equity markets have to worry about which makes it easier for them to go higher.

DAVID CRAIG:  Okay.  Now looking forward according to the ADP National Employment Report which was just released today, more private sector jobs were created than economists expected last month, but at the same time you’re seeing large companies streamline their work forces.  Is the momentum of job creation enough to offset the corporate streamlining?

DON WORDELL:  Yeah, I think so.  We think that you’re going to see continued movement higher in just private sector employment creation.  You know, tomorrow morning, March 9, 2012, we get the big employment number for February. I think that will come in somewhere around 200,000 jobs being created.  The unemployment rate is probably at least flat, too, maybe a little bit better.  That’s just a self-fulfilling prophesy.  It begins to feed on itself and continue that confidence and confidence breeds more confidence and creates more job creation.  So I do believe that the overall job creation will get better.  A lot of these companies I think that most of the streamlining is done.  I think that the restructuring that you’ve seen since the Great Recession as it’s called of 2008 has been done.  I think that that’s going to, I think that maybe there’s some one-off stories with companies laying off workers in different sectors of their companies.  I really think the overall hiring is going to get stronger as this economy continues with the momentum we’ve seen for the last 22 to 23 weeks.

DAVID CRAIG:  Okay.  Finally, is there anything else that happens in February that impacted your outlook for 2012?

DON WORDELL:  Yeah, you know my outlook stays cautiously optimistic.  When I look at the, you look at the continued movement higher and the leading economic indicators, you look at 22 to 23 weeks of building economic momentum.  Then I look at corporate balance sheets that are still in great shape.  With the tremendous amount of cash that still needs to get put to work, I look at earnings that continue to exceed expectations.  I’m very optimistic for equities.  My worries are just tail risk events that I can’t seem to analyze.  What impact does if Iran’s production gets shut down and oil prices spike to $150 a barrel?  What impact does that have on our economy?  Things like that are just tail risks that keep me somewhat cautious, but I’m becoming more and more optimistic. 

DAVID CRAIG:  Okay.  Great, well Don, thanks again for your insights.

DON WORDELL:  You’re welcome.

DAVID CRAIG:  Hello and welcome to the Equity Market Five.  It’s February 3, 2012, and I’m talking with Don Wordell, Ceredex Value Advisors, Sub-Advisor to the RidgeWorth Mid-Cap Value Equity Fund, about what’s going on in the equity markets.  Now Don, we’re in the earning season right now and it seems that the equity markets are responding pretty positively so far.  What are some of the highlights?

DON WORDELL:  Well, interestingly enough, like we’ve been talking about for the last few months, earning expectations have seemed to have continued to get beat.  A lot of analysts, although a lot of these companies are not maybe being on the revenue line, the focus by management teams on controlling costs and trying to do their best to maintain margins is something that should be applauded.  In the mid-cap space, we’ve had quite a few upside surprises from names like CEB or MBC Holdings, and even Apple was the, in the large-cap space was the big one so far, really needed the big highlight, so yeah, we’re continuing to see these companies that are able to at least beat or be in line with the bifid expectations. 

DAVID CRAIG:  Last month you said that you thought investors would return to looking at fundamentals in 2012.  Have you seen that start to happen or are the equity markets just broadly rising?

DON WORDELL:  Well, I believe you’re starting to see that happen, I mean, you’ve seen some stocks that when they missed the earnings, estimates to the quote really get punished, RadioShack, Abercrombie & Fitch are two that come to mind, and then you have stocks that if they beat the expectations and there seems to be some momentum behind their fundamentals, then they’ll actually do really well, so I do believe that the market is absolutely beginning to focus on individual stock fundamentals. 

DAVID CRAIG:  Okay.  Now small-caps and mid-caps led the way in January.  Do you think that can continue?

DON WORDELL:  I do, I do, right now when you look at the balance sheets of these large-cap companies just flush with cash and that cash balance is actually compressing returns to the large-cap stocks, and a lot of these large-cap stocks, if they run into issues with growing organically, they’re going to use those cash balances, especially now as we’ve seen CEO confidence come up and consumer confidence come up, we think that you’ll see them use that cash to buy growth and we think M&A (Mergers & Acquisitions) is going to be a big part of the story for small- and mid-cap stocks over the next 12 to 24 months; therefore, I think that’s going to keep a really solid bid under small- and mid-cap stocks.

DAVID CRAIG:  The other thing that happened today was the better than expected jobs report.  How do you think that will impact the next three to six months?

DON WORDELL:  Oh, I think it’s going to have a tremendous impact.  First of all, I think it’s going to begin to change the conversation around the Presidential Election.  I think that as we continue to see momentum in jobs, that’s going to help, it’s going to really do a lot for a lot of different sectors in the market and bring confidence back to the market, probably bring, what we’re hoping, is more interest into the equity markets and you should see the equity markets begin to, we think that this is not just a one- or two-day rally, begin to have a sustained rally, especially as a lot of investors are out looking at ten-year bond yields that are still below 2%.  There’s nothing very attractive about that at all, so we think that, we’re cautiously optimistic but we do believe that an increase in jobs is going to be very important for the U.S. economy.

DAVID CRAIG:   Okay, now is there anything else that happened in January that impacted your outlook for 2012?

DON WORDELL:  No, I think my outlook for 2012 is getting even stronger.  I think that the continued momentum in some of the macroeconomic data and then the fact that a lot of these companies that are reporting are still able to get at least, worst case, in line with expectations sets the market up to, we think, be a strong performer over the next 12 to 24 months. 

DAVID CRAIG:  Great.  Alright, well Don, thanks for your insights.

DON WORDELL:  You’re welcome.

Of the securities mentioned in the podcast, CEB Corporation was 1.31% of the RidgeWorth Mid-Cap Value Equity Fund.  MBC Holding was 1.20%, and RadioShack was 0.74%, Apple and Abercrombie & Fitch were not in the portfolio.   

DAVID CRAIG:  Hello, it’s December 19^th and I’m talking with Don Wordell of Ceredex Value Advisors, sub -advisor to the RidgeWorth Mid-Cap Value Equity Fund about what’s going on in the equity markets.  So Don, coming into 2011, you were cautiously optimistic about the equity markets after their strong performance in 2010.  You cited strong corporate balance sheets and earnings.  In hindsight, it turns out that those things just didn’t seem to matter much in 2011, did they?

DON WORDELL:  No, no, strong corporate balance sheets and earnings did not seem to matter.  The macro picture, the issues in Europe, some of the catastrophes that we had earlier in the year with the Japanese tsunami and earthquake, the rhetoric out of Washington, that’s what drove the volatility and equity prices this year.

DAVID CRAIG:  Okay.  Anything else in particular or were those the primary things?

DON WORDELL:  Well, I think the primary thing that really drove it was over the summer.  You know, the first quarter of 2011 everything seemed to be humming along just fine, but we were expecting a little bit better macroeconomic growth out of the U.S. economy.  But as the summer rolled on and we had the debt ceiling debate heat up and the debt downgrade and then people began to refocus on the debt that is strangling the European economies, all the while, China was trying to manufacture either a soft landing, some kind of slow down there.  You know, the market lost a lot of confidence over the summer and so therefore the equity prices really fell out.  Everything that we’ve talked about historically with strong balance sheets and corporate earnings do seem to be in good shape – it’s still there; however, I do believe that looking forward out into 2012, I think it’s going to be more and more difficult to really drive higher, to exceed expectations from an earnings standpoint.

DAVID CRAIG:  Now, you’re particular excited about the prospects for Financials in 2011 in regional banks specifically.  What happened there?

DON WORDELL:  Boy, were we wrong on that call.  You know, when we look at Financials, what happened was the confidence issues of the summer really eroded the ability for these banks to drive loan growth.  There is no loan growth out there for them to get to and the second thing is just the rhetoric around regulatory issues really just continues to be problematic for these banks.  So the regulatory issues, the lack of high quality loan growth, and then just still some of the issues that investors just can’t get their hands around capital and what the ultimate capital levels are going to be required are is causing a big headwind for these banks.

DAVID CRAIG:  Okay.  Now, let’s look ahead to 2012.  Do you think investors will start caring about fundamentals again?

DON WORDELL:  Yeah, they always do.  We’ve always had the short periods of time where the market gets focused in something.  In 1998 and 1999, it was the technology boom and in 2003, you had this low quality rally off the bottom, same thing in the second half of 2009.  But at the end of the day, the market does come back to fundamentals.  I think that in 2011, the correlations within the individual asset classes made it very difficult for folks like us that are stock pickers to differentiate ourselves in the market, but I do believe that investors will come back and look at fundamentals because they always have and they always will which is why we can continue follow our process looking for companies with fundamentals, low expectations where we think the fundamentals are better than the market thinks.

DAVID CRAIG:  Okay.  Now what sectors do you think will have the strongest performance in 2012?

DON WORDELL:  I think you’re going to see strong performance out of some of the Material sectors.  We think you’ll see strong performance in Industrials and Energy.  We continue still to believe that longer term Energy is an excellent place to invest.

DAVID CRAIG:  Okay.  Now what are the biggest risks that you see in 2012?

DON WORDELL:  Right now I think the biggest risk I see is just going to be what kind of confidence does the market have with the election year?  It’s almost what kind of issues are going to be raised.  Is anyone going to have the confidence to make investments in 2012 in front of this election and all of the rhetoric around the election is going to be probably pretty difficult.  That’s probably the biggest risk and then just the continued issues with the European debt situation and then as well as what’s going on in the Chinese economy. So it’s tough to put my finger on one thing, those are probably the top three risks in my mind.

DAVID CRAIG:  Okay.  Alright, well, Don, thanks again for your insights.  

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time and are for informational purposes only are not intended as individual or specific advice, may not represent the opinions of the entire firm and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, is provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be and should not be construed as investment, legal, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice.  Equity securities can be more volatile and carry more risks than other forms of investments, including investments in high grade fixed income securities. The net asset value per share of this fund will fluctuate as the value of the securities and portfolio changes. Midcap funds simply carry additional risks since smaller companies generally have a higher risk of failure.  An investor should consider the fund’s investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth Funds can be found in the fund prospectus. To obtain a prospectus, please call 1-888-784-3863 or visit www.RidgeWorth.com. Please read the prospectus carefully before investing. Mutual funds are not FDIC insured, have no bank guarantee and may lose value.  Copyright 2012 RidgeWorth Investments.  RidgeWorth Investments is a tradename for RidgeWorth Capital Management, Inc. an Investment Adviser registered with the SEC and the adviser to the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors, LLC, which is not affiliated with the advisor. Ceredex Value Advisors is an Investment Adviser registered with the SEC and a member of the RidgeWorth Capital Management, Inc. network of investment firms.

DAVID CRAIG:  Hello and welcome to the Equity Market Five.  It’s December 7^th and I’m talking with Don Wordell with Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund about what’s going on in the equity markets.  So, Don if you look at the 0.22% return for the S&P 500 Index in November, you’d think it was a pretty quiet month for the equity markets.  Was that the case?

DON WORDELL:  Oh, David, I think you know the answer to that question, of course not.  The month of November was another very volatile month in the equity markets.  The continued macro headlines that move the market one way or the other just are frustrating and exhausting but no, it was not at all a quiet month in November. 

DAVID CRAIG:  Now, Consumer Staples and Energy lead the way in the S&P in November.  What is it about those sectors that helped them perform relatively well in such a volatile month? 

DON WORDELL:  You know part of issue for energy was just the big move up in oil prices.  You know, as oil prices move higher because there was seemingly a resolution to the debt problems in Europe which then could get investors focused on global growth resuming then you’d see a big demand for energy.  Then with Consumer Staples, I think you just had a bifurcation in the market and some of the other commodity prices actually eased up which would help the Staples’ earnings because they’ve been really trying to match their pricing with their cost increases.  So, maybe the market was perceiving some help there as well.  It’s all fundamental but the move in oil really helped the energy stocks.

DAVID CRAIG:  Okay.  Now, Financials continue to struggle and gave back nearly 5% in the month.  Why do you think Financials still can’t find their footing?

DON WORDELL:  I think it’s the regulatory environment, the fact that the pressure from the regulatory agencies is just not easing up.  Towards the end of the month we had the indications on the stress test that all the largest banks are going to be put through next year and those stress tests are going to include testing for a sovereign default which is going to put more pressure on the results and then limit the capital return to shareholders that these banks can do.  I really think the regulatory environment is very punitive for these stocks right now. 

DAVID CRAIG:  Okay.  Now, on a positive note the unemployment rate did drop to its lowest level since March of 2009.  Do you think that drop is sustainable?  

DON WORDELL:  Well, you know unfortunately when you peel the onion back and you dig into the numbers, what you find is that the unemployment rate dropped because there were just a large number of folks that just dropped out of the workforce.  They just stopped looking for a job.  So, that skews the number.  Again, I think it comes back to the regulatory environment and confidence and as long as we have this continued class warfare, the heightened political rhetoric, and then the lack of a resolution to the global macro debt issues, I think it’s going to be very hard for the unemployment situation to get much better from here. Although it continues to grow slowly, you really have to dig behind the numbers and see that it’s probably not as good as most investors would like it to be. 

DAVID CRAIG:  Right.  Okay.  Were there any other highlights during the month that you think were worth noting?

DON WORDELL:  Yeah.  I think the biggest highlight was the end of the month.  I think what I want a lot of our clients to focus on is just the negative sentiment.  I know all the things that we’ve talked so far on this call have been somewhat negative and there is such a bearish sentiment out there on the market.  You saw right towards the end of the month what happens when the market got wind that they felt like there would be some kind of resolution in Europe I think we had a huge up-day in the market of almost 500 points.  I think there’s such, such negative sentiment that the market continues to climb that wall of worry and that’s very positive for building positions in stocks.

DAVID CRAIG:  Okay.  Now did anything that happened in November change your short to near term outlook?

DON WORDELL:  No.  Nothing at all that we saw in November would change our outlook.  We’re still, you know, near term we are cautiously optimistic.  We’ve been that way for a long time.  I think that corporate earnings continue to be in good shape.  Balance sheets appear to be in a good shape.  It seems that Europe continues to move ever so slowly towards a resolution but we are closer to one than we were a month ago and that will help the sentiment and help stock prices

DAVID CRAIG:  Great.  Alright, well, Don thanks again for your insights.

DON WORDELL:  Alright David.  

DAVID CRAIG:  Hello, and welcome to the Equity Market Five.  It’s November 4^th, and I’m with Don Wordell, of Ceredex Value Advisors, subadviser to the RidgeWorth Mid-Cap Value Equity Fund to talk about what’s going in in the equity markets.  So, Don, October looked like a mirror image of September. Materials, Energy, and Financials, which were all down the most in September, were up the most in October.  What happened?

DON WORDELL:  Well, there’s quite a few things that happened in October.  It was a very busy month.  I think the bigger drivers are going to be earnings.  As we enter earnings season, a lot of these companies in the Materials, Energy, and Financial space, were in line or exceeded the market’s expectation for earnings as well as the overall macro issues seemed to subside as Europe took another baby step forward towards solving their debt issues.

DAVID CRAIG:  Okay.  What were some of the other highlights of October?

DON WORDELL:  You know, again, I think that the other highlights that you saw, you really saw the market get way oversold at the end of September or in the early part of October.  Actually, the market bottomed on October 4, 2011, it feels like.  We think that a lot of that has to do with the expectations and the realization that earnings were going to be better than what the market was modeling.  You know, on top of that, you had the other expectation, or the highlight that I would put out there also, is you probably saw some more rebalancing going on where you had a lot of the big pension funds rebalance away from fixed income into equities. And then again, I think the bigger, overriding highlight is going to be what seems to be we’re getting closer to resolution with the debt issues in Europe.

DAVID CRAIG:  Okay.  You mentioned Europe.  There are still continued headlines about troubles in Europe.  How is that affecting the domestic equity markets?

DON WORDELL:  This market right now, the correlations are so high across stocks within sectors that it just seems like the market is just trading on whatever the next headline is out of Greece, Italy, or Spain.  So, it’s having a very big impact on the markets.  Also having a very big impact on just the overall intraday volatility which is very difficult and exhausting to trade, but it is creating opportunities.  So, we’re okay with it right now.  We think that, again, I really do feel like Europe is moving, not as quickly as I would like them to move, but moving in a direction of resolution.

DAVID CRAIG:  Okay, now the Fed just revised its expectations for economic growth lower.  Do you think that will have an impact on the equity markets?

DON WORDELL:  Yeah, and you know this is a bit counterintuitive in that I think that it will, and I think it will actually be positive, because the Fed is going to be rearview-mirror looking, so they’re going to be late.  They’re going to tell you something that you already know.  What that means is that they’re going to be there to help support the equity market, whether that’s QE3, or what have you, I think that that’s positive for equities because they know that they’ve got the Fed doing everything they can to help prop up the equity markets. 

DAVID CRAIG:  Okay.  What’s your near- to medium-term outlook for equities?

DON WORDELL:  You know, my near- to medium-term outlook has really not changed.  I’m still cautiously optimistic.  I feel like, again, I feel like we got through October.  All of the financial stocks reported earnings that were in line to better than expected.  You saw some loan growth on the banks.  Capital was still in a great position for the banks.  Credit is continuing to improve somewhat.  I think that we’ve taken a double-dip recession off the table in the United States, and I think those are all good things near-term and medium-term for equities.  I come back to corporate balance sheets are in great shape.  Cash levels have never been higher, and also you’re seeing corporations do good things for shareholders, increase dividend payments, increase share repurchase, and overall M&A, that’s all positive and shows a more positive sentiment.  So, if we keep earnings in line to better than expected and these balance sheets are in good shape, I think that the overall stock market is going to do well over the next three to six months.

DAVID CRAIG:  Okay, great.  Alright Don, well thanks for your insights.

DON WORDELL:  You’re welcome.

DAVID CRAIG:  Hello, welcome to the Equity Market Five.  It’s the week of October 3^rd, and I’m with Don Wordell of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund to talk about what’s going on in the equity markets.  So, Don, you’ve been cautiously optimistic about the equity markets for most of the year, citing strong earnings and balance sheets, but being concerned about the macro environment.  Recently the macro environment seems to be dominating.  How do you, as a stock picker, deal with this?

DON WORDELL:  Yeah, it’s been a really challenging third quarter and summer for us.  You’re absolutely right.  The macro environmental is overwhelming the fundamental bottom-up research, but the stock picking, what we did, we just stick to our guns.  We do not stray from our process.  Our process has guided us through many, many business cycles before this, and we are confident it will guide us through forward business cycles.  So, we stick to our process, which is just going back and checking and rechecking our fundamentals, and as valuations become more attractive, we just buy bigger positions in stocks that we want to own.

DAVID CRAIG:  Okay, great.  As the stock market drop has a pretty significant decline in consumer and small business optimism.  What do you think it’s going to take to reverse that downward trend and confidence?

DON WORDELL:  You know, I think what’s going to reverse it over the next six weeks is there’s going to be earnings.  I think that earnings are going to begin to be announced.  Usually you get them starting about the third week of October, and I think that earnings are going to be in good shape.  You might see some ease back in forward guidance, but I think that for the most part, most of our fundamental work is showing us that margins are going to be fine, earnings are going to be in good shape, and the market is now at a level where expectations are so low that we think it’s pretty attractive. 

DAVID CRAIG:  Okay, great.  Now the sectors that you’ve been most positive on over the next 18 to 24-month time period have been Financials, Industrials, Energy, and Materials.  These four have not performed well since June.  Do you still have a favorable long-term outlook for them?

DON WORDELL:  I do.  I still have a very favorable long-term outlook for Financials.  I think that Industrials, Energy, and Materials are probably the ones that are more suspect at this point.  I think that we’re beginning to hear about hints of questionable growth in China, and that’s going to have a big impact on Energy, Materials, and Industrials.  So, if the developing economies catch the flu that seems to be going around Europe right now, then it could be a problem for the next 18 to 24 months.  However, corporate companies that we’re looking at in this space have very strong balance sheets.  They have very strong individual catalysts that drive them higher.  But when you look at what we’ve done, we have lightened up on some of our Industrials exposure, and we have lightened up on some of our Energy exposure in this time period because you could see real softening in global demand.  That would be very short-term in nature but something that’s enough for us to sell some positions.

DAVID CRAIG:  Okay.  So, what are some of the positive things you’re seeing in the equity markets? 

DON WORDELL:  Well, just continuing along with my last comment, the positives that I saw that we’re seeing over the summer is that if the fundamentals weaken and some of the global developing economies, you’ll see money move back to the U.S. dollar and its commodity prices come down or stay a little bit lower.  What we expect for that to do is to have a positive impact on the U.S. consumer through lower pricing for gasoline, lower pricing for food at the grocery store, all of this will drive higher discretionary income.  So, we’ve taken some of the money that we’ve sold and some of our Industrial positions and bought some consumer discretionary stocks that really had low expectations and were really discounting fairly draconian outcomes for their earnings that we don’t think are realistic, and we think that they’re going to be better off than what the value of the market is giving them.

DAVID CRAIG:  Okay, great.  And let’s end with your outlook.  We’ve already been incredibly volatile the past couple of months, but what’s your outlook for equities for the balance of 2011 and then into 2012?

DON WORDELL:  I think volatility is going to continue.  The volatility is exhausting.  This is what I tell everyone.  It absolutely is, but I think that as you look forward over the short-term, over the next three months, my outlook is that earnings should come in better than what the market is expecting right now.  However, that volatility is going to continue based on, unfortunately, whatever news comes out of Europe.  It seems to be all we have to do is wake up in the morning and look at what’s going on with the European banks, and that determines the direction of the U.S. equity market.  I would tell you that at the end of the day people are describing a lot of reasons for the stock market to be going the way it does, correlations are high, or correlation across asset classes are high, or it’s European contagion, or debt crisis, but at the end of the day fundaments will win out.  I can’t tell you if that’s three months or eighteen months, but they will.  When they do, we feel very comfortable with the stocks we own and their fundamental stories going into 2012.  However, I still think you’re going to have some volatility higher than what most people like over the near to medium term because of things like the election coming up next year.  If we can get past all that, we’re very confident that this is a great time to be building positions in your equity portfolios. 

DAVID CRAIG:  Great.  Alright, well, Don, thanks for your insights.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG:  Hello, welcome to the Equity Market Five.  It is September 1^st and I am with Don Wordell of Ceredex Value Advisors, subadvisor to the RidgeWorth Mid-Cap Value Equity Fund to talk about what is going on in the equity markets.  So August was quite a month with the U.S. downgrade leading right into multiple plus and minus 4% days in the S&P, and then you had the Libya turmoil and the Fed saying that they are going to stay on the sidelines for now, and Hurricane Irene.  How did you navigate through the month?   

DON WORDELL:  It has been a very difficult month.  I have had better Augusts in my lifetime I can tell you that.  You know, you just have to stay committed to working the process.  You can’t let the macro noise distract you away from the process, which is building portfolios from the bottom up.

DAVID CRAIG:  Now in July you mentioned that investors should keep their eye on the budget negotiations and their long-term implications.  Now that the deal is done, what do you see as the long term implications? 

DON WORDELL:  I think the long-term implications really could be quite negative.  It is painfully obvious that we have to cut the entitlement programs that have been legislated into existence.  I don’t know how deep the cuts are going to be, but it is obvious that near term we can’t afford to cut because we just still have a weak recovery, but longer term they could really have an impact on things like defense budgets and even the entitlements, which would be Medicare, Medicaid and Social Security.  I think those things could be somewhat negative longer term.

DAVID CRAIG:  Let’s switch to sectors.  Industrials and Financials have taken a particular beating so far in the second half of the year; to what do you attribute that?

DON WORDELL:  I think we will start with Industrials.  It is almost like a replay from last year where it was really focused on the issues in Europe.  A lot of the industrial companies that we own in the market, they are all global.  They have multiple operations around the world and with the European austerity programs that have to be put in place, as well as the debt issues over there; it has just caused a lot of investors to doubt the sustainability of the global recovery.  With Financials, I think it is really a function, and I’m going to use a song which we used to sing as kids, the knee bone is connected to the shin bone, and that is exactly what is going on.  The Greek banks all have their paper held by the European banks and the U.S. banks hold the European bank paper, and it is just a contagion and you have got a lot of portfolio managers out there saying well we saw this in 2008 it is not going to happen to me again, so they are selling first and asking questions later. 

DAVID CRAIG::  Now Utilities and Consumer Staples have been able to pretty much stay flat in the second half.  Why is that the case?

DON WORDELL:  Well that is just a function on the Utilities you have a ten year yield that is down as we are talking 2.15% and there are a lot of utilities out there that have pretty stable earning streams that pay dividend yields in the 4, 4 1/2 and 5% range and it is a yield grab.  People are just gravitated towards the yield because they can’t get it anywhere else.  With Consumer Staples, you are just seeing the stocks do well for almost the same reason; higher yielding than the treasury and then their earning streams are somewhat more stable and while they are clearly being impacted by higher commodity costs for consumer staples, they are able to pay the dividends and it is not having that big of an impact on their earnings and so those stocks are doing much better. 

DAVID CRAIG::  Did anything that occurred in August cause you to revise your outlook?

DON WORDELL:  You know, it actually has.  I am more cautious now than I was 30 to 60 days ago.  I really feel like the European situation could be more severe this time and there is not going to be an easy answer to that.  I do believe that the U.S. economic recovery and the lack of job growth is worrisome.  Although I offset that by saying the corporate balance sheets are in great shape and corporations are still sitting on trillions of dollars in cash right now; it is just getting the right incentives for them to get that cash to work and I think you are going to hear something next week from our President along those lines.  In the near term, I am still more cautious over the next one to three months, but longer term, six, twelve months, eighteen months out, I do believe that the strength in the corporate balance sheets and all that cash will find its way back into investment and the recovery will continue, albeit probably at a little bit slower pace than what we expected or hoped for before.  

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG:  Good afternoon welcome to the Equity Market Five.  It’s August 4^th, and I am with Don Wordell of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund to talk about what is going on in the equity markets.  So, Don the story of the day is the more than 3% drop in the S&P today and the 10% drop since July 22^nd.  What do you think is going on here?

DON WORDELL:   Well, David I think that what you’ve got here is just a lot of investor concern and fear over the macro issues.  You know, you still have continued European sovereign debt issues.  We had a very embarrassing situation for our own government in trying to deal with our debt issues and then you have the threat of a debt downgrade in the United States and earnings have been coming out but earnings have not been as robust as we had really looked for.  So, you know, I think that there are just a lot of things coming together there that have caused the market to sell off. 

DAVID CRAIG:  Okay.  Now you mentioned that we just got through another earning season.  How did this one go?

DON WORDELL:   Well, these earnings were a little bit light on expectations.  I think that the market had built up an expectation that we would continue to see strong growth on the top line and then continued margin expansion and it just does not look like that is going to be the case.  It looks like that with all the global austerity programs being put in place, the cuts in the United States as far as spending here and the cuts in Europe and the fact that Asia has been slowing is going to have an impact on a lot of companies.  We still can find some very great opportunities in the Industrials, Materials and Energy sectors that we like, but we think that this market pull back is creating an excellent entry opportunity for investors with longer time horizons. 

DAVID CRAIG:  Okay, great.  You also mentioned the potential for U.S. downgrade.  What impact do you think that would have on equities?

DON WORDELL:   You know, I really think that the market is well aware of it, and at the end of the day I just don’t think it’s going to have that big of an impact, but I think that the market is panicking over it.  You know, look, I think you might see your overall cost of capital go up by 20 to 50 basis points across the board.  It would probably cause some higher interest rates for risky borrowers, but I just don’t see it being that material an impact, and in fact, if it’s keeping us from doing some things that need to be done I would say let’s go ahead and get it on. 

DAVID CRAIG:  Right, absolutely.

DON WORDELL:   You know let’s get the downgrade behind us and move forward because I really, I just don’t think it’s going to have that big of an impact.

DAVID CRAIG:  Okay, now let’s look at July specifically.  You said the macro environment doesn’t look good.  The earnings were a little softer than you expected, but were there some highlights that you saw?

DON WORDELL:   Yeah, I think the highlights that we saw were in some of the industrial names that have global exposure you know.  I also think that Technology is going to continue to do very well looking forward as well.  So, you know there are some upsides.  I mean, one of the sectors that has been the most hated since this debt debate in the United States has been Health Care, although, my healthcare companies that reported all reported pretty good earnings.  So, you know I really think that we are in a good spot there in some of those names.  You also continue to see mergers and acquisitions.  I think M&A is going to be a very big theme going forward because, as I’ve talked about, corporate balance sheets are in great shape and if these companies can’t grow organically they are going to grow through M&A and we’ve seen quite a few deals get done and have created some attractive opportunities again for longer term investors because I can’t analyze the macro impact on the next three months, but I think over the next twelve to twenty-four months we are in really good shape in equities. 

DAVID CRAIG:  Right, okay, good.  You mentioned a little bit about your outlook.  As the macro environment continues to have headwinds, was there anything specific that would change your cautiously optimistic outlook? 

DON WORDELL:   Well, you know, the thing that I am actually probably a little bit more optimistic here because now I think the market is beginning to discount the little bit slower growth that we are probably going to see over the next three to six months.  However, as I look out, again, over the next twelve to twenty-four months or even longer I continue to see stocks that are great opportunities to own, stocks with great dividend yields.  Their valuations are much more compelling now that they have pulled back after these earnings reports.  Great entry opportunity and we are also seeing some decent fundamentals out there.  You know, auto production is going to go higher.  We have had a pull back in oil prices, which will help the consumer and there is still that global demand for energy that creates the need for industrial infrastructure and then the final two things I’ve mentioned which would be positive is that we are in the front end of a pretty long commercial aerospace cycle and housing is still bouncing along the bottom and if housing gets a little bit better because we get some more clarity on the economic situation in the U.S. then I think that would be positive.  So, there are some things just to hang your hat on that get me more excited after this 10% pullback in the market.

DAVID CRAIG:  Good.  Alright.  Well, great Don.  Thanks for your insights.

DON WORDELL:   You are welcome.

DAVID CRAIG: Good afternoon and welcome to the Equity Market Five.  It’s the week of July 4^th and I’m with Don Wordell, of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund, talking about what’s going on in the equity markets.  So, Don, despite a pretty weak end to the second quarter, the equity markets performed pretty well over the first half of the year.  What did you see as some of the highlights?

DON WORDELL:  You know, in my opinion I think the biggest highlight is just the continued strong corporate earnings that we’re seeing.  You know we had a very strong fourth quarter reported in January and then we had a very strong first quarter reported in April.  I think the markets are going to follow earnings and fundamentals and we continue to see a solid outlook for corporate earnings going forward. 

DAVID CRAIG: Great.  Now what do you think caused the pull-back in June?

DON WORDELL:  Oh, gosh.  What didn’t cause the pull-back in June?  I mean, you had these continued sovereign debt issues, primarily focused on Greece.  You had very high oil prices driven by, again, geopolitical issues, this time centered in Libya and then you had probably just a contentious debt ceiling and budget negotiations in our own congress.  There’s a myriad of reasons that caused the pull-back.  They all seem to be very short-term and manageable in nature.

DAVID CRAIG: Okay, good.  That leads to the next question.  Are any of those you mentioned really long-term risks or were there any other things you see as long-term risks that happened in the month?

DON WORDELL:  You know, one of the things I think that investors need to be focused on is really the U.S. budget negotiations and debt ceiling.  I think that could have some long-term implications for the equity markets because some of the data that I’ve seen out there is the short-term spending by the government has really been a big boost to a lot of businesses and primarily the consumer and I think near term, Bernacke gave a speech that really focused on hey look we need the government in the short-term while this economy continues to recover from what was a devastating blow, the housing crisis.  So, I think near term you’re going to see a lot of issues there that need to be worked out that could have longer term implications.

DAVID CRAIG: So, specifically how would that debt ceiling issue impact the way you look at companies or even industries?

DON WORDELL:  Well I think for example it’s just something you have to keep in the back of your mind when you’re analyzing fundamentals of a company is how much are they, if at all, dependent on the federal government for funding or for revenue sources.  You know, those are things that are very important but then you also have to look at the end consumer and how much that consumer of whatever product you’re selling is dependent upon the government.  For example, it’s always easier to explain things with examples.  A lot of our industrial companies do work for state and city governments that could be impacted by federal spending and tax revenues.  You know, another situation could be banks and their capital requirement and things that could be set by the government.  So, there are a lot of things that are going on with the regulation in Financials but more importantly just spending at the state and local municipal levels that could have an impact.  So, there is just a myriad of things to keep looking at as you’re doing your fundamental work.

DAVID CRAIG:  Okay, great.  You mentioned the past two earning seasons and how strong they were.  We’re entering another earning season now.  What do you expect to see when companies report this time?

DON WORDELL:  You know, we haven’t really had a lot of negative pre-announcements.  We just haven’t and some of the corporate earnings of the companies that report earnings that have May fiscal year ends and so they report during June, have been strong.  We expect another quarter of good earnings from these companies.  I don’t expect margins to continue to blow out expectations like we saw in the fourth quarter and the first quarter.  I do expect to see some tapering off of margin expansion, but I do not expect to see bad earnings reports.  I think the issue that investors are going to be laser focused on is going to be the outlooks and commentary for management and we’re one of them.  We’re going to be laser-focused on outlooks.  We continue to see positive outlooks and we think that going into this earning season expectations are very low for earnings, so I don’t think it’s going to be a difficult hurdle for investors to get over in the market to continue to work higher if earnings and outlooks are okay.

DAVID CRAIG: Okay great.  Let’s end with a bit of an outlook as we always do, you’ve been cautiously optimistic each month that we’ve talked this year about equities.  Do you remain that way?

DON WORDELL:  I do.  I’m cautiously optimistic because we need to get some of these things that I mentioned before that are more macro-related solved.  We need to get a more permanent solution, which I think we’ve gotten a more permanent solution with the sovereign debt crisis in Greece and we’ve got to make sure that cotangent does not spread to other countries.  We need to get the debt ceiling and the budget issues in the United States fixed and so those are two big things that just keep the cautious in my cautiously optimistic, but again I fall back on corporate balance sheets are in great shape.  Fundamentals seem to be okay and I think that stocks continue to look very attractive relative to bonds and I think they are a great place to be invested.

DAVID CRAIG: Great.  Well, once again Don, thanks for your insights.  

DAVID CRAIG:  Good afternoon and welcome to the Equity Market Five.  It’s the week of June 6^th, and I’m with Don Wordell of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund to talk about what is going on in the equity markets.  Don, last month you mentioned a few commodities that you had your eye on including oil, copper, cotton, and coffee.  All but copper declined by about 10% in May, but copper held its ground.  Why is copper so important, and why do you think that the price of copper is holding up when the other commodities are declining in price?

DON WORDELL:  Well, I think the answer to that question is that copper is just going to be such an important commodity to the urbanization of all of the developing economies in developing worlds.  Copper is the commodity that has a very high utilization, and so it’s not going to be moved as dramatically as say some of these others that can be highly impacted by just trading flows.

DAVID CRAIG:  Okay.  Now looking at sectors, May was a big month for Telecom after a relatively flat first four months of the year.  What happened there?

DON WORDELL:  I think you’d probably have to say the AT&T, T-Mobile deal was what happened there.  You know that really firmed up a lot of the deflationary pricing to what some analysts were expecting, you know as cell phone pricing probably goes down and down and down for more minutes, that merger would consolidate and create some pricing power, and so I think that’s probably why there was some action in the telecom stocks.

DAVID CRAIG:  Okay, great.  Now Health Care and Energy which started the year strong looked to be losing some steam.  What do you think is leading to that?

DON WORDELL:  Well, you know, with Energy it’s just the price of oil moving down from $120 down to $100, that’s probably what’s driving that.  And then you know in Health Care I really don’t have anything I could put my finger on that happened in the Health Care space.  Probably if I had to guess, I would say maybe some of the political rhetoric around Medicare, Medicaid, spending cuts, you know just the overall impact that could have on healthcare stocks in the future.

DAVID CRAIG:  Okay.  Now Industrials and Financials have yet to kick into gear this year.  Do you think that will change.

DON WORDELL: I do, you know anyone that listens to these calls knows that I’m somewhat bullish on the banks, I’m bullish on Financials, and I think that, you know what we need for these financials to get going is just one of the frustrating things for me as an investor is just the lack of clarity from the Fed on what the rules are going to be for capital.  It always seems to be a moving target recently, and that’s I think as we get some more clarity over the next few months on what those rules and those levels of capital required are going to be, I think investors would be a lot more comfortable with the banks going forward.  The other thing too with industrials is there’s just been some, you know you get the summertime slow down, we had the same experience last summer, and we still haven’t solved any of the European sovereign debt crisis that’s going on in Europe, and you know a lot of these industrials are multi-national and can be impacted by austerity programs in Europe, and so you know again I don’t think it’s anything that I’m too concerned about yet, because I still see strong revenue growth on the industrial side.  I just think it’s going to take some time, because we’ve had strong leads off the bottom even though the last three months have been somewhat flat.

DAVID CRAIG:  Okay.  So what are some of the other highlights of the month for you?

DON WORDELL:  The biggest highlight for me was the dramatic move lower in energy prices, and that’s actually a tax cut to the consumer, but what’s interesting is energy is still, oil is still holding in there at $100 a barrel.  I continue to think over the longer term that the marginal costs to produce a barrel of oil is going up, and energy prices are going to be higher than what the average consumer wants.  And so I think that this is opportunity to add to our energy positions which we’ve taken, and we’re more bullish in energy now going forward, and I continue to be committed to the financial positions we have.  And then finally I’d probably leave you with, you know there’s just a dramatic thirst for yield.  Everyone is stretching for yield, and you’re seeing that with ten-year treasury rates hanging around three percent, and you’re also seeing the valuation of REITs.  When you look at the valuation of REITs now, they’re back above where they were in the 2005-2006 range in the last peak.  So we’re very much out of the way of the REIT space right now, and that could be somewhat painful if it keeps going this way for a while.

DAVID CRAIG:  Okay.  You mention REITs.  Are there any other risks that you see based on what happened during the month?

DON WORDELL:  You know I would just really be cautious on REITs and cautious on stocks that are up because of a stretch for yield not because of the real fundamental story of the underlying business.

DAVID CRAIG:  Okay.  You’ve been cautiously optimistic all year.  Do you read them that way?

DON WORDELL:  I’m still that way.  I still think that there’s a lot of moving parts.  I think the most difficult part of the job now is trying to work our way through the cross-currents on a macro basis.  As much as we like to be fundamental-research, bottom-up stock pickers, the macro cross-currents now are as difficult as I’ve ever seen them in my 15-year career.  So I’m still cautiously optimistic, because I come back to fundamentals, balance sheets are strong, earnings are still in good shape, and we have a very accommodative fiscal and monetary policy so, it feels like the market is just taking a pause, it’s just discounting maybe taking into account some of the, like I talked about before about the political rhetoric around debt ceilings and budget deficits and European debt issues, all those are macro things that can be fixed, and I think we’ll be fine in the, and then when you layer in all the things like we had, the storms, we had the tsunami and the earthquake in Japan and the storms across the U.S., I think all those things are reasons to give the market a short-term pause, but I think longer term over the next 12 to 18 months, we should do fine.

DAVID CRAIG:  Great.  Alright, well thanks again for your insights Don.

DON WORDELL:  Oh, no worries.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG:  Good afternoon and welcome to the Equity Market Five.  It’s the week of May 9^th, and I’m with Don Wordell of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund, to talk about what’s going on in the equity markets.  Don, entering earning season last month, you were hoping to see more revenue growth in companies and increased loan demand within banks.  Did you see what you were looking for?

DON WORDELL:  Yeah, we sure did.  About 90% of the S&P 500 has reported earnings, and we are seeing a large majority of those companies that have reported, beat analysts’ estimates on revenues, on earnings, or both revenues and earnings.  And as it pertains to the banks, we are seeing some incremental signs of loan growth in commercial real estate as well as C&I (commercial and industrial) lending.  Overall loan growth is still a little tepid because most of the banks are still trying to bleed down their mortgage portfolios.

DAVID CRAIG:  Okay.  What were some of the other highlights from last month?

DON WORDELL:  The biggest thing that I would pick up on would just be the commodity price and volatility and the impact it can have on consumers.  You know oil prices had spiked up to into the $112 - $113 range and last week pulled all the way back below $100, so that volatility is something that we need to watch for the long-term impact on the consumer because it’s essentially higher oil prices act as an increased tax on consumers.

DAVID CRAIG:  Okay.  And this ties right into that, but you mentioned in last month’s podcast that the price of oil was getting to a level of demand destruction.  The current data is showing that gas sales have started to decline as consumers are actually starting to drive less.  Do you think that this will have a major ripple effect throughout the economy as a whole?

DON WORDELL:  I do.  I do.  I think that if, you know, oil prices were to continue to move higher, it would have a very negative impact on the economy, because like I said, it’s clearly as a tax on the consumer, but near term we’ve seen a pullback in oil, and that’s been very positive, so it’s something that we’re monitoring very closely in our stock selection process.

DAVID CRAIG:  Okay.  Are there other commodities that you think people should be watching?

DON WORDELL.  Absolutely.  I think it’s important to watch copper.  Copper is such a global commodity, and it’s clearly an indication of demand in the emerging markets and the developing markets around the world.  I think copper is very important.  I also think it’s important to watch cotton and coffee because those are highly tied to the consumer.

DAVID CRAIG:  Okay, alright.  Now employment continues to be mixed as hiring seems to be increasing a bit, the unemployment rate actually ticked up this past weekend, so what types of companies do you think will do well in this environment?

DON WORDELL:  Employment has always been a lagging indicator, always.  But if we can get this employment to continue to get better over the next twelve to eighteen months, which is what we expect, it’s not going to be a straight line down for unemployment or up for employment, but we think that as employment gets better as consumer and CEO confidence gets better, we think that consumer discretionary stocks are going to be one of the biggest beneficiaries simply because it’s going to lead to an increase in disposable income.  We also feel like the banks will be big beneficiaries because it’ll help people to continue to make good on whatever credit they have out there.

DAVID CRAIG:  Okay, great.  Let’s end with a bit of an outlook.  You were pretty positive about the coming three to six months when we talked last month.  Did anything happen in April to change that?

DON WORDELL:  Absolutely not.  I’m still positive when I look out over the next even three to six or even longer because again I come back to balance sheets are in great shape, debt-to-cap is as low as it’s been since the last business cycle, and there’s lots of cash on corporate balance sheets.  Earnings are in line to better than the market is looking for, and we still have tremendous fiscal and monetary stimulus as well as you have a president that really wants to get re-elected, and so he’s going to do whatever he can to facilitate employment and consumer confidence.  So I think you’ve got a lot of things working in your favor, and we’re still very constructed along the equity markets.

DAVID CRAIG:  Great.  Alright, well thanks again for your insights Don.

DON WORDELL:  You’re welcome.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG:  Good afternoon and welcome to the Equity Market Five.  It’s the week of April 4^th, and I am talking with Don Wordell of Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund about what is going on in the equity markets.  Don, going into the quarter you were cautiously optimistic about equities.  Now that we are looking back on the first quarter, what met or exceeded your expectations and what didn’t?

DON WORDELL:   Well, I would say that the thing that met my expectations and exceeded them most was earnings.  It was really great to see these companies that we own and companies in the market overall continue to print earnings on a quarterly basis that exceed analysts’ expectations.  The other thing that really exceeded my expectations was the continued strength in the balance sheets of these companies.  We’re very much excited about how strong the balance sheets are coming out of the crisis we were in two years ago. 

DAVID CRAIG:  Okay, anything not meet your expectations?  

DON WORDELL:   You know, I guess the thing that probably left me a little worried would be the pricing power.  We haven’t seen the level of pricing power that we were expecting yet, but we are confident that the companies that we own have that pricing power.  We are still cautiously optimistic on that. 

DAVID CRAIG:  Okay, great.  Were you surprised by how the market reacted to the major global events that occurred in the quarter?

DON WORDELL:   Yeah, I was as surprised as everyone else.  The market has been able to really show a lot of resilience over the last three months with all of the things going on, and I think it just speaks to the demand for equities in what is going to be an inflationary environment going forward.

DAVID CRAIG:  Now, last month you said that some of the macro things you were keeping your eyes on included commodity cost and deficit suspending.  Oil just hit a 30-month high, and it looks like getting a budget through that addresses the deficit through Congress is not going to be an easy thing.  How are these factors impacting your outlook?

DON WORDELL:   It is keeping me cautiously optimistic.  I think that oil here is getting very close to the level of demand destruction, and if you look at our portfolio you will see that we are underweight the consumer stocks, and that is because we are very cautious on the impact that higher oil prices, which just translate to higher prices at the pump which really translate into just an increased tax on the consumer.  We are cautiously optimistic.  So, we think that you are going to reach here, real soon, a point where when you have demand destruction; it will bring the price of oil down aggressively.  As far as the government and deficit spending, you know that is something that does bother me, and it is something that I am very, very cognitive of and keep close tabs on because that could have a big impact on a lot of macro interest rates, dollar, and I know these are macro factors, but they have an impact on a lot of the industrial and multinational companies.  So, it is something that we continue to monitor quite closely.

DAVID CRAIG:  Great.  Now, as for the overall economy, are you concerned that even as hiring as picking up, housing prices continue to drop?

DON WORDELL:   No, because of the housing price data that we see, and I don’t know if you are referring to the Case-Shiller index or some other index, that data is not statistically significant as well as we just had a very, very difficult winter where we had tremendous snowfall and extreme cold all across even the southeast.  Where here in the northeast there is a true seasonal factor, but in the southeast where even you can still see homes bought and sold during that time period, that came to a halt.  So, I am not at all concerned about a couple of months of price data.

DAVID CRAIG:  Okay.  Now what are you expectations for the second quarter and the balance of the year?

DON WORDELL:   Our expectations continue to be quite positive.  I mean, I think that we are a couple of weeks away from the beginning of earning season again, but you know look, one of the things that we didn’t hit on a second ago about the first quarter that we like about the second is you are beginning to see revenue growth.  You’re beginning to see loan demand on the income statements of banks, and you are beginning to see some revenue growth as well as those companies, those larger cap or bigger companies that can’t grow identically have great balance sheets and huge cash balances to go out and make acquisitions, and they are going to buy mid-cap stocks.  So, you know, we are optimistic about the next three to six months in the equity markets. 

DAVID CRAIG:  Great.  Alright, well thank you for your insights Don. 

DON WORDELL:   You are welcome.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG: Good afternoon, welcome to the Equity Market Five. It’s the week of March 3rd, and I’m talking with Don Wordell of Ceredex Value Advisors and sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund about what is going on in the equity markets. Don, when talked last month we were in the middle of earning season. Now that we are through it, what’s your assessment of the general health of companies?

DON WORDELL: It’s been our thoughts down here, and our research has said that these companies are in good shape. You know, corporate earnings are in good shape. The companies over the last three years, back when we were staring into the abyss in late 2008 or late 2009 of the great recession, restructurings, shuttering high cost, manufacturing, shuttering nonproductive SKUs, selling non-core businesses. Companies just went through massive restructuring, and that is now clearly coming to the forefront when we look at earnings where margins are better than expected. So, we are still very comfortable with corporate earnings.

DAVID CRAIG: Good. Last month you talked a little bit about Financials. Are there other sectors that are looking particularly strong with you?

DON WORDELL: Yeah, right now we really like the Industrials. We are finding just tremendous opportunity, many, many stocks that seem to have such low expectations according to our work in the industrial space that we think over the next two years that there is just a tremendous amount of opportunity in industrials land.

DAVID CRAIG: Great. Now, in February growth outperformed value for both mid and small-caps but value outperformed for large-caps. What happened there?

DON WORDELL: You know, I think that was probably driven by, it seems like, the most recent push, I hear, in the market place is just looking for high-yield stocks. So, most of the companies that are dividend paying stocks are in the value land, are considered value stocks, and so large-cap value you saw some rotation of money out of fixed income and into equity. The first thing they are going to buy when they rotate out of fixed income into equity is they are going to buy large-cap value, the big dividend payers. In the mid-small space the growth there was probably just a catch up because I think it was the exact reverse in the fourth quarter where the value did very well in the fourth quarter relative to growth. So, I wouldn’t read too much into it. 

DAVID CRAIG: Okay, is there anything that happened in February that caused you concern?

DON WORDELL: Oh, I mean absolutely. I think you see it on the news every day. The thing that really bothers me is just the price of oil. The unrest in Tunisia, which then spilled into Egypt, which has now spilled into Libya, is very disconcerting to me. It is something that we have to be very, very cautious of. While, in the long-term I think it will be very beneficial because you are creating markets that will hopefully become democratic, and that will lead to better and more stable economic growth out of that region, but at the same time, in the near-term there is a tremendous amount of concern over the ability to supply oil. So, you know, we are still dependent on that region of the world for our oil, and you’ve seen oil move here from here somewhere around the high $80s to today, as we are talking about it, it is at $103 and that is WTI. Brent crude is probably closer to $120. So, that gives me concern because at the end of the day, higher oil prices do translate into, essentially, a tax on the U.S. consumer because every time you go to the pump to fill your car or your boat or your lawnmower with gas you are paying more for it. So, it’s something that really concerns me right now.

DAVID CRAIG: So higher priced oil could almost stall the recovery you think?

DON WORDELL: Yeah, it’ll take some steam out of it. How about that. It’ll really hurt the lower-end consumer relative to the higher end. I mean, those are the folks that I’d be most concerned about because they are the ones that are still struggling with maybe mortgage payments or homes that are worth less than they owe on them and it’s just something that you really want to be cautious of right here.

DAVID CRAIG: Okay. What are some of the key things you have your eye on right now?

DON WORDELL: The things that we’re looking at on a stock basis are we’re really looking for companies that have pricing power, technological innovation. Those are things that we’re very interested in. On a more macro level, the thing that I’m laser focused in, on top of what we just talked about which would be the commodity cost, is the deficit spending and the impact that could have on the U.S. dollar and interest rates over the longer term. So, we’ve got a lot of things we worry about on a daily basis, but those are probably the most important.

DAVID CRAIG: Okay. Well, thanks for insights Don.

DON WORDELL: You’re welcome.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG: Good afternoon and welcome to the Equity Market Five. It’s the week of February 1st, and I’m talking with Don Wordell at Ceredex Value Advisors, sub-advisor to the RidgeWorth Mid-Cap Value Equity Fund, about what’s going on in the equity markets. Don, large-caps and mid-caps had a very strong start to the year. To what do you attribute that?

DON WORDELL: I would say that the strong start to the year for those two asset classes is going to be driven by earnings. We’ve really gotten a tremendous amount of large-cap and mid-cap earnings reported year-to-date, as well as portfolio rebalancing. Small-caps had a very strong move coming off the bottom in 2009 and 2010, so there’s probably been some rotation into large-caps, mid-caps, as well as like I mentioned before their earnings being better than most analysts have estimated, and so therefore you are going to get some good rotation of money and the stocks working and doing better.

DAVID CRAIG: Great and you touched on this, we’re in the middle of earnings season, so have there been many earning surprises?

DON WORDELL: I would tell you that overall most of the earnings surprises have been to the positive. Of course you always have one off stocks that surprise negatively, but overall it’s been our experience so far through earnings season that earnings have been inline to better than analyst's estimates.

DAVID CRAIG: Now in the headlines there’s been a lot of news about what’s going on globally. How does what’s going on globally impact the way you manage a domestic equity fund?

DON WORDELL: Well it has a tremendous impact. I mean take for example just the issues in Egypt from the last ten days or so. That has a tremendous impact on the commodity prices, especially the price of oil. As oil prices move up that has a huge impact on the U.S. domestic consumer, primarily prices at the pump. Oil prices are directly correlated to prices at the pump, and so as prices move higher gas prices move higher and that impacts consumer discretionary dollars. As a portfolio manager it is clearly a part of my job, and a very important part of my job, is to maintain a watchful eye over what’s going on globally and how it can impact stocks domestically.

DAVID CRAIG: Did anything happen in January, you mentioned Egypt as one, that has impacted your outlook for 2011?

DON WORDELL: Going back to what we eluded to earlier, I think what happened in January was the relatively strong earnings reports. We were cautiously optimistic coming into earnings reporting season and by and large most of the earnings reports have been better than expected, as well as getting the updates on corporate balance sheets, that’s also a very important part of earnings, and the corporate balance sheets are in great shape, better than they were coming out of the last cycle back in 2003. With $2 trillion in cash on the balance sheets of corporate America, we’re very excited about the M&A opportunities, as well as the increase in capex (capital expenditure) spending that we expect from all the accommodative fiscal and monetary policies, which all these things work to drive a higher equity market, we think, in 2011.

DAVID CRAIG: Ok, great. We talk about earnings and how most of them were higher. Is there any particular sector where earnings surprises have been more prevalent or has it been pretty broad based?

DON WORDELL: One sector is Financials, and what we saw through reporting of fourth quarter earnings in January was that the earnings of these, what you call the super regional, or we’ll call them mid-cap banks, were better than expected. Credit has stabilized; loan growth has bottomed and is beginning to grow again. The capital position of these banks is all in good shape, they’re going to start growing their dividends soon, and their valuations are extremely attractive. Overall we think that financials are a place that you’re going to see earnings upside surprises over the next twelve to eighteen months.

DAVID CRAIG: Great, well thanks for your insights Don, and I look forward to getting an update from you next month.

DON WORDELL: Great David.

DAVID CRAIG: Good afternoon. It’s the week of January 4th and I’m talking with Don Wordell, of Ceredex Value Advisors, subadvisor to the RidgeWorth Mid-Cap Value Equity Fund, about what’s going on in the equity markets. So, Don, can you give us a brief synopsis of how the equity markets fared in 2010?

DON WORDELL: Sure, David. The equity markets were really strong in 2010. The large caps, you know the S&P 500, was up about 12%, but the area of the market that I spend most of my time focused on is the Mid Cap space. The Mid Cap space was up almost 25% last year – outstanding year for Mid Cap Equities in 2010.

DAVID CRAIG: Great. And going into the year, were you expecting those good returns or did that surprise you a little bit?

DON WORDELL: We were pleasantly surprised in the second half of the year. We expected the market to continue to recover from the financial meltdown that happened in late 2008 and the recession in early 2009. We expected a continued recovery; what we did not expect and turned out to be a pleasant surprise was the amount of help that we’re getting on the monetary and fiscal policies in creating so much liquidity, which has been a boon for equity investors.

DAVID CRAIG: Great. Was there anything else that surprised you about the way things unfolded in 2010?

DON WORDELL: One of the things, out of many that did really well last year, was the continued recovery in banks. We have expected the credit situation to stabilize and it has, and the fact that the banks seem to be earning their way through this mess is a nice positive for our economy, as well as for equity markets considering financials are 30% of the Mid Cap benchmark.

DAVID CRAIG: Oh, okay, good. What about 2011? Are you bullish on 2011?

DON WORDELL: We are cautiously optimistic on 2011. You know, the things that make me very excited about equity markets are things like corporate earnings are in good shape, you know, balance sheets, corporate balance sheets are better than they were in the last recession. And I define better as debt to cap (debt-to-capital ratio). Their corporate balance sheets are underlevered, there’s a tremendous amount of cash on corporate balance sheets – almost $2 trillion. So we expect to see capex (capital expenditures) move higher, we expect to see more M&A (mergers and acquisitions), and we expect earnings to continue to do very well here. All of which should argue for, you know, continued flows and a continued turn in flows from money out of bonds and into equities, which should help the markets. So we are cautiously optimistic that 2011’s going to be another stellar year for equity investors.

DAVID CRAIG: Good. And then your strategy is so focused on, you know, one of the three main components is the dividend component. And do you think dividends will be a significant help to equity returns in 2011, or moderate help?

DON WORDELL: I think dividends will always… it’s not so much the absolute return levels of dividends that are going to be helping in 2011. I think what is going to help is that companies that have a long history of paying dividends through varying economic cycles are sending a tremendous signal to the marketplace about the health of their business model, the health of their balance sheet. So we think that the companies that have maintained their dividends over the last, call it five years even, are companies that are going to be receiving a outsized amount of attention from investors going forward. Because investors are clearly looking for some income, but also the stability and strength of these companies. Those are the reasons that we think dividends are going to be, you know, very strong for investors as a focus point on their investment process.

DAVID CRAIG: Great. And then what sectors, specifically, are you paying most attention to now?

DON WORDELL: Right now we are, as I mentioned before, we’re overweight Financials. We are excited about the opportunity to invest in regional banks. Regional banks are… when you look at our process, which is really focused on three things: dividends, valuation, and then fundamentals, we think that banks really flow through the process very strongly right now. Banks have the ability now to grow their dividends, their balance sheets are in great shape with the continued, you know, the capital levels have been repaired, and then the continued improvement in credit has also allowed them to generate the excess capital. And then you look at just the fundamentals going forward, as the economy recovers. And we talked before about corporations having, you know, strong growth in capex and M&A, those are all positives for bank earnings for asset growth. And then with the Fed helping out from a monetary standpoint, then you’ve got a steep yield curve, which is also very positive for banks. So banks really flow through our process very well. We’re overweight and, you know, that’s probably the one sector we’re paying the most attention to right now.

DAVID CRAIG: Great. Well thanks for your insights, Don. And I look forward to getting an update from you next month.

DON WORDELL: Thanks, David.

DAVID:  Hello and welcome to Style Class Focus Five.  It's May 3, 2012, and I'm talking with Brian Nold of Seix Investment Advisors, subadvisor to the RidgeWorth High Income Fund about the high yield market.  So Brian, after our last interview about the high yield market in early November, high yield had a pretty good sell-off in November but has been steadily climbing since then.  What has been happening in the high yield markets? 

BRIAN:  Thanks David.  There’s really been three main drivers of the improved trading environment within the High yield market and one is the strong fundamental performance that we're seeing in high yield companies in terms of strong earnings.  The second would be the degree of stabilization that we are seeing out of Europe, and then the third is the strong inflows of cash that have come into the high yield market with between $15 and $16 billion of inflows just on the retail mutual fund side into the high yield market which is only a fraction of what actually comes into the whole market.

DAVID:  Okay.  Now in November, spreads were about 713 basis points which you said implied a forward default rate of about 7%.  What's been the default rate over the past twelve months?

BRIAN:  Well, the default rate's actually been just below 2% over the last twelve months so very low levels by historical standards and that's really been driven by the strong fundamental environment that we're seeing for high yield companies as well as the improved access to capital for high yield companies in general, so there hasn't been really a driver to push companies into bankruptcy or to distress.

DAVID:  Okay, and then where are spreads now and what does that imply about the forward default rate?

BRIAN:  Spreads are just under 600 basis points, so about 589 basis points at the end of April and if you figure out what that implies, it's about a 5% or so default rate and that in relative comparison to projections of about 1.5% to 2% default rate over the next twelve to eighteen months, that's based on kind of a bottom up analysis of the high yield market, so we think that current spreads are significantly overstating the potential default risk and that's likely due to where absolute yields are, so yields in the higher market are just under 7% in the high sixes right now and that relatively low yield is masking the fact that spreads are still wide and that really the underlying connection there is how low absolute Treasury rates are.  There's probably some kind of artificial floor as to how low absolute yields will get despite whatever the default rate may be implied. 

DAVID:  Now you mentioned in November that many companies had already refinanced debt they had at lower rates.  What does the high yield new issue look like today and what are the companies using for that debt floor? 

BRIAN:  The new issue market's robust.  It's very strong.  We've seen $113 billion in year-to-date new issue and that's up about 12% year over year and about 60% or so is being used for refinancing and a relatively small amount is being used for more aggressive activities like share repurchases or aggressive M & A (mergers and acquisitions), so overall, it's a very positive environment for credit given the use of proceeds.

DAVID:  Okay.  Now let's move to Europe.  How have the issues in Europe been impacting in the high yield market regionally?

BRIAN:  With the relative stabilization that we've seen in Europe, really driven by the improved access to liquidity for European banks has driven kind of more global risk appetite for investors, and we are seeing some of that flow through in terms of capital flows into the high yield market.  From a fundamental standpoint, we are seeing a little bit of stabilization in the European operations of U. S. companies that are in high yield markets, so they are seeing some stabilization albeit at lower levels of activity.

DAVID:  Were there any other highlights in the high yield market that we missed?

BRIAN:  I think I'd just reiterate the strength and the fundamentals in high yield companies which is the most important takeaway and that's really shown by three things, which is decreasing leverage, strong free cash flow and strong liquidity.

DAVID:  Okay and then what's your outlook for high yield? 

BRIAN:  Well, high yield is up a little over 6% year-to-date and we have seen spread tightening year-to-date.  Really the first quarter was pretty strong.  We saw some further spread tightening in April.  We would expect most of the return for the rest of the year in high yield market to really be driven by the yield component or the coupon in the bond.  We do expect fundamentals to remain strong, so we would expect any macro-induced volatility that may come into the high yield market will likely present a buying opportunity.

DAVID:  Okay, great.  Well Brian, thanks for your insights.

BRIAN:  Great.  Thank you very much.

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advice. May not represent the opinions of the entire firm, and may not be relied upon for individual investment purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered and is not intended to be authoritative. All information contained here is believed to be correct. Accuracy cannot be guaranteed. This information may coincide or conflict with activities of portfolio managers. It is not intended to be and should not be construed as investment, global, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice. Bonds offer are relatively stable level income, although bond prices will fluctuate, providing the potential for principal gain or loss. Intermediate term, higher quality bonds, generally offer less risk than longer term bonds and a lower rate of return. Although the Fund's yield may be higher than that of fixed income funds that purchase higher rates, the potentially higher yield is a function of the greater risk that the Fund share price will decline. Past performance does to guarantee future results. For performance data current to the most recent month end, visit our website at www.ridgeworth.com. An investor should consider the funds investment objectives, risks and charges and expenses carefully before investing or spending money. This and other important information about the RidgeWorth funds can be found in the funds prospectus. To obtain a prospectus, call 1-888-784-3863 or visit www.ridgeworth.com. Please read the prospective carefully before investing. Mutual funds are not FDIC insured, have no bank guarantee and they lose value. Copyright 2012 RidgeWorth Investments. RidgeWorth Investments is the trade name for RidgeWorth Capital Management Incorporated, an investment advisor registered with the SEC and the advisor to the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors LLC, which is not affiliated with the advisors. Seix Investment Advisors is a registered investment advisor with the SEC and a member of the RidgeWorth Capital Management Incorporated network of investment firms.

DAVID:  Hello, and welcome to Style Class Focus Five.  It’s April 11, 2012, and I’m talking with Chad Deakins, President and CIO of Certium Asset Management, sub advisor to the RidgeWorth International Equity Funds.  So, Chad, when we talked in September of last year, the headlines were definitely negative for the Eurozone.  That still seems to be the case.  What are you seeing there and how can it get better?

CHAD:  Well, the things in the Eurozone have gotten a lot better.  We’ve seen the ECB (European Central Bank) step in with two big refinancing opportunities for the financial institutions in Europe, they’re LTROs (Long-Term Refinancing Operations), and that has insulated the global financial system and brought down systematic risk quite dramatically.  We’ve seen a solution put in place for Greece, but now what we’re getting is there’s some refinancing in Spain, Italy, and that has again raised the volatility and scared investors a little bit.  Also, along the same time a little bit of softening news in the U.S. and some noise out of China as well.  So, we still think that we don’t invest in macro information.  We utilize the macro information.  We actually invest in companies – companies with good cash flow, good balance sheet, large sales outside of domestic Europe.  So, domestic Europe, especially the periphery, Spain, Italy, these are slow-growing economies.  They’re actually going to be in a light recession this year, will probably come out next year, maybe negative 1% GDP in Italy and Spain, but positive in France, Germany, and the UK.  So, globally these are kind of the slowest parts growing in the world, but there are large cap companies that are based in Europe.  They have very attractive exposures to the emerging markets and to the United States.

DAVID:  Okay, now most of the headlines have been about Europe, but recently China has been making some news with changes in its economic forecast.  How big a deal is that?

CHAD:  We think that most of the headlines about China are a little bit too volatile these days.  We’re in the midst of a leadership change every ten years, and we think they’re going to hold steady through that.  Currently things in China look pretty good.  China has regained its economic momentum late last year, and they’re going to grow with a GDP in excess of 8%.  They’re talking about trying to shift their economy a little bit from being so much export driven to a little more service economy, and we think they’ll be successful with that.  So, I don’t think there’s going to be a lot of fallout from what’s going on in China.

DAVID:  Okay.  Then what are you current thoughts on emerging markets in general?

CHAD:  Well, emerging markets are obviously the growth engines, one of the main growth engines of the world, mainly through population growth and urbanization, but the emerging markets are smaller markets, and they are very volatile often.  So, one of the ways to take advantage of the growth in the emerging markets is to invest in the larger cap development market companies and have significant sales exposure into the emerging markets.  

DAVID:  Okay.  Is currency currently effecting valuations? 

CHAD:  Currency definitely has an impact on valuations from an investing standpoint.  Year to date, 2012, the euro is actually up a little bit against the dollar.  It’s up about a percent, so not a lot.  The Japanese yen is down 5%.  We’ve been underweight, Japan, so the weakness in the yen has not been troublesome to us.  The Japanese, the Bank of Japan is actually trying to weaken the yen so that the Japanese economy corporations can become more competitive.  Of course, Japan is a very export-led economy, and they’re currently competing with many of the other emerging markets to export globally.  A lot of the emerging market currencies are up dramatically so far this year, and that’s because they have higher interest rates than we have in the developed world, and you see liquidity chasing that to some degree.  The Columbian peso is up about 8.5%, the Russian ruble is up about 8.5%.  Mexican peso also up about 6%.  So you see a lot of the emerging market currencies up so far this year, and mainly just Japan down so far.  But this introduces a lot of daily volatility, but over time you can see it kind of trending.  We have seen over the last ten years the U.S. dollar weaken pretty dramatically against a basket of currencies, and that’s been beneficial to U.S.-based investors that have owned international investments. 

DAVID:  Okay.  Now in looking out over the balance of 2012, what are the opportunities and risks that you see?

CHAD:  Well, the opportunities are that we’re still, the valuation metrics are still below their ten-year average.  Europe is trading about 15% below its ten-year average for PE (price/earnings) multiple, and I talked about emerging markets a little bit.  They’re trading at a much lower discount, only about 4% with Latin America actually trading at a high premium to where it’s traded.  So, in the developed world, there’s still a lot of opportunity from a valuation standpoint.  Central banks are still accommodative, and they’re trying to stimulate economic growth.  So, you know the old story, “Don’t fight the fed.”  It goes into effect on a global basis as well.  Many of the central banks are still trying to stimulate growth. 

So, those two things I think are very positive on the opportunity side.  There’s room for both EPS (earnings per share) growth and multiple expansion, both of which should lead to higher global equity prices.  

Now, the risks, I think the risks are mostly political and the possibility of error by policy makers.  If policy makers start to tighten rates too soon, that could choke off the global recovery.  Another risk is oil price.  If the oil price were to spike dramatically, that would, of course, curtail global growth.  I don’t think either of these things are really in the cards right now, so we have a pretty positive outlook for the rest of 2012. 

DAVID:  Great.  Alright, Chad.  Thanks for your insights.

CHAD:  Thank you.

DAVID CRAIG:  Welcome to Style Class Focus Five.  It’s March 8, and I am with Ron Schwartz, Head of Tax-Exempt Investing at StableRiver Capital Management and subadviser of the RidgeWorth Investment Grade Tax-Exempt Bond Funds discussing municipal investing.  So Ron, after all the headlines about looming municipal defaults in 2011, those defaults didn’t seem to happen, and the Barclays Municipal Bond Index has outperformed the major equity and bond indexes over the past year.  To what do you attribute that strong performance?

RON SCHWARTZ:  Well, last year at the end of 2010 and early 2011, the municipal market was very worried about municipal credits because of Meredith Whitney’s forecast of $200-$300 billion in defaults, and people listened to that.  They saw the 60 Minutes interview, and they sold aggressively and irrationally, and they cheapened up the municipal market dramatically.  Later in the year, we saw that municipal credit did remain stable.  There was not an increase in defaults; and so we saw the municipal market strongly rebound from a very cheap relative value area to fair value again; and so it was basically a panic selling pressure at the beginning of the year. 

DAVID CRAIG:  Okay.  Now when we talked in August of last year, you mentioned how lack of supply through August helped munis perform well.  Did supply remain lower than expected through the end of the year, and what are your expectations for supply in 2012?

RON SCHWARTZ:  Yeah, the first half of the year we saw a very light supply, and that was primarily due to a lot of issuance at the end of 2010; and that was also when the Build America Bond was expiring, so there was a lot of issuance then, and so in the first half, we saw a very light supply, and then there was a forecast that it would be historically very, very small  issuance, but we did see issuance rebound in the second half and so basically, for the whole year, we did see a decline in overall issuance.  It was about $290 billion, but at one point, the forecast was about $240 billion, so we did see the second half issuance rebound and for this year, we are expected to see an increase from last year’s level; probably in that $320-$330 billion sort of level.

DAVID CRAIG:  Okay.  Now there still seemed to be some analysts who believe that that muni market is ripe for defaults.  What are your thoughts on the health of the muni market?

RON SCHWARTZ:  Well, you know, there are still obviously fiscal pressures and credit concerns, so that will remain throughout this year.  We do feel fairly confident in investment-grade quality paper and especially paper that is rated triple-A and double-A rated paper, but there is still pressure on there, and it is crucial to do credit analysis, and to provide reviews on existing positions like we do for all of our positions that we invest in, so basically, you know, we don’t really see any increase in defaults, but we do see credit pressures.  

DAVID CRAIG:  Okay.  Now what do you believe are some of the primary risks for munis in 2012?

RON SCHWARTZ:  You know, the main risks that we look at are still credit risks; you know we still think that credit analysis is crucial.  The state GO (general obligation bonds) seems like they’re doing fiscally responsible actions and balancing their budgets, but some of these local GOs are of greater concerns.  They do not have as many tools to balance their fiscal affairs and especially the smaller issuers; so what we’re doing is we’re increasing our credit analyses.  We are over weighted in the triple-A and double-A rated category.  We feel like this is the most stable area and that will hold the values the best; but basically, that’s our biggest concerns for this year is not an increase in defaults but credit analysis and possible downgrades.

DAVID CRAIG:  Okay.  And last thing was what do you see as some of the main opportunities for munis in 2012? 

RON SCHWARTZ:  You know, we still, you know, really like municipals as an asset class; it still is the only tax-advantaged investment available to individuals, and when you think about it, also, you know the Bush tax cuts are probably going to expire at the end of the year.  If that happens, taxes are going to go up.  Again, this makes municipals on a relative value look even more impressive and could perform even stronger, so we still think the municipal class is a relatively stable, good place for individual investors. 

DAVID CRAIG:  Great. Alright well Ron, thanks for your insights.

RON SCHWARTZ:  Thank you.  

DAVID CRAIG:  Hello and welcome to Style Class Focus Five.  It’s the week of February 6, 2012, and I’m with Rick Nelson, CEO and CIO of StableRiver Capital Management and subadvisor of RidgeWorth Short-Term Bond Funds, discussing short duration fixed income.  So, Rick, the Federal Reserve has recently restated that they intend to keep short-term interest rates exceptionally low at least through mid-2014.  How does this impact your investment philosophy in the future?

RICK NELSON:  Well, it does concern us, David, that they’re extending the period of term that they expect to keep short rates low from mid-2013 now to mid-2014, especially as we’re currently seeing the economy getting stronger in both manufacturing and employment.  If the economy were to weaken, which is what the Fed would be signaling here by extending the term that they’ll keep rates low, this could force the current tightening that we’ve seen in corporate credits to reverse itself.  We still like the high quality short-term corporate credits that are less volatile.  The credit curve is very steep and we think that they still give us nice roll down on the credit curve so we remain longer in high quality short-term credits. 

DAVID CRAIG:  Okay and then how has the European financial situation affected the types of investments that you look at?

RICK NELSON:  Well, we don’t own any direct European credits at this time, and that includes England, but we think the economy is going to start to get better there in 2014.  It’s still a difficult environment for some of the countries with higher debt to GDP (gross domestic product), but this morning, for instance, we saw German factory orders look up, and they primarily were driven by overseas exports, and that’s because the Euro has gotten weaker.  We think that the European situation still has to work itself out, that there still needs to be some restructuring of some of the credits, but we think at some point in time it will start to improve.

DAVID CRAIG:  Okay and finally, let’s talk about what’s going on with the mortgages.  In the State of the Union Address, President Obama talked about making it easier for homeowners to refinance.  How do you think that will affect the short-duration market?

RICK NELSON:  Well, there have been a few modifications already to HARP (Home Affordable Re-Finance Program) and this time, what the President is talking about is extending it to non-agency mortgage holders.  We think that’s going to be difficult to do because the banks are not really incentivized to take on those mortgages with higher loan-to-value.  In the short-term market though, we’re really not involved in those longer-term, 30-year past due mortgages, where we’re looking more at short floating rates in those, agency DUS (delegated underwriter servicers) paper, which is multi-family, as well as ARMs (adjustable-rate mortgages) that are post-reset, and these type of securities really aren’t going to be affected with the volatility that we’re seeing, more being driven by the 30-day past due market.  I also think that it’s more political posturing.  To get a program like this pushed through, you have to involve Congress.  It’s going to be a six-month period of time, which gets us close to the elections, and so I think clearly a big part of this is just political posturing as well.

DAVID CRAIG:  Okay great.  Well Rick, thanks for your insights.

RICK NELSON:  Thank you, David.

DAVID CRAIG:  Hello, welcome to Style Class Focus Five.  It’s December 7^th, and I’m talking with Michael Sansoterra, Senior Portfolio Manager with Silvant Capital Management subadvisor to the RidgeWorth Large Cap Growth Stock Fund about growth investing.  So Michael when we talked in April, I mentioned that after a pretty long run for value, growth had quietly come back into favor and was leading value over the one, three and five-year time periods according to Russell.  That’s still the case.  Why does growth continue to do well despite all the volatility we’ve seen this year. 

MICHAEL SANSOTERRA:  Thanks David.  You know we think growth stocks have done well primarily based on their scarcity value.  We have found that historically when investors are really struggling to find a place where they feel comfortable, which we’ve definitely seen as volatility has increased, growth stocks typically start to carry a premium to other types of asset classes and to other equities as well.  So, growth stocks in particular that have actually managed through this process pretty well for the last three to five years as the economy has come back from a pretty difficult period and have become more scarce, more difficult to find and therefore have commanded a premium so their performance has done quite well. 

DAVID CRAIG:  Okay.  Do you think growth still has room to run? 

MICHAEL SANSOTERRA:  You know we do.  We look at the reasons why those companies have done well and that’s really on a fundamental company by company basis and despite the macro fears and particularly the concerns around Europe, we’ve seen those companies continue to execute.  The companies that we own typically are beating investor expectations and are doing so by raising their revenue and earnings, are doing so by having pricing power, sometimes by taking market share and the trends in those companies we believe have continued not only in the last year but really even in the last quarter.  The data from the last quarter suggested pretty solid fundamental results from these types of companies and that typically means those performing shares can continue to outperform.  

DAVID CRAIG:  Now even though growth has done well, according to Morningstar through October the large growth category had nearly four times the outflows of large value year to date.  Why do you think that’s the case? 

MICHAEL SANSOTERRA:  Well I think broadly speaking from an equity perspective investors are still extremely fearful of equity markets and no surprise, the recession in 2008 and 2009 was very severe, arguably one of the most severe we’ve ever seen and that has really spooked investors from a sentiment perspective.  We see sentiment very, very poorly.  Folks are just terrified and when they’re terrified what do they do?  They put their money in fixed income which we’ve seen lots and lots of inflows in bond markets and to a lesser extent in dividend paying stocks, the stocks you find in typical value products.  So, no surprise that outflows on the margin have been out of riskier assets and into ones that make folks sleep at night a little better. 

DAVID CRAIG:  Now how have the European issues impacted the way you invest? 

MICHAEL SANSOTERRA:  We’re looking at the types of exposures all the time and I would say on the margin we have over the last few quarters lowered our exposure to Western Europe from a consumer perspective recognizing that some of the stocks we own do sell largely into Europe and we wanted to make certain that those risk adjusted weightings were appropriate and we’ve taken some of our growth expectations with those assets and expanded them into different parts of the world, emerging markets, some U.S. domestic but it’s really marginal.  Actually, we’re company by company.  We’re ground up in very fundamental specifics so we don’t make big macro calls.  I would say on the margin we have a little less exposure in Europe today than we did perhaps three to six months ago but it’s very marginal.  Ultimately the companies we own we believe can continue to outperform based on their fundamentals company by company.

DAVID CRAIG:  And what would your advice be to long-term investors?

MICHAEL SANSOTERRA:  For long-term investors, clearly this has been a challenging period.  We would tell them to stay the course.  We look at volatility even today over the last rolling 21-day period you’re talking about a three standard deviation moving volatility.  We’re seeing some of the highest volatility these markets have ever seen over the last 30 years.  We’re seeing equity valuations very reasonable twelve times forward earnings, twelve and a half times sort of a twelve month rolling forward earnings.  So, not expensive equities, a lot of fear in the market, very tough sentiment.  This is when you actually should be adding to equity.  This is when you should be staying the course.  It’s the tough time.  It’s the scary time but long-term investors should really keep their eye on their long-term asset expectations.  You’re not going to get fantastic results from bonds.  You’ve got opportunities.  You just need to recognize that times are going to be tough for a little while.  The volatility will be high but ultimately longer term we believe growth equities will actually do well for the next three to five years. 

DAVID CRAIG:  Great.  All right Michael, thanks for your insights. 

MICHAEL SANSOTERRA:  Appreciate it.  Thanks David. 

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time and are for informational purposes only are not intended as individual or specific advice, may not represent the opinions of the entire firm and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, is provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be and should not be construed as investment, legal, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice.

DAVID CRAIG:  Hello and welcome to Style Class Focus Five.  This is November 4^th, and I’m talking with Brian Nold of Seix Investment Advisors, subadviser to the RidgeWorth High Income Fund about the high yield market.  So Brian, through June high yield was up about 5%.  That gain was completely wiped out in the third quarter only to be recovered in October.  What was happening in the high yield markets?   

BRIAN NOLD:  Well David, we saw quite a bit of volatility during the third quarter in the high yield market and it continued into October.  Generally there was a global risk reduction across really any kind of risk asset class in the markets.  The high yield market was down over 6% during the third quarter, but as you said did rebound up about 5.9% in the month of October.  We saw outflows of cash from retail mutual funds across the bond and the high yield market of about $500 million in the third quarter.  However, in the last three weeks, we have seen over $8 billion of inflows, so clearly the market did correct and re-price, but investors, I think, saw a very attractive opportunity and cash came into the market and drove very strong returns in the month of October. 

DAVID CRAIG:  Ok, and then after the downturn and recovery, where are spreads now and then what about the forecast for defaults?

BRIAN NOLD:  Well spreads now are about 713 basis points and for comparison at the beginning of the year they were 534 basis points and the widest we saw at the beginning of October we reached about 900 basis points.  When you look through to figure out what that implies for the forward default rate for the high yield market, it implies about a 7% forward default rate.  That compares to roughly a 1% trailing twelve month default rate, so a fairly significant increase is forecast based on the spread levels.  However, in a recessionary environment, the forecast for defaults would be in the 5 to 5 ½% range and in a non-recessionary environment, or just a slow growth environment, defaults are likely to be in the 2 to 3% range, so there is quite a significant excess spread cushion built into the market right now due to the macro uncertainty that is mostly coming out of Europe. 

DAVID CRAIG:  OK and the Fed came out this week and revised their growth estimates lower.  Do you think the Fed’s commentary will have an impact on the forecast for defaults?

BRIAN NOLD:  Well the market is already anticipating a slow growth environment which we actually don’t believe will dramatically increase defaults, as companies have been very aggressively refinancing any of their near term debt maturities over the last three years, so it is mostly something that has been priced into the market. 

DAVID CRAIG:  Ok, now why would an investor want to invest in high yield and what looks to be a pretty stagnate economy? 

BRIAN NOLD:  Well there is an attractive current yield in the market of about 8 ¼ and the credit cycle in general is continuing to improve as companies are focused on continuing their balance sheet repair and generating strong free cash flow. So again, stagnate economy and slow growth is actually not a negative scenario for most high yield companies that have very strong balance sheets. 

DAVID CRAIG:  OK, and you touched on this a little bit, but how has the situation in Europe, and particularly in Greece, impacted high yield? 

BRIAN NOLD:  Well as we saw in August there was a general risk reduction trade because of the uncertainty in Europe; however, from a direct impact to company fundamentals, we are seeing very little impact.  Third quarter numbers thus far are coming out fairly strong or in line with expectations.  The high yield market, in general, is generally dominated by companies that are mostly impacted by what is going on in the U.S. economy.

DAVID CRAIG:  Ok, and what is your outlook for high yield?

BRIAN NOLD:  Well in the scenario where Europe does prevent a contagion from enveloping the global banking system and then the U.S. faces a slow growth environment, we would actually expect high yield spreads to tighten as really the current spread levels discount a significantly higher default rate than what we would anticipate.  We believe the combination of the current yield of 8 ¼% and further spread compression from high yield could drive strong returns over the next twelve months.

DAVID CRAIG:  Ok, great, well Brian thanks for your insights.

BRIAN NOLD:  Ok, thank you.

DAVID CRAIG: Hello, and welcome to the Style Class Focus Five.  It’s the week of October 3, 2011, and I’m talking with Alan Gayle, Senior Investment Strategist and Director of Asset Allocation for RidgeWorth Investments about the evolution of asset allocation.  Now Alan, asset allocation has become much more complex over the past decade.  Can you talk about where we’ve gone since the days of a portfolio being made up of domestic stocks, bonds and cash?

ALAN GAYLE:  Right.  The capital markets have become infinitely more sophisticated and a lot faster over the years.  In years past the manager would virtually back into the fixed income allocation for a client based on how much income the portfolio needed to generate and the current yield available in the market, it was simple.  Also many managers used what we call a buy and hold equity strategy.  Usually with the iconic and branded S&P 500 Companies.  Those days are long gone.  In fact, a new group of securities enables a more actively and broadly diversified strategy to be developed.  We can now move very quickly to increase or decrease exposures to developed International markets, emerging markets, commodities, real estate and we can employee ETFs to get tactical tilts and things very quickly.  This has led to opportunistic trading and ways to buffer downside risk in portfolios.

DAVID CRAIG:  So how do you determine what the right mix of these new asset classes is for a given risk tolerance?

ALAN GAYLE:  There are a couple of approaches that investors and investment professionals use.  One is to choose a set number of asset classes and always have an allocation to each that lines up with a specific risk tolerance.  Another approach is to have a range of asset classes that you may include but allocate to them based on current opportunities.  At RidgeWorth, we believe the right mix or the optimized asset allocation is a function of current opportunities to generate total return with a client’s risk tolerance’s very much in mind.  We have four general strategies based on risk profiles.  The conservative allocation strategy has a 70% fixed income, 30% equity target.  Moderate has 50/50 mix.  Growth has 70% equity/30% fixed and aggressive growth has 100% equity allocation.  We can vary equity exposure plus or minus 10% around those respective targets based on expected returns.  Within these risk banks, we then drill down on estimated total returns using what we call our 360 degree analysis.  It’s not as easy to say that stocks should provide and 8% to 10% annual return like the old days.  Instead we look at stocks in myriad ways.  By market capitalizations – large, mid and small; by domicile, US based, International develop and emerging markets and we look at fixed income as having opportunity sets.  Short, intermediate, long, high yield, floating rate, credit and we augment all of that with alternatives – real estate, commodities and TIPs.  At any point in time some of these securities may be undergoing stress or what could be defined, what we define as overvalued based on our estimates absolute and relative forward returns.  We do that by looking at both fundamentals and technical momentum with the intent of identifying market traction before taking action.  Not buying too early, not selling to late.  In addition, we have discussions with RidgeWorth portfolio managers to take their pulse on what they’re hearing from companies and how they define the best opportunities.  Clearly we have to examine how all the pieces work together in a portfolio.  Gold is not highly correlated with the S&P 500 over time.  It serves more as an inflation /risk off hedge.  So we also look at longer term correlations and what kind of returns we can expect versus the volatility or the risk that we take.  The result of all this is a portfolio true to its Lipper category and one that should be more “all weather” than ones that we would characterize as alpha generators or downside protectors.  We’re active traders.  Always looking for opportunities to maximize returns per unit of risk so frequently we purchase attractive securities or funds across all the portfolios just at different weightings.  This provides consistency and reflects our best thinking.

DAVID CRAIG:  Okay, great.  So once an allocation has been set what are some ways to keep it in balance?

ALAN GAYLE: Again, there are different approaches.  Some investors and investment professionals may rebalance over periodic intervals.  Quarterly, for instance.  Others may rebalance when a portfolio gets a certain percentage out of balance.  At RidgeWorth, we rebalance actively based on cash flows and opportunities.  In fact, we start each day talking about news flow and craft a game plan for when we receive the daily cash report.  We take a sophisticated approach and adjust with more of a fine tuning perspective based on the fundamental landscape, news events and technical factors such as the Fibonacci retracements, distance from the moving averages, support and resistance levels. 

DAVID CRAIG:  Okay, now how would a well allocated portfolio have benefited investors this year?

ALAN GAYLE:  Client’s would have benefited with a diversified portfolio.  On a year to date basis through September 30, 2011, the S&P 500 returned -8.7%, while many of the fixed income categories had positive returns.  Precious metals such as gold performed well as did real estate.  The benefits of broad diversification were clear since the equity market returns lagged fixed income returns rather dramatically.  Having said that, the market segments that have lagged are looking increasingly attractive so it could be a very solid opportunity moving forward based on our cautiously positive outlook.  Our expectation that Euro’s own uncertainties will gradually dissipate and the current high degree of asset and stock correlations lessens.

DAVID CRAIG:  Great.  Well thanks for you insights Alan. 

ALAN GAYLE:  Thanks very much.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

David Craig:  Hello and welcome to The Style Class Focus Five.  It is the week of September 5^th, and I am talking with Chad Decans, President and CIO of the Certium Asset Management, sub-advisor to the RidgeWorth International Equity Funds.  So Chad, headlines are definitely negative for the Eurozone.  What are you seeing there and how can it get better.

Chad Deakins:  Well, the Eurozone is in a difficult spot right now.  They have got slow growth outside of Germany.  They have had a lack of physical reserve in preferi countries, meaning they have got high debt to GDP and they are running deficits and they have got a lack of physical integration across the Eurozone and the ECB tightened too early in this cycle, making things worse for them.  So, there is a lack of political leadership, like I said.  That is starting to solidify a little bit and starting to get a little bit of leadership there and the austerity plans in the preferi along with the debt restructuring in Greece should help solidify the situation right now.  The thing about Europe is that there are a lot of multinational corporations that trade on European Markets that get probably less than a quarter of their revenues out of Europe and they are trading at very depressed levels right now.  So I think there is a lot of opportunity for investment in the European Markets right now.

David Craig:  Okay.  Now how do you think that the crisis in Europe is affecting U.S. investors?

Chad Deakins:  Well as I said, there is a lack of political leadership and a lot of instability and it brings more uncertainty on top of the current uncertainty in the United States. We have the kind of stale mate in our government but in Europe they have just been kind of stumbling along with a lack of leadership and waiting to find solutions when their feet get held to the fire just at the last moment.  So far they have been successful in continuing to provide solutions to the crisis at the last minute each time.  I think they are going to need to start getting a little bit further out in front of the problems to reduce global volatility.  So the U.S. investors are obviously seeing the uncertainty over there, uncertainty here, we have got a lot of fear in the markets, which is preventing investors from taking advantage of the attractive evaluations that we have right now. 

David Craig:  Okay.  There sure have been a lot of headlines about Europe but what are your current thoughts on the Emerging Markets?

Chad Deakins:  Well the Emerging Markets are actually one of the things we looked at as a leading economic indicator.  We look at the leading economic indicators, we look at Global CPI, and the ISM figures and what we see right now is Brazil has just cut rates and China market may be getting ready to loosen monetary policy.  When the U.S. kept monetary policy very loose, it caused inflation in much of the rest of the world, food inflation was caused by weather, but oil and other energy inflation was caused by the easy money in the west.  So we have a spot where inflation was very bad now and starting to ease and as inflation eases, we think the leading economic indicators will start to rise.  So right now Brazil, like I said was the first to loosen policy and their stock market rallied to about 4% in a week and especially small cap so, globally this is a very important thing if we get the Emerging Markets including China to start easing their monetary policy, we can reaccelerate the global economy quite quickly.  Now Emerging Markets are trading at very attractive multiples relative to history and relative to the develop markets.  They are currently trading at about a 23% discount to their ten year average valuations but the developed markets are also trading at attractive discounts to their historical valuations.  So we have a situation in International Markets right now where the valuations are very attractive but sentiment and momentum is very negative.  As soon as we can get sentiment and momentum to turn, we are going to see some much better returns in the equity markets.

David Craig:  Now, is the movement of currency having any impact on evaluations?

Chad Deakins:  It has but it has been give and take.  So we have seen the Euro accelerate quite dramatically against the dollar and then come back and all of the Emerging Markets have basically appreciated against the dollar because the U.S. has been increasing the number of dollars in circulation which makes the dollars less valuable relative to what has been going on in the other markets so, it has been good for Emerging Markets and it has been back and forth for other developed markets.

David Craig:  Okay – great.  In looking out over the balance of the calendar year, what do you see and what are your investment strategies for the period?

Chad Deakins:  Well coming into August, we had a pretty well balanced return in the market, valuation was important and quality has continued to be important so balance sheet stability has been very important all through this entire recovery, but then in August with the sharp market correction right off the bat; right after we got some negative economic data in the beginning, value or defensive stocks, defensive sectors dramatically out performed the rest of the market, the more cyclical parts of the market.  We think that it created a significant discount to those parts of the market.  We think that is eventually going to come back but we are not sure of the timing of that so the Global economic indicators need to start to pick up like I said Brazil and China may be the first hints that that is going to start to happen.  Most likely inflation needs to come down a little bit more and that is going to be more of a fourth quarter 2011, first quarter 2012 and then we will start to see pick up again and start to see reacceleration in the equity markets.  Until then, you know a more barbell strategy where you are holding more defensive, non-cyclical types of names in say healthcare, utilities, telecom, staples, those types of names of solid balance sheets and a lot of earning certainty are going to probably outperform your more cyclical parts of the market until we get that uptick.  So, the cyclical stocks are very attractive with value right now and some time in the next year or two they are going to have had a very strong run.  You have got to start making your list of the names that you are interested in and as you think things are starting to get a little bit better go in and start allocating to those more attractive cyclical names.

David Craig: Great.  Okay thanks for your insights Chad.

Chad Deakins:  Thank you.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG:  Hello and welcome to a special edition of our Style Class Focus Five.  This is the week of August 15^th, and I’m talking with George Goudelias of Seix Investment Advisors, sub advisor of the RidgeWorth Seix Floating Rate High Income Fund, about the current environment.  Now George through the end of July, bank loan funds had more than $22 billion in net inflows but in the first two weeks of August, they had about $3 billion in net outflows.  What happened?

GEORGE GOUDELIAS:  I think the biggest impact was just the global and macro environment.  We have the continuing issues in Europe, over the debt crisis there in Greece, Italy, Spain and most recently spread to France.  Domestically the big event was the downgrade of the US sovereign rating by S&P which basically took markets down pretty hard in August.  I think there was a big trade to take risk off.   Bank debt was impacted.

DAVID CRAIG:  Now last week the Fed said they intend to keep rates at the current levels until the middle of 2013.  What impact do you think that has on floating rate funds?

GEORGE GOUDELIAS:  I think the impact is the same as prior to the announcement.  The Fed has been stating that they intend to keep rates low for a prolonged period of time.  They put a definitive date this time around.  I think people may have over reacted to that but still I think the important thing is that longer term rates can still move around.  If you’re in longer duration product you can still get hurt.  Over the last twelve months we’ve seen the ten year (yield) go from 2.50% about a year ago to 3.75% back in February of this year and now back down to 2.11% last week.  With treasury yields at record lows the risk of a rise in rates is probably more of a risk than a drop in rates from here.

DAVID CRAIG:  So for the short end you were really expecting that for an extended period the Fed was going to keep rates low anyway?

GEORGE GOUDELIAS:  Yes and I think one of the important offsets on the floating rate side is that LIBOR floor has provided additional income to investors in the current low rate environment that we’re in.

DAVID CRAIG:  Now why do you think now is a good time to be in floating rate funds?

GEORGE GOUDELIAS:  I think it’s still a good asset class because you are senior secured in the capital structure.  You’re ahead of all other debt and equity holders within a company’s capital structure.  I think corporate America is still doing fairly well.  Earnings have come in okay in both quarters of this year.  Cash positions are strong.  Liquidity is strong.  Defaults are below 1%.  If you look at where bank debt was priced by the end of last week and you take certain historical assumptions into account the market is factoring in a default rate of 20% which has never happened before, even in 2008.  With liquidity strong and near-term maturities negligible we think the asset class should do well relative to other asset classes in the short-term, medium-term.

DAVID CRAIG:  Right.  Great George.  Well thanks again for your insights.

GEORGE GOUDELIAS:  Thank you, David.  

 DAVID CRAIG:  Good afternoon, welcome to Style Class Focus Five.  It’s the week of August 1^st, and I’m with Ron Schwartz, head of tax-exempt investing at StableRiver Capital Management and sub-advisor of the RidgeWorth Investment Grade Tax-Exempt Bond Funds, discussing municipal investing.  So Ron, although munis got off to a pretty slow start in the first quarter of 2011.  They have performed quite well since.  To what do you attribute the slow start and the strong performance since?

RON SCHWARTZ:  Well, during the beginning of the year the municipal bond market was primarily concerned about two main issues, supply and credit.  On the supply issue, basically the concern was how the supply was going to be distributed with the end of the Build America Bond program, which helped distribute bonds to non-traditional municipal buyers.  At the beginning of this year total municipal supply for 2011 was anticipated to be about $300 billion to $325 billion, however, this estimate was too high and by midyear estimates were down to $200 billion to $240 billion, so the lack of supply helped municipals perform.  On the credit issue, at the beginning of the year the media coverage of several prominent analysts who were calling for intending credit doom in municipals scared away many investors.  The credit of Investment Grade Tax-Exempt Bonds have been very stable and investors have realized this and have come back to invest in the municipal market. 

DAVID CRAIG:  Okay, that leads right into our second question.  There had been quite a few headlines suggesting that the muni market may have some major defaults.  How do you see the fundamentals of the overall muni market right now?

RON SCHWARTZ:  First of all, our current view is that the credit outlook for higher-rated quality municipal bonds is stable.  Second, we do not expect major defaults in investment grade municipal category.  You know we may see some downgrades, we do see increased revenues growth from the majority states along with fiscal discipline and balanced budgets; however, we do have concerns for credits below investment grade, which are credits below triple B.

DAVID CRAIG:  Okay, are you or are you not investing in those credits?

RON SCHWARTZ:  We are not invested, we’re in very high-quality paper.

DAVID CRAIG:  Right, right, okay.  Now recently you talked about downgrades, recently the debt ceiling debate has been getting a lot of attention.  How does the U.S. debt and attempts to reduce government spending over time impact the muni market and then also would a downgrade of U.S. debt have an impact on the muni market?

RON SCHWARTZ:  Well, you know first of all, municipals may be affected by future cutbacks of federal funded programs, you know fiscal discipline by municipalities will be essential and then also credit analyses is crucial.  You know, we always review credits before purchasing and constantly monitoring existing positions.  We are conservative investors.  And you know approximately 80% of the portfolios are in triple A are double A quality. 

DAVID CRAIG:  Okay.

RON SCHWARTZ:  As far as if the treasury, you know, U.S. Government Treasury gets downgraded to double AA category there will be then some adjustments in the municipal market.  It’s not an adjustment based upon a credit weakness in the municipal market, it’s just going to be an adjustment in the respect of that the U.S. government is a AA1 credit then there really can’t be a state credit that should be AAA.

DAVID CRAIG:  Right.

RON SCHWARTZ:  So you’ll see some adjustments but all that is, is the reaction to the downgrade to the treasury market not a credit concern in the municipal market.

DAVID CRAIG:  Okay, great and then what’s your short and long-term outlook for munis. 

RON SCHWARTZ:  You know, we’re pretty favorable.  We have a favorable outlook for quality municipal bonds and I think that’s the key.  It’s quality, bonds are very important in our opinion in the future.  Currently, we are seeing greater demand than supply along with a stable credit outlook so that’s what making municipal bonds relatively attractive today as an conservative tax-free income producing investment and then longer term we feel that supply will also remain limited due to the fiscal pressures and that eventually taxes will be increased and thus makes municipals even more advantageous to those individuals in the higher tax bracket.  So we’re pretty favorable.  We think it’s still a very good conservative investment as long as you stay in the higher quality paper. 

DAVID CRAIG:  Okay, great and for those listening, we do  have a page in our website, ridgeworth.com//muni-bonds, that gives an overall look at the muni market as well as an interactive tool where you can see tax-equivalent yields over time, so that might be useful.  Well Ron, thanks again for your input, it’s very helpful. 

RON SCHWARTZ:  Thank you. 

DAVID CRAIG:  Good afternoon and welcome to Style Class Focus Five.  It’s the week of July 11th, and I’m with Rick Nelson, CEO and CIO of StableRiver Capital Management and Subadviser of the RidgeWorth Short Term Bond Funds discussing short duration fixed income.  So, Rick, what is short duration fixed income as you define it?

RICK NELSON:  The way I define short duration fixed income, it’s that space between cash investments and intermediate term bonds.  A lot of times bond portfolios are called ultra-short or short-duration portfolios, and a typical portfolio structure would be securities from one year to five year in maturity.

DAVID CRAIG:  Okay, great.  What are some of the benefits to investing in a short-duration portfolio?

RICK NELSON:  Well, probably the biggest benefit of investing in short duration portfolios, if you look at returns off of, and I did this off of Barclays indices, if you go to the Barclay indices and look at the one to three or one to five index returns, going back 30 years, you can get about 75% to 80% of the return of longer-term portfolios with about one-third the risk.  So, one-third the volatility of a long-term portfolio.  Those historical returns going back 30 years have averaged a little better than 7.5%. 

DAVID CRAIG:  Wow.  So, how does a short-duration fixed income manager add value?

RICK NELSON:  Well, the short-duration portfolios can be looked at through various components that are going to make up the portfolio’s return.  There’s duration, yield curve structure, the various sectors the manager can invest in, and then we also think it’s important to do bottom-up credit analysis of the individual credits in the portfolio as well.  So, managing these different multi-sector approaches, a manager can add value to a fixed income portfolio over just a stated yield or income level that you would think you’re going to get in the portfolio when you initially purchased the portfolio.  So, through active management a manager, I think, can add value in an underlying portfolio. 

DAVID CRAIG:  Okay.  Is there something about the current market environment that makes short-duration fixed income particularly compelling?

RICK NELSON:  I think there is, and a big part of that is just what’s happening in the cash component of the marketplace where basically anybody that is holding cash or very, very short investments is earning almost nothing on those portfolios at this point in time.  Prime money market funds are anywhere from zero to twenty basis points.  We had very low short rates in the environment that we’re in right now, but relative to earning nothing, they’re still very compelling.  So, you can roll out the curve in a short portfolio and add value, yield, and income while you’re not picking up a tremendous amount of volatility in the underlying portfolio. 

DAVID CRAIG:  Okay, but there still is that volatility.  If you had someone who is kind of concerned about interest rates increasing, why wouldn’t they just stay in cash?

RICK NELSON:  Well, the main reason is the bond math works.  If you have a two-year duration on an underlying bond portfolio and interest rates move instantaneously 100 basis points or 1%, you could lose about 2% of the principal in that portfolio.  But in a short bond portfolio, you also could hold that security to maturity and get the full par value back on the bond.  If you have a well-structured bond portfolio, you’re constantly going to have securities that are rolling down the curve that you are able to sell at hopefully higher dollar prices than where you originally purchased them and then reinvest that money into higher rates as rates move higher.  If the rates move higher, it could be a very good thing for short-term bond portfolios because ultimately it will increase the income that the portfolios earn.  Again, going back looking at the Barclay’s indice information, going back 30 years, you’ve had short-term portfolios produce returns of 23%, and the lowest twelve-month rolling period is a negative .2 of 1%.  So, very little downside risk.

DAVID CRAIG:  Okay, great.  Well, thanks for your insights Rick.

RICK NELSON:  Thank you David.

DAVID CRAIG:  Good afternoon.  Welcome to a special edition of our Style Class Focus Five.  This is the week of June 20, 2011.  I’m talking with George Goudelias at Seix Investment Advisors, subadvisor of the RidgeWorth Seix Floating Rate High Income Fund about LIBOR floors that have been popular with the floating rate loans.  George, can you explain what a LIBOR floor is and why firms are using them?

GEORGE GOUDELIAS:  Sure, LIBOR floors are in essence an inducement for investors to pick up additional yields.  So, it provides additional income in the form of yield for the current low-rate environment that we’re in and so if a loan has a coupon let’s say of 4% and LIBOR right now is at about 0.25%, that would be a total coupon of 4.25% if you did not have a floor.  If you have a floor of let’s say 1.5%, you would tack that on to the coupon of the loan and thus your total coupon would increase from the 4.25% to 5.5% so it does provide current additional income in the loan for an environment that we’re in today. 

DAVID CRAIG:  Okay, and what percentage of loans would you say have LIBOR floors today?

GEORGE GOUDELIAS:  Of the new issues coming to market, the great majority of loans have floors. 

DAVID CRAIG:  Now, do you think LIBOR floors are a good thing?

GEORGE GOUDELIAS:  They are in the environment that we’re in, you know with the broad expectation that rates won’t rise in the near to midterm, the benefit of the floor for the investor, additional yield until such time as rates begin to rise. 

DAVID CRAIG:  Are there any downsides to having a LIBOR floor?

GEORGE GOUDELIAS:  On the downside David, it would really be a somewhat muted response to the initial rise in rates; however, in past rising rate environments, for example 1994, 1996 and 1999 where rates rose very quickly at which point the LIBOR floors would likely be exceeded and it’s important to note that the investor receives the higher of current LIBOR or the floor. 

DAVID CRAIG:  Okay.  So, now what would happen to say the NAV of a mutual fund or a bank loan itself in the time between it gets from LIBOR to the LIBOR floor?

GEORGE GOUDELIAS:  Well you could see potential declines in the prices of loans, again with the expectation that given the short duration of a loan, you do have monthly and quarterly resets so ultimately as rates rose you would capture it so, but you could see potential declines in the very short term and that would be most likely be recaptured as the resets hit.

DAVID CRAIG:  Okay, but the short duration of the fund or loan might mitigate that a little bit.

GEORGE GOUDELIAS:  Right, where as the typical let’s say an investment grade bond fund might have a duration of 6 or 7.  A high yield bond fund might have a duration of 4.5.  A loan fund has a duration of well under 1 so it’s very short term in nature. 

DAVID CRAIG:  Okay, great.  All right well thanks again for your insights George.

GEORGE GOUDELIAS:  Thank you David. 

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

 

DAVID CRAIG:  Good afternoon, welcome to Style Class Focus Five.  This is the week of June 6^th.  I'm talking with George Goudelias of Seix Investment Advisors, sub-advisor of the RidgeWorth Seix Floating Rate High Income Fund about the bank loan market.  George, when we talked in February, you mentioned a tremendous amount of flows that have been coming into the bank loan market.  Since that time, your fund has doubled from $2 billion to nearly $4 billion.  How have flows been across the bank loan category?

GEORGE GOUDELIAS: Well flows across the category have remained strong throughout the year although they have slowed somewhat over the last few weeks down to $377 million.  The flows thus far this year have already out paced all of 2010.

DAVID CRAIG:  Wow.

GEORGE GOUDELIAS:  So as a result, we've had again very strong flows and again a slight slowing with just some of the negative economic data over the last couple of weeks, but otherwise they remain strong.

DAVID CRAIG:  I gotcha, okay.  With all this new money, do the fundamentals and the bank loan market still look strong?

GEORGE GOUDELIAS:  They do.  They still remain strong.  I think we're seeing high quality credits coming to the market.  Names like AES and Calpine.  These are typically BB credits which are the highest rating within the high yield market.  So these are good quality companies that are priced attractively.

DAVID CRAIG:  Okay.  Now in February, you imagined supply and demand for loans would come into balance this year relative to last, has that been the case so far?

GEORGE GOUDELIAS: So far, yes.  The last two years, the bank loan market actually was shrinking over the last two years.  In 2011 thus far, the market has grown just a little bit, so ultimately it tells you that supply and demand remains a lot more in balance than it has been in the past.  May was a very active month new issuance wise.  We probably saw a little bit of expansion in May and June thus far has pulled off a little bit as far as new issuance.  So again I think the supply and demand has come into balance.

DAVID CRAIG:  Okay.  Now what do you see as a primary risk for bank loans right now?

GEORGE GOUDELIAS:  The primary risk remains the economy.  We obviously have had some data over the last couple of weeks that was below expectations, but we remain optimistic on the second half.  Ultimately not 4% GDP growth, but we think that the economy will continue to expand where we think there will be growth.  We do not anticipate a double dip in the economy.

DAVID CRAIG:  Okay.

GEORGE GOUDELIAS:  Corporate earnings remain solid and that's really the metric that we focus on the most.

DAVID CRAIG:  Okay.  In February also, your outlook was for an annual return for bank loans somewhere between 5% and 7% this year.  Do you still think that will be the case?

GEORGE GOUDELIAS:  I do.  I think if we look at the year-to-date period, we're just shy of 3% so naturally we are on track.  We just can't extrapolate that number for the balance of the year, but.

DAVID CRAIG:  Right.

GEORGE GOUDELIAS:  We think that looking at the year-to-date period combined with the coupon that you have in a typical bank loan coupled with M&A activity and refinancing activity which pays back the loan at 100 cents on the dollar, we are still comfortable with the 5% to 7% range for 2011.

DAVID CRAIG:  Great.  Thanks for the insights, George.

GEORGE GOUDELIAS:  Thank you David.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG:  Hello and welcome to Style Class Focus Five. This is the week of May 9^th, and I’m talking with Chad Deakins, President and CIO of Certium Asset Management, subadvisor to their RidgeWorth International Equity Funds.  Chad, looking at mutual fund flows, it’s clear that international funds have seen less outflows and more inflows since the bottom in the S&P 500 back in March 2009.  Why do you think there’s been that trend?

CHAD DEAKINS:  Well, I think its investors starting to come out of their shell.  In the downturn international equities were one of the sources of funds investors exited as they got more defensive.  Now that the economy has started to rebound investors are seeking higher returns.  The international equities have higher growth rates and lower valuations than the U.S. equities.  Plus most international currencies have been appreciating against the dollar which is an added benefit to a U.S. investor.

DAVID CRAIG:  Now given the completion of Quanitative Easing 2 and the expectation of a domestic inflationary environment.  How can investors protect their wealth as the dollar becomes less valuable?

CHAD DEAKINS:  Well inflation is a problem to investors.  It reduces the buying power of a currency over time.  There are two basic hedges against inflation.  One is hard assets like timber, real estate, or commodities.  The other is business or enterprise.  The easiest way to get exposure to enterprise is through the purchase of common stocks. 

DAVID CRAIG:  I noticed you mentioned hard goods as well, such as commodities.  Do you think that hard good are a better choice in equities in this environment? 

CHAD DEAKINS:  Hard goods or hard assets have several caveats, each one differently.  Commodities, for example, are very volatile and they’re prone to bubbles.  Timing of entry and exit points are very vital and this can be difficult for individual investors, as well as professional investors.  Real estate is in over supply in the United States, and so it is not going to, it’s going to actually probably continue to depreciate until that is cleared.  That doesn’t look like a good place to invest right now.  The timber market relies on home building, which shouldn’t regain strength until after the housing market clears.  Right now I think equities that have exposure to higher growth parts of the global economy are a better option than hard assets.

DAVID CRAIG:  Ok, now do you think the domestic inflationary environment might actually be good for international equities?

CHAD DEAKINS:  I do think that the international markets look very attractive here.  You have the continued dollar weakness relative to most of the rest of the global economy because the differential in interest rates.  You’ve got attractive valuations outside the U.S. with continued expansion in the international economy. 

DAVID CRAIG:  Are global economies in inflationary environments as well?

CHAD DEAKINS:  They are, the biggest inflation is currently in the emerging markets, as oil and energy prices, as well as commodity prices and food prices continue to escalate.  In the developed markets the real estate and low job growth bring down the inflation overall.  So inflation is lower in the developed world and higher in the emerging world.  However, we’re starting to see inflation tick up especially in Europe.

DAVID CRAIG:  What is your outlook for international equities over the next three to six months?

CHAD DEAKINS:  Well I think we’re kind of at a juncture here where we’ve had a big rebound in earnings of most global companies, and we’ve continued to see year over year growth that was improving, coming off the bottom, and now it is starting to stabilize at more of a trend level, so we’re at a little bit of an inflection point.  The next three to six months I think will be kind of choppy and sideways with different leadership, but after that I think we’ll continue to see an expansion in the global equity markets, especially the international markets look attractive here. 

DAVID CRAIG:  Great, well thanks for your insights Chad.

CHAD DEAKINS:  Thank you. 

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

 

DAVID:  Hello, welcome to Style Class Focus Five.  This is the week of April 4^th, and I’m talking with Michael Sansoterra, Senior Portfolio Manager with Silvant Capital Management, subadvisor to the RidgeWorth Large Cap Growth Stock Fund about growth investing.  Michael, after a pretty long run for Value, Growth has quietly come back into favor and now leads Value over the one, three, and five-year time periods according to Russell.  What happened?

MICHAEL:  Well David, as we were talking to clients in June of 2007, we had seen the Value index outperform the growth index for an unprecedented seven years in a row and at that point we started to notice that the growth stocks had just become too cheap whether you were measuring on a free cash flow basis, price-to-earnings expected, price-to-earnings trailing.  Ultimately, these companies have growth prospects and traditionally do very well when the market is getting better and we just got to that final point where the growth stocks had just become too inexpensive to ignore.  Then in 2007 we saw that start to reverse itself and with the short break I guess with the recession where Value kind of peaked its head back up, we have noticed that Growth has continued to do well and we think it will continue to do well.

DAVID:  Now, let’s take a step back.  How does Russell define growth and how do you think growth portfolio managers like yourself would define it?

MICHAEL:  Sure.  You know we look at Growth a little bit different than Russell does.  Russell traditionally looks at Growth from a long-term growth rate perspective of stocks as well as their price-to-book valuation in comparison to Value stocks.  That is sort of the historic way they’ve done it.  Now Russell is changing that a little bit by looking at the IBES two-year growth rate and the historical sales to a five-year number which we think will bring a little bit shorter timeframe in a horizon which actually might do a better job of capturing the change as companies go from Value to Growth.  They’re still going to stay consistent with their price-to-book valuation measure, but at Silvant Capital Management and in the RidgeWorth Large Cap Growth Fund we are focused on growth more as a condition than we are a style.  We believe all kinds of stocks can have growth periods, cyclical stocks, and secular stocks.  There are opportunities in every sector at certain times where they would be growing their business so we don’t look at it quite the way Russell does.  We view it more like a condition. 

DAVID:  Okay.  So, how would other managers do you think that aren’t at it as a condition, what would they look at?

MICHAEL:  Yes, I think a lot of growth managers fall into one of a few camps be they momentum investors, growth momentum or GARP investors, growth at a reasonable price.  We tend to not look at the world that way.  Again, when we look at the stocks in the Large Cap Growth Fund, we don’t just look at the Russell 1000 Growth.  We look at the entire Russell 1000 and we’re really looking for companies that can beat expectations from investors, so companies whose earnings, revenue, margins, products are growing more so than the investing public would believe and we think those types of companies can have momentum, can be growth at a reasonable price, but don’t necessarily have to be and we think that opportunity set opens us up a little bit more and gives us an opportunity to outperform in both up and down markets.

DAVID:  You’ve mentioned a couple of things.  You mentioned cyclical, secular, momentum, growth at a reasonable price.  Which type of growth do you think has been leading the way recently?

MICHAEL:  Recently we’ve seen momentum doing very well.  Stocks that have had a premium on their growth continue to do so and have had good success price action and that price actions begets more price action.  So, we’ve seen growth momentum do pretty well lately and that’s fine.  Those periods usually run their course.  That’s I would say the most recent run up in the market has been more momentum stocks.

DAVID:  And then what type of growth do you think will outperform going forward?

MICHAEL:  Well, we look forward to 2011 and 2012 as potentially the continuation of this bull market and the market probably grinds higher and in that case what traditionally happens as GDP slows is growth companies become a little scarcer to find and therefore get a slightly higher premium so we believe the companies ultimately that will be beating expectations, in other words higher earnings than the market expects, higher revenue, better product sales, etcetera, will be the ones that outperform and that’s traditionally the kind of companies we’re investing in the Large Cap Growth Fund. 

DAVID:  Great.  All right well thank for your insights Michael.

MICHAEL:  You got it David, take care.  

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG: Hello and welcome to the Style Class Focus Five. This is the week of March 7th and I'm talking with Brian Nold, of Seix Investment Advisors, subadvisor to the RidgeWorth High Income Fund, about the high-yield market. Brian, high yield has had a strong start to 2011. What part of the high yield market has been driving that and why?

BRIAN NOLD: Sure David. It's really, we've seen strength across all different kind of asset sectors within high yield based on rating class. However, the lowest rating class CCC's outperforming then B’s then BB's. All parts of the market are positive for the year and this continues on from strong performance in 2010 as well as 2009.

DAVID CRAIG: Is there anything specifically driving the lower quality portion?

BRIAN NOLD: Well, we've seen access to capital being fairly robust for companies so liquidity is freely available. Companies are able to refinance any kind of maturities. So the CCC market generally is more dependant on access to capital than the higher rated portion of the market which usually has access to capital. So the fact that the new issue market is wide open is allowing companies that had previously been perceived as having more risk from a liquidity standpoint, those companies are able to access capital.

DAVID CRAIG: Great. Are there specific industries that have been particularly strong this year?

BRIAN NOLD: Every sector is actually up year to date. There are no sectors that are down. The ones leading the way: radio broadcasting is actually up, that's 8.2%, that's a small sector. Really probably the most meaningful industry that is up the most is Energy which is up 4.8%. Building products is up 4.5%. Most likely building products is up on a rebound in confidence that the U.S. economy is turning around, energy is obviously moving up with energy prices. On the down side, or I guess on the lagging side, retail is only up about 0.9%, tech is up about 1.6%, packaging up 1.7% due to its exposure to raw material cost. All of the sectors are actually positive. So generally the backdrop within high yield is a very positive one.

DAVID CRAIG: Okay, great. Are the headlines about Egypt and Libya having a measurable impact on high-yield performance?

BRIAN NOLD: Not really, other than moving the equity markets around and moving oil prices up, the specifics of Egypt and Libya really don't have a direct impact on the high-yield market. High yields generally are a U.S. driven market with some Western European exposure, but countries like Egypt and Libya don't have a direct impact.

DAVID CRAIG: Okay, what are the primary risks that you think invertors should be aware of with the high-yield market?

BRIAN NOLD: Well, being fixed income we obviously have some link to treasury rates with treasuries being volatile and potentially widening out this year, that is a risk. I will say offsetting that is we still have a significant amount of spread which is basically the incremental yield within high yield above the underlying treasury rate. That is there is a significant cushion still within that spread that will allow us to absorb some further volatility in treasury rates. Then another risk would be the economy really accelerating even further and making equities very attractive as an asset class, and then I think investors would have to weigh what is more attractive, the equity market, high-yield market or the higher quality investment grade market. I still think high yield is in a pretty good position there because we have equity like characteristics. So in a stronger growth environment, high yield should actually perform fairly well. So I think high yield is in a pretty good position right now between higher quality asset classes and the equity market.

DAVID CRAIG: Okay. What's your outlook for high yield for the balance of 2011?

BRIAN NOLD: Well, we're off to a pretty strong start already in terms of positive performance on returns. Our general view is we believe returns can probably be in the 7% to 10% range this year. We started the year at around a 7% yield and we've tightened in from that since the beginning of the year, but the underlying backdrop in fundamentals within high-yield companies is very strong. Companies are paying down debt, they're improving their balance sheets, they're seeing some mild revenue growth, but they’ve significantly improved their cost structure, so they're seeing very strong profitability. So that's leading to a very low default rate which is probably in a 1% to 2% range over the next twelve months which is extremely low practically non-existent. So we expect that to continue and so it's setting up for a fairly positive year for high yield.

DAVID CRAIG: Thanks for insights, Brian.

BRIAN: Thank you David.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG: Good afternoon. Welcome to Style Class Focus Five. This is the week of February 7th and I’m talking with George Goudelias of Seix Investment Advisors, subadvisor to the RidgeWorth Floating Rate High Income Fund about the bank loan market. George, my guess is not everyone listening to the podcast has a deep understanding of bank loans. Can you explain exactly what they are and where they fit into the capital structure?

GEORGE GOUDELIAS: Sure David. Bank loans are senior secured in the capital structure, so within a company’s typical capital structure that might include bank debt, bonds, preferred, and equity. A bank loan would sit at the top of the capital structure, meaning they’re first in line in the event the company has to restructure, bank debt would have first claim on all assets and cash. That would have to be paid off first before anyone else in the capital structure gets paid off.

DAVID CRAIG: Great. Now there’s been a tremendous amount of flows going to bank loan funds so far this year, including your own. Could you put this use flows into some perspective?

GEORGE GOUDELIAS: Sure. The year 2010 was a fairly active year relative to 2009, and we’ve seen really continued flows in the year-to-date period. Put that into perspective, we had $3.4 billion of inflows into the bank loan mutual fund category in 2009. That number went up dramatically in 2010 to roughly $12.5 billion, and if we look at just the short five-week period thus far in 2011, we are over $4 billion, about $4.3 billion for 2011. We’ve already surpassed all of 2009 in the year-to-date period.

DAVID CRAIG: Now, last year there was a lot of talk about a huge number of bank loans coming due in 2013 and 2014 which could lead to liquidity issues. Is that still a concern?

GEORGE GOUDELIAS: It’s much less of a concern given how proactive companies have been in addressing their maturities over the last 24 months. To give you some numbers to wrap around that, at the end of 2008 there was roughly $500 billion of cumulative maturities through the end of 2014. By the end of 2010 companies proactively issued bonds and refinanced bank debt such that by the end of 2010, for the next four years, so again through 2014, that $500 billion number was knocked down to about $265 billion, so almost cut in half still with four years to go. While we don’t think everyone will make it, we believe the large majority of companies have bought enough liquidity to allow their business to grow into their capital structure.

DAVID CRAIG: Supply was an issue last year, wasn’t it?

GEORGE GOUDELIAS: Supply was moderate, but as a result of all the refinancing, the market actually shrunk by about $30 billion last year, from about $535 billion to about $505 billion. We would expect this year will be a little more balanced such that supply and demand will likely be in line, and we are unlikely to see the market shrink again.

DAVID CRAIG: Okay, great. Finally, what’s your outlook for the category in 2011?

GEORGE GOUDELIAS: For 2011 we think the market should have another good year. Last year we were calling for 6% to 8% for the asset class. Did a little bit better at roughly 10%. This year we think the market will likely do 5% to 7%. We’ve actually started off the year on relatively strong terms here, close to 2% for the first month. While you can’t extrapolate that for the rest of year, we think 5% to 7% is a good range to think about, and a good conservative range to use for this year.

DAVID CRAIG: Great. Well, thanks for your time George.

GEORGE GOUDELIAS: Thank you David.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG: Good afternoon. It's the week of November 22nd. I'm with Ron Schwartz, of StableRiver Capital Management, subadvisor to the RidgeWorth Investment Grade Tax Exempt Bond Fund talking about muni volatility. So Ron why all the volatility in the muni market this month?

RON SCHWARTZ: Well we really have the perfect storm in the municipal market. And it started with the tobacco downgrades that S&P instituted on November 11th. This affected a lot of the high yield municipal funds in the market and it obviously affected the value of these tobacco bonds and they were hit pretty hard. So what we were seeing in reaction to that from investors was redemptions from high yield muni funds because of the downgrade of the tobacco bonds and so that was the start of it. The week of November 15th we saw a very, very high supply come into our market. It was our busiest week of the year and so there were obviously great concerns about the market absorbing all that municipal supply during that week. Along with that we had concerns over the Build America Bond program, that it is due to expire at the end of this year and it looks like it might not be extended. So that would add tax-free issuance in 2011 with the Build America Bonds, which are taxable municipals, were being distributed to other investors, taxable investors, without this program we would have more tax-free issuance. So that also worried the market. Along with all these other factors we had a rapid and generally unexpected rebound in treasury yields which was the reaction to the Feds program of QE2. So all these factors within a week made our markets very illiquid. We had large redemptions every day from these high yield funds. In the face of high supply, deals were cancelled, deals were postponed. But by the end of the week we saw that the redemptions subsided. We saw that we did go through the supply and again it was more of a supply issue than a credit issue. And by Friday we were seeing a rebound which has continued this week. We do still expect some issuance for the couple of weeks after Thanksgiving. So we're not totally out of the woods yet. But we think the severe down swing is behind us. And then after that we really look at a minimal supply probably until February or March. So there is opportunity where we think municipals could perform very well going into year end and beginning of 2011.

DAVID CRAIG: Okay just a couple of quick follow-ups to that. First of all you said it affected primarily the high yield part of the muni market. Did it have an impact on the investment grade part?

RON SCHWARTZ: It did spill over to the investment grade part. With all the supply and then with the redemptions and with the bid wanted, we did see it affect the entire municipal market. But we've also seen it snap back quickly when the supply has been pretty much absorbed and the redemptions have subsided. So you know it was a very illiquid market that did affect the whole municipal market.

DAVID CRAIG: And just another quick follow-up. Most of the risks you mentioned seemed to be pretty period specific. If you remember two years ago, October/November of 2008, there was a lot of volatility in the muni market. Is that kind of volatility you think is just going to be here or what are your thoughts on that?

RON SCHWARTZ: You know the municipal market is actually a very small market compared to all the other markets – the corporate, the treasuries – and so therefore there are times when liquidity is very tough. But this happened two years ago and it's happened here for a few days. So its part of the municipal market. We don't see this increasing the historic volatility of the municipal markets on the whole. But at times there will be a liquid market that we have to deal with in the municipal markets.

DAVID CRAIG: Okay and just to end here. What's your long term message to municipal investors?

RON SCHWARTZ: We still think municipals is a good asset class. It's a conservative investment. It is a tax-advantaged investment. Even though we're hopeful that the Bush tax cuts are extended, we still feel like taxes will be going up one way or another for the high net worth individuals. So we think that will all make municipals look more attractive in the future. Ratios are very attractive right now so we think it's a great buying opportunity right now. But longer term we still think it's a good asset group. It’s a conservative investment and it is pretty much the only tax-advantaged investment available to individuals.

DAVID CRAIG: Great, well thanks a lot for your time Ron.

RON SCHWARTZ: My pleasure.

DAVID CRAIG: Welcome to the Plan Advisor Tools 5.  It’s the week of May 14 and I’m with Brandon Shea, Managing Director and DCIO Team Lead for RidgeWorth Investments, discussing branding in general, and developing a statement of services specifically.  First Brandon, why is it important for an advisor to develop a personal brand? 

BRANDON SHEA: If you don't have an identifiable brand, you will be seen in the marketplace as a commodity and your services will be hired and fired on the basis of price. 

This comes about as a result of two important challenges that retirement plan advisors face: 

1. Any advisor can hold himself out as a retirement plan expert – while there are credentials you can obtain to differentiate your expertise, there are no professional licenses or specific qualifications needed to call yourself a retirement plan advisor.  As a matter of fact, some studies show that a majority of plans, especially in the micro and small plan market are managed by advisors without any extensive DC plan experience or expertise. 

2. Most plan sponsors do not know enough about the complex world of retirement plans to understand the difference between a retirement plan expert, the “professional” if you will, and the retirement plan novice, the so-called “blind squirrel.” Often, these decisions are made on the basis of friendship or a family relationship with the business owner.

If you cannot articulate the value of the services you offer at a set price AND a competing advisor, who doesn’t understand the business and the complexities the way that you do, offers to do the same services for 15-20 basis points less, you may lose that business if you cannot establish a demonstrable “value gap”: meaning the difference between what you offer versus the competing advisor trying to place a wedge between you and your client. With the new fee disclosure regulations on the horizon, plan sponsors will be zeroing in on costs and less likely to focus on the value that you bring, unless you are able to adequately and compellingly demonstrate that value. 

DAVID CRAIG: What can advisors do to stand out? 

BRANDON SHEA: They can take intentional steps to personally brand themselves as an expert in their marketplace.

You do this by executing the proven “PHD Personal Branding” process that RidgeWorth Investments has launched and is releasing throughout each quarter in 2012. The process consists of 4 sequential steps that build upon each other. 

The 1st step is to strategically plan your brand in your marketplace so that the value you offer will resonate with your target audience or clients & prospects.  Part of this process is to build the tools to help you communicate the value of your personal brand to your target “ideal client”. In previous podcasts and in our webcast from February, available on demand in our Virtual Knowledge Center at ridgeworthVKC.com, we showed you how to create an effective personal biography that conveys your competence as a retirement plan professional, reveals something positive about your character and provides a couple connection points of common ground to build rapport with prospective clients. We also discussed how to craft a series of compelling positioning statements that make you memorable in the eyes of an HR director, a CFO or CEO by communicating you understand the common issues they each face with their company’s retirement plan and that you have the expertise and resources to solve those issues. These items help answer the question “who are you?” in the mind of your ideal client.

DAVID CRAIG: Now that the advisor has defined who they are, where does the Statement of Services come in?

BRANDON SHEA: The “Statement of Services” document is your opportunity to showcase the "How" of what you do (the specific professional services your team offers) to achieve the "Why" a client hires you (to achieve positive results for their plan & their participants).

Not only can an effective Statement of Services reinforce your personal brand, it can help you generate more revenue in an environment of constant benchmarking and fee compression.

It's a good assumption to think that the plan sponsors you call on are all overwhelmed with other tasks and projects.  Overwhelmed people can only take in so much information about a topic that they may not see an immediate need for (like a switching a current broker of record or vendor when the current plan is intact). 

Also, thanks to complex DOL & ERISA regulations and revisions to such regulations, we work in a complicated industry. Busy people who are overwhelmed tend to oversimplify complicated situations & you may unknowingly become a victim of this. In other words, due to the complicated nature of our business, clients may have a hard time truly grasping why you are different and how your services can add value in their current situation.

As a result, plan sponsors may oversimplify all the services that can be provided in the process and the cost of such services. They may assume most financial advisors are generally the same & provide the same services.

Your Statement of Services document is an opportunity to de-commoditize yourself and reinforce your brand.

DAVID CRAIG: Can you give me an example of how this could work for an advisor?

BRANDON SHEA: Sure, let's take this scenario out of theory and into the real world. Every day, you’ll face advisors that are competing for your clients who will turn an opportunity they find into a price-bidding war.

In his book MERGE: Simplify the Complex Sales in Five Surefire Steps (How Hard-Charging Consultants in Professional & Financial Services Slow Down to Succeed), William MacDonald explains that when he is faced with price-bidding situations, he’ll try to get the client to give up some of the valuable services he is proposing rather than reduce the price & he’ll use his Statement of Services as a tool to help make the argument.

For example, Mr. MacDonald offers the following services in his Statement of Services:

•         plan design

•         plan documentation

•         a complete investment analysis with a registered investment advisor

•         enrollment and education using Certified Financial Planners working with participants

•         monthly financial report to the company

•         24/7 access to web tools

•         a dedicated client team

•         research on new tax law changes, etc…

In other words, he is using his Statement of Services to present in a clear and compelling way all the tangible ways his team provides value. In doing so, the client can quantify the potential savings with each proposed service.

Citing a specific example of when a client was pressing him on fees, he suggested his client work with their outside legal counsel to provide various services he was proposing in the Statement of Services; such as:

•         drafting the plan document

•         designing the investment menu with the help of another registered investment provider

•         and eliminating the use of certified financial planners in the plan participant enrollment process.

Indeed, these three recommendations would have resulted in a reduction in the proposed fees. 

This client discovered that if they employed their outside legal counsel to draft the plan document, the cost of that service alone would have been 80% of the total fee the advisor was proposing for all the listed services in the 1st place. The end result was the client agreed to the initially proposed fee structure. 

By listing out all the services his team offered and by breaking down the price of each service, it became very clear to the client that they were receiving value for the cost they were incurring. Also, this client was now equipped with a reference point to measure other advisors ‘claims when they say they can take over the plan for a lesser fee. If a competing advisor does not offer the same services, then the client will know they are not comparing apples to apples.

In instances where there is a noticeable difference of perceived value, it is justifiable to pay a premium for that experience.

What this example illustrates is that when you, as a retirement plan professional, are able to achieve success when, in the eyes of your client, the value you’re offering exceeds the cost of the reduction in basis points they were originally seeking.

The takeaway: build an effective statement of services that reinforces your unique personal brand in the marketplace and allows you to differentiate your value. The example I just referenced highlighted how an advisor was able to defend his fee schedule with the argument that "good work isn't cheap and cheap work isn't good." While the competition was whispering is his client’s ear that they could offer to manage the plan a lower cost, they weren’t comparing apples for apples. They weren't offering to do the same services with the same quality of a credentialed service team for the same price.

It’s my view that having an effective Statement of Services document is a table stake in this business, a necessary entrance fee to pay to be seen as a retirement professional. In an environment where plan sponsors can easily access bench-marking tools & when so many advisors look alike and are being asked to compress their fees, I encourage you to build a compelling Statement of Services & use it; use it as a valuable branding tool to attract clients to you and use it as a resource to defend your unique value proposition when it comes to being compensated appropriately.

DAVID CRAIG: Is there anything you want to leave with the advisors listening?

BRANDON SHEA: Absolutely.  To end on a positive note, this is an exciting time to be a retirement plan professional. Investing in your personal brand & your team will yield dividends in this environment of fee disclosure. It will help you be seen as an identifiable brand as opposed to a commodity that trades on the basis of price.

To view RidgeWorth Investment’s brochure on building a successful service model along with additional resources to help your branding efforts, please visit our website titled: www.PlanAdvisorTools.com and click on the PHD Personal Branding Campaign tab. Remember, all great personal brands must have the PHD components to it – it must be Personal, it must be Honest & authentic to you & it must be Demonstrable.

Please bookmark this site as a resource so we can continue to help you brand yourself as an expert in the retirement plan space.

DAVID CRAIG: Great Brandon.  Thanks for your insights. 

DISCLOSURES: Information provided is general and educational in nature, provided as general guidance on the subject covered and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. It is not intended to be and should not be construed as investment, legal, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice. Copyright 2012 RidgeWorth Investments. RidgeWorth Investments is the trade name for RidgeWorth Capital Management Incorporated. An investment advisor registered with the SEC and the advisor to the RidgeWorth Funds. RidgeWorth Funds is distributed by RidgeWorth Distributors, LLC, which is not affiliated with the adviser. Unless otherwise noted, the opinions provided by the authors and other sources are not necessarily those of RidgeWorth. Personal Branding program materials are licensed from and developed in collaboration with Insight Development Group, Inc. Insight Development Group, Inc. is not affiliated with RidgeWorth.

DAVID CRAIG: Welcome to the Plan Advisor Tools 5.  It’s April 4 and I’m with Brandon Shea, Managing Director and DCIO Team Lead for RidgeWorth Investments, discussing personal branding.  Brandon, please tell me about the PHD Positioning Statement that RidgeWorth has just unveiled for retirement plan professionals?

BRANDON SHEA:  Sure, it’s a simple, scripted conversation starter that answers the question: “What do you do?”  And it quickly captivates the attention of the listener and creates interest in learning more about what it is that you do.  The reason why the PHD Positioning Statement works so well is because, in just a few words, it incorporates the power of 3 important, personal branding ideas:

1. 1.It's memorable
2. 2.It utilizes the Right Words to connect specifically with your target audience
3. 3.It's organized in a repeatable manner

Now, the PHD Positioning Statement is made up of 2 important parts.  Part One is designed to Create Agreement with the prospect regarding an undeniable truth.  An undeniable truth is a statement that 98 percent of the public would likely agree with.  Part Two  is designed to communicate the most important idea that you want people to remember about what matters to them. Its not about your product or service, its about addressing what really matters to your audience.  They will not remember everything you say, so be intentional about what you want them to remember.  In a moment, I’ll share several retirement-plan specific examples advisors can use but for right now, let me give you an example of one of the most effective positioning statements I’ve ever heard. It goes like this:

“Do you know how most people don’t like the process of buying a new car, because they don’t like dealing with the salesperson?  

Well, what I do is for $295 I take people through a fifteen-point process to help them determine the exact right car for them and then I go with them to the dealership to negotiate the best price. I call it Floyd’s Smart Car Buying, and I’m Floyd.”

Now what’s amazing is that when I share this exact example about Floyd with advisors around the country, its so memorable that 6-12 months later, advisors can recall with a high level of accuracy what it is that Floyd does. 

So, the PHD Positioning Statement is a way to make sure that the Psychic Real Estate you are creating is the Psychic Real Estate that you want.

DAVID CRAIG: Brandon you just mentioned the term “Psychic Real Estate” – what is that?

BRANDON SHEA:  When I say the words “Plop Plop Fizz Fizz”, what do you think about? (Pause) 

DAVID CRAIG: Alka Selzter.

BRANDON SHEA: Exactly. You and the majority of folks listening to this podcast are thinking about Alka Seltzer right now. Taking it one step further, most listeners can probably, in their mind’s eye, visualize two white tablets being dropped into water with bubbles fizzling upward. Some might even be able to recall the jingle that goes “plop plop fizz fizz, oh what a relief it is”?  What’s amazing is that it’s been over 15 years since that commercial last aired.  THAT is Psychic Real Estate.   Psychic Real Estate is the words, it’s the feelings and it’s the images we associate with a product or a service or a brand (be it a corporate entity or an individual like yourself).   Some people call it a Brand Image.  The PHD Positioning Statement is designed to create your own psychic real estate, without all the money it takes to hire creative firms and place ads all over the internet and TV.  In other words, we are crafting statements that will help key retirement plan decision makers in our network recall what it is that we do – whether that is you provide a higher level of participant education than most or a proven process to measure and manage fiduciary risk or insightful benchmarking – you fill in the blank about the solution you offer that you want your clients & prospects to remember about you.

DAVID CRAIG: How can retirement plan focused advisors apply this? 

BRANDON SHEA:  I recently helped a retirement plan-focused advisor build effective positioning statements to articulate their value proposition. This advisor had hired an outside marketing pro to create a professional looking 45-slide sales deck a PowerPoint with beautiful images). After utilizing the sales deck to present his value proposition to a CEO, CFO & HR Director for 45 minutes, the HR Director paused and asked the advisor “Great, now what is your value proposition?” The advisor confided in me he could have banged his head against the table in frustration having put all the effort and expense into creating a value-prop pitch book & still receive the question “what’s your value prop?”  I asked the advisor, “How powerful would it have been if you had looked right at the HR Director & identified an issue she commonly dealt with & immediately provided a solution you provide that solves that specific issue? Such as:

“Do you know how you get nervous when these guys start talking about moving the retirement plan because you’re the one who’s going to be doing all the paperwork and battling to meet deadlines?”

“Well, what I do as your plan advisor is hold your hand as much as possible during that transition process to help you with the paperwork and ensure you know about every deadline and you’re not surprised by any unforeseen curve balls.”

Then this advisor could have looked right at the CFO and said:

“Do you know how you might wonder if your plan is receiving the appropriate services for the fees being charged?”

“Well, what I do as your advisor is utilize proprietary benchmarking services to compare your plan to similar plans in size and industry around the country to ensure the fees you’re paying are commiserate with the services you’re receiving.”  Then he could have looked at the CEO and said:

“Do you know how you want to keep your most important employees happy?”

“Well, what I do as your plan advisor is provide you with unique ways to utilize plan design so that your most important employees maximize their savings and benefits for retirement and thank you for it.”

Finally, if this advisor also managed private wealth, he could have addressed all of them and said:

“In regard to managing individual private money, do you know how some people are worried about outliving their money?”

“What I do as a private wealth, financial advisor with 18 years’ experience is put people through a 4-step, proven process to ensure they have an income stream they can never outlive.”

So, as a retirement plan advisor, imagine the possibility if you invested just a little time into crafting powerful statements like these about your services so that your target audience will recall exactly how you provide value to your clients.

Like anything worth having in life, it’ll require a little effort on your part but RidgeWorth Investments has designed a Positioning Statement Workbook that walks you through the process of building your own compelling positioning statements.  If you’re listening to this podcast & have not seen that workbook yet, you can access it by visiting our website www.PlanAdvisorTools.com and clicking on the Tab that says “PHD Personal Branding”. Also, if you have an iPad, our branding material is available on the RidgeWorth iPad app available in iTunes.

DAVID CRAIG:  Do you have any final thoughts?

BRANDON SHEA:  Yes, I do. A strong personal brand has the ability to attract your ideal clients to you. If you invest the time to think about your personal brand and how you want to be perceived by your target market & then you take the time to build tools like, in this instance, effective positioning statements for the key decision makers in the retirement plan space, you can be assured that it will yield dividends. The benefits will outweigh the cost of your time & creativity to build effective branding tools.

DAVID CRAIG:  Great, well thanks for your insights Brandon:

BRANDON SHEA: My pleasure.

DAVID CRAIG:  Hello, this is David Craig, director of marketing for RidgeWorth Investments.  I’d like to welcome you to a combined Plan Advisor Tools and Efficient Advisor podcast series on personal branding.  The series will consist of four episodes including (1) Who are you?; (2) What do you do?; (3) How do you deliver what you do?; and (4) How do you grow your business?  In each addition, personal branding expert Mark Magnacca, who has authored the book The Product is You, will provide advisors with specific strategies to help them stand out in a crowded market place.  So Mark, with this edition of our personal branding podcast series, we’re talking about the first question – Who are you?  Now when many people hear branding, they think that is something that’s important to Coca-Cola or Apple or Singapore Airlines, but what does it mean for an independent financial advisor who doesn’t even have the aura of his company’s image to build off of?

MARK MAGNACCA:  Well, if you think about it, it’s very much perhaps the most important question that a prospective client is going to ask – Who are you?  That’s at the heart of what they want to know.  Branding is simply a way to help people understand faster who you are.  There are lots of different definitions for a concept of personal branding, but the one that I like the best is that a brand is really a promise.  It’s a way for people to have a shortcut to understand who you are.  For those advisors who happen to work at large firms and they’re under the umbrella so to speak of that company’s brand, some cases that works to their advantage and in other cases it can be a disadvantage.  So on the one hand there can be more name recognition, but on the flip side of the coin it can be harder to differentiate yourself when you’re under that large brand.  Conversely, when you work as an independent or for a less well-known firm, your name may not have that name recognition quality, but it’s equally important for you to develop a way to create a positive first impression and that’s what the right type of personal branding does. 

DAVID CRAIG:  So Mark, you’re very big into creating an actual positioning statement.  What makes a positioning statement different from the elevator speech that people have been trying to perfect for years?

MARK MAGNACCA:  I can tell you that I was one of those people trying to perfect an elevator speech for years.  In fact, I wrote about and talked about the concept of the elevator speech for many years.  One of the things that I realized is that the problem with the traditional elevator speech which of course it’s this idea that you get in an elevator, you’re on the tenth floor, you press lobby and you’re in there with somebody and they say so what do you do.  In this relatively short period of time you can articulate something that explains who you are and what you do.  Well, it turns out that the rub with that idea is that very often people develop a concise set of words that describe what they do, but it didn’t serve the purpose of actually positioning them favorably.  So it turns out you can say something you’ve rehearsed and you’ve practiced and still not be very compelling.  What’s different about what we call the “so what” positioning statement, is the idea that inherent in it you have passed what we call the “so what” test.  That means that the person understands what’s in it for them.  As an example, in the past you may have said something like “I help people with the life insurance needs of their family,” for example if someone was an insurance agent.  After going through my process, they may instead say something if they were to meet you, David, in the elevator and say you’re with X, Y, Z company, what do you do?  They may instead say something like “Do you know how so many people today are worried about running out of money at retirement?  What I do is help my clients create a stream of income they can’t outlive.”  Now that’s far more compelling for people to then say, really how do you that?  This same guy who I was just thinking about who happens to be an agent as well as an advisor, he’s got lots of different product tools from his annuities, to his immediate annuities, fixed annuities, his bond funds.  Lots of different ways to get people an income stream.  What they’re interested in is the income stream, David, rather than the fact that you may be a life insurance or investment management person. 

DAVID CRAIG:  Right.  Now can one positioning statement work for all audiences; for example existing clients, prospect, general business contacts, family and friends?

MARK MAGNACCA:  I suppose it can, but generally it doesn’t.  I find that you typically have a lead positioning statement.  So the lead positioning statement is targeted towards your ideal target market.  What we refer to as your ideal client profile.  So the one that you’re using the majority of the time, target it to that group.  An advisor that I talk about I the book by the name of Frank, and this is what Frank says after going through this process.  Well, Frank, what do you do?  He says “Well you know how so many business owners have a CFO to help them manage their company’s money?”  The person says yeah.  He says “What I do is work as a personal CFO for my clients to help them make work…optional. 

DAVID CRAIG:  Compelling.

MARK MAGNACCA:  It’s very different, yeah, it’s a different way of saying that causes people to sort of perk their ears up a little bit and say what?  So that would be Frank’s main one, but that’s because its target market is business owners and he would say that to people he might meet on the golf course who are business owners.

DAVID CRAIG:  Right.

MARK MAGNACCA:  If he was at a Chamber of Commerce meeting or if he was at a Little League dinner, he may have a more generic-sized version of that.  It would be what we call the generic version.  That might be the one he would also use at Thanksgiving if he’s sitting next to his great aunt, and she says you’re with this company, what do you do?  Generally you need at least one to get that one down, and then you have the generic one in your back pocket and possibly for most advisors you could have sort of the retirement version and then the working version.  If you have two different markets, you need more than one.

DAVID CRAIG:  Okay. You also suggest that advisors develop a personal biography.  Now if an advisor develops a personal biography, should they go with existing clients and contacts as well? 

MARK MAGNACCA:  Let’s start with why they should have a personal biography.  The personal biography really speaks to the thing we started talking about which is branding.  In many cases, it’s the first impression people have of you.  So we recommend that when you have created a biography following the same format of what’s in it for them.  David, the catch here is this isn’t just a misconception people have is that if I write a biography it’s because I’m blowing my own horn.  It’s actually quite the opposite.  By having a biography, you’re helping people answer the question that in most cases they have anyway, they just don’t want to ask you because they don’t want to make you feel uncomfortable.

DAVID CRAIG:  Right.

MARK MAGNACCA:  We call it three things.  We call it your character, your competence and your common grounds.  Those are the three C’s.  Specifically to answer your question, sometimes people say to me how do I share this with people that I’ve already known for five years or longer?  I typically recommend in that situation that you simply call them up and say look, I’ve decided to add a personal biography as part of my promotional kit when I meet new people or on my internet site, would you mind if I send it over to you and have you take a look at it because you’re someone who’s known me for a long time and I’d really like your feedback as to whether or not you think it reflects on the kind of relationship we’ve developed because you’re the kind of person that I’m looking to find more of.

DAVID CRAIG:  Okay.  Then what are the best places to use a personal biography?

MARK MAGNACCA:  First and foremost, any kind of public events you might do whether it’s a seminar or a group meeting.  Having a biography absolutely causes you to stand apart.  Second of all, we recommend a number of different formats.  For example, many of the professionals who are part of the RidgeWorth team, they use a biography.  There are different sizes that you can use that in and of itself help change people’s perspective because it’s a little different than what they expect.  So in group meetings, that’s one spot to use it.  A lot of advisors now of course they’re all compliance approved, everything I am talking about would have to compliance approved before you send it out, but they will attach it as part of their email confirming an appointment.  So there’s lots of different ways to use it.  In press releases you can use it, electronic version of course on LinkedIn with over a hundred million people now, a great place to have a compelling biography because the simple fact is high net worth people check you out before they give you their money period.

DAVID CRAIG:  Great.  Well thanks, Mark, I think that’s a great start to our personal branding podcast series.

MARK MAGNACCA:  Thank you.

DAVID CRAIG:  Welcome to Plan Advisor Tools Five.  It’s February 3, 2012, and I’m with Daniella Moiseyev Retirement Segment Marketing Manager for Ridgeworth Investments to talk about 408(b)(2).  So Daniella the Department of Labor announced the final rule 408(b)(2) yesterday.  Can you tell us what changed?

DANIELLA MOISEYEV:  Yes, David.  Well, Hilda Solis, the Secretary of Labor made several announcements on Thursday.  First, the effective date of 408(b)(2) has been pushed back three months to July 1, 2012 to allow providers to prepare, and as a refresher, the rule applies to service providers who can expect to receive $1000 or more in compensation and provide certain fiduciary or registered investment advisory services to retirement plans.  Then, in a move that surprised no one, the 404(a)(5) participant fee disclosure regulations were pushed back as well to August 30, 2012, with the first quarterly statement due to participants no later than November 14, 2012.  Then, of course in conjunction with this, as you mentioned, the DOL finally released the final rule for 408(b)(2).  We’ve been working with an interim final rule and now we have the final rule.  Now, while the rule itself is very complex and I’m still wading through the 100-plus pages of the rule, here are my initial impressions of what has changed that’s particularly of note.  Now there are additional changes to what I’m going to mention here, but this is kind of the 30,000 foot overview.  So first, they have made some changes that certain annuity contracts and custodial accounts issued prior to January 1, 2009, so mostly 403(b)-type plans are now not covered by the new rule.  That’s one.  Another change that is different from the interim final rule is that, this is the biggest one I think, is the disclosure around indirect compensation has been “enhanced,” per the DOL.  It must now include a description of the arrangement between the person or entity paying the indirect compensation to the service provider, and this is meant to help the plan sponsor or his delegate (what they’re calling the “responsible plan fiduciary”) to assess why the person or entity is paying the service provider the indirect compensation.  So, they have to figure out whether it’s in connection with their contract or with something the service provider is doing.  It gives you a little bit more information.  They had not had this requirement in the interim rule.  Then, they also added some disclosure to the investment-related disclosures.  The final rule requires disclosure of the total annual operating expenses, expressed as a percentage, calculated in accordance with the department’s new regulation 404(a)(5).  So, they basically took what had to be disclosed on the expenses for the investments and put it so that it fits exactly with the way that they have to be disclosed for 404(a)(5), which of course will help plan sponsors more easily comply with 404(a)(5).  In addition, the final rule requires that the disclosure of any other information related to the investment options that is within the control of, or reasonably available to, the service provider if the information is considered investment-related information must be provided automatically under 404(a)(5).  So again, they’re just putting the two rules kind of in alignment.  Additionally they’ve made some changes to some other investment-related disclosures.  The final rule changes the focus of the so called “pass-through relief”.  What we jokingly refer to as the “CYA provision.”  In the interim rule, the provider could rely on the information being provided by the investment companies in the plan.  Now they are changing it so that the disclosure material can be provided or replicated from information provided by the investment companies and the final rules provisions no longer focus on whether the disclosure materials themselves are regulated, but on rather if they are being provided by companies or entities that themselves are regulated, and the service provider must now act in good faith and must not know that the materials are incomplete or inaccurate and must state that it makes no representation to the completeness or accuracy of these materials.  Additionally, the final rule reserves a place to develop a required guide to show plan sponsors where to find information, if it’s in multiple or complex documents and there may be an additional rule on this coming from the DOL. They’ve basically said that there’s more coming here and there will be some sort of summary guide disclosure required.  They did mock up a sample guide and they are encouraging service providers to use that.  The final rule changes the timing of the initial disclosures.  It changes the deadline of disclosures of the investment-related information to at least annually.  Before it said within 60 days.  So that information now has to be provided at least annually.  Now there are some additional changes, but we think the most important of these is the whole indirect compensation change and we’ll certainly have more to come and put out some more materials on the final rule as we have a little bit more time to digest it.

DAVID CRAIG:  So if I’m a retirement plan advisor who’s been kind of following the development of 408(b)(2), does this final rule represent big changes or not so big changes?

DANIELLA MOISEYEV:  I think aside from the indirect compensation piece of it, the changes are pretty minimal.  Everybody thinks that the three-month delay is good, because it is going to be some time to get all the disclosures properly formatted to be able to disclose to the plan sponsors and of course it brings the rule more closely in alignment with the 404(a)(5) regulation, which is final.  So the changes I don’t think are wholesale.  There are some tweaks throughout.  The biggest change again is the indirect compensations having to be disclosed.

DAVID CRAIG:  Great.  Alright Daniella, thanks for insights.

DANIELLA MOISEYEV:  Thank you, David.

DAVID CRAIG:  Hello and welcome to a special holiday edition of the Plan Advisor Tools Five.  Brandon Shea, Managing Director and DCIO Team Lead for RidgeWorth Investments, shares some insights in how to differentiate yourself this holiday season.  Brandon? 

BRANDON SHEA: When it comes to corporate giving in the holiday season, the advice of Harvey McKay rings true:

“Don’t be boring!
Don’t be predictable.
Be a differentiator.”

In his book Pushing the Envelope: All the Way to the Top, Harvey McKay says:

 “[Client gift) giving is wrapped up in the concept of staying close to your customer. To do the job right, you have to know that customer as a living, breathing human being, with likes & dislikes, interests, a family, and a background, so you can knock their socks off when a gift package shows up.” 

In this podcast, I’ll share with you three thought-provoking ideas to differentiate yourself as a professional this holiday season.

Idea No. 1: Personalize your communication.

My wife & I live in Los Angeles and in the past, we have received a lot of correspondence from a local realtor we know who is actively seeking our future business & referrals (the issue for him being most of those emails go unread). What separated the email he sent us last week from the others he’s sent in the past is that he personalized the message specifically to our situation.

He knows we have 2 young children & with that in mind - he sent us a note informing us there would be a family-friendly, holiday fireworks display next weekend in the local beach community. In other words, he did a great job of putting himself in our shoes and thinking of a holiday-specific activity that would resonate with us as parents with young kids. How’s that old saying go J? “People don’t care what you have to sell them until they know you care about them”.  I believe that’s true.

The benefit of putting forth an effort like this (of personalizing your communication) is that you retain “front of mind status” in the minds of those you’re connecting with – my wife has mentioned this email & the realtor’s thoughtfulness more than once this past week.

Personalize your communication.

Idea No. 2: Provide specific ideas for your clients to enhance their holiday experience

An issue for all of us is that the holidays are a busy time, a lot is going on & it’s easy to lose track of unique events taking place around us.

One simple but impactful idea for you is to scan your local community for ideas to help your clients celebrate the holiday season. Zagat.com is a great resource for restaurants in your community - why not create an email or send out a letter using nice stationary that lists the top 5-10 local restaurants to visit that would create a memorable family experience or even a romantic holiday dinner? For example, a local resort just south of Los Angeles is having a Christmas brunch next week where kids can have their picture taken with Santa Claus and there will be an elf station where kids can make cookies and ornaments. My wife & I made reservations to attend this event with our kids and when I’ve told other parents who have young kids about this event - their eyes lit up as they expressed they didn’t know this hotel had an event like this and they’d love to join us. 

The email or note on nice stationary you might send may also include local insight on where to get the best deals on produce or turkey or any of the fixings for a holiday dinner.   

As people’s attentions shift towards celebrating the holidays (be it Christmas or Hanukah or just Season’s Greetings), put yourself in the shoes of your existing clients and prospective clients.

Look for specific activities, places or ideas you can recommend that will enhance their experience this season. Not only can you help them build a memorable experience this season – you’ll become a lot more memorable in their eyes too!

Idea No. 3: Some of your clients grew up in other states and miss some of the familiar holiday customs.

Send them something that will remind them of home (&, in the process, your thoughtfulness). Having grown up in Nashville, Tennessee, I would sometimes get as a gift, a chocolate chip, bourbon pecan pie. I tell you, not only did that put a big smile on my face – J - but the sender got the full attention of my brain & stomach!

Also, if you’re sending a holiday card to your clients & you want to stand out from the crowd, I recommend going one step beyond just signing it. Every year my family receives a printed note that’s inserted into a signed holiday card from a financial professional we know. In the printed note, this gentleman briefly shares specific reasons why this past year was so significant for him and the clients he serves. He also talks about a couple reasons why he’s so enthusiastic about the potential each New Year’s Eve brings (for example – he may talk about the “psychological paycheck” he gets from helping clients establish their 12 month goals & then helping them nurture those goals to fruition).

While it only takes a couple minutes to read his note every year, my wife and I feel this professional has done a great job of distinguishing himself as a thoughtful person who is passionate about serving others & we’ve referred more than 1 person to him to be a client.

My wife and I have embraced this idea of sending personalized notes out with our Christmas & Season’s Greetings cards and the response has been very positive & it’s also sparked many meaningful conversations along the way. In fact, it’s had a large impact on my personal career. One of the personalized cards I sent out in 2010 (which happened to be an Independence Card celebrating the 4^th of July – I don’t limit my personalized cards to my network to just the holidays) – it attracted the attention of RidgeWorth Investments’ executive management team and it started a conversation. That conversation, and many thereafter, resulted in me becoming the National Sales Manager of RidgeWorth’s Defined Contribution Investment Only Team.

So, be creative, caring and personal with your communication.

I’ll close our time together by sharing another gem from Harvey MacKay J:

“If you’re creative, show it.
If you’ve got class, let them know it.
There’s nothing that results in indignation,
More than a deadly lack of imagination.”

From all of us at RidgeWorth Investments, May Peace, Joy, Hope and Happiness be yours during this Holiday Season and throughout the New Year.

Thank you.

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time and are for informational purposes only are not intended as individual or specific advice, may not represent the opinions of the entire firm and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, is provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be and should not be construed as investment, legal, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice.

DAVID CRAIG:  Welcome to the Plan Advisor Tools Five.  It’s the week of November 7^th, and I’m with Daniella Moiseyev, retirement segment marketing manager for RidgeWorth Investments to talk about the potential impact of fee disclosure on advisor and consultant fees.  So Daniella, we’ve been talking about fees all year in this podcast due to the new fee disclosure regulations coming into effect in 2012.  With this new emphasis on fees do you think there will be an effect on advisor and consultant fees as well? 

DANIELLA MOISEYEV:  Oh absolutely, David.  There has been a renewed scrutiny on plan fees all across the board and we believe that advisor fees will not be immune to this scrutiny, but to quote RidgeWorth’s Investments president, Jim Stueve, only in the absence of value do people begin to focus on price.  That being said, we believe there are several things an advisor can do to refocus the client or plan sponsor on the value, and not the price, of the services that he or she provides. 

DAVID CRAIG:  Okay, what are those things?

DANIELLA MOISEYEV:  Well, there are three things you can do to ensure that your clients understand that the value of your professional expertise outweighs the fee.  First and foremost believe that the advice you provide is worth your fee and avoid becoming defensive.  Practice explaining your services clearly and confidently so you can answer with authority.  Second, don’t assume that every question about your fees is a challenge. And third and most importantly, practice your responses to objections until you are comfortable with articulating your value. 

DAVID CRAIG:  Okay, now let’s talk a little about the first item, believing you’re worth your fee. 

DANIELLA MOISEYEV:  Well, there is a huge body of scholarly work by William Bernstein, Daniel Kahneman, Dalbar and many others that shows that most people, most plan sponsors, most investors, pretty much anyone, are simply not wired to be successful investors.  Simply put, they don’t act rationally when investing.  Your process-driven decision-making and knowledge base add value to the relationship and to the plan and that’s been proven through scholarly work.  You need to be confident about the unique value that you provide.  Don’t think of a response to a fee objection in the moment.  Be ready, be prepared and speak with authority. 

DAVID CRAIG:  Okay, now what about the other two items that you mentioned, not assuming every question is a challenge and practicing your response?

DANIELLA MOISEYEV:  Well, just because a plan sponsor opens the door to the fee discussion doesn’t mean that you need to immediately rush into discount mode.  There are four easy steps on how you respond to an objection to your fees.  First, give a short, neutral response and then probe to get more information or to gain insight.  Identify the underlying issue and rephrase or reposition the question or objection and then answer it by relating it back to your value.  Now, don’t get me wrong.  This isn’t easy to do.  It takes practice and it takes some introspection, but we really believe that if you’re good at what you do and you’re doing it for the right reasons, you can do it. 

So, let me give you an example.  A common objection might be something like a plan sponsor saying “your fee is too high.”  First, give a short, neutral response.  Say something along the lines of “fees are relative to the type and quality of the service provided.”  Then, after clarifying questions to reveal a hidden agenda or gain some insight into why they are bringing up this objection, something like “high – compared to what?”  Then, identify the underling issue and rephrase or reposition the question.  Figure out that the plan sponsor doesn’t really understand what the fees encompass or the quality of the service that is provided.  So, you could say something like “let me review all the services that you will receive for the fee that I charge.”  Something like “plan design services, investment monitoring and investment policy statement development, employee education services, fiduciary services, serving on the investment committee,” et cetera, et cetera.  Once you’ve laid out your value, then you can answer by relating it back to your process.  So, you could say something like list out the services and answer “I believe in exchange for the X amount of fee, these comprehensive services are fair, reasonable and competitive with other programs available to you.” 

DAVID CRAIG:  Okay.  That’s a lot of good information, Daniella.  Thanks for your insights. 

DANIELLA MOISEYEV:  Thank you and thank you all for listening.  

DISCLOSURES: All investments involve risk. Comments and general market related projections are based on information available at the time and are for informational purposes only are not intended as individual or specific advice, may not represent the opinions of the entire firm and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, is provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be and should not be construed as investment, legal, estate planning or tax advice. RidgeWorth does not provide legal, estate planning or tax advice.

DAVID CRAIG:  Welcome to the Plan Advisor Tools Five.  It’s the week of October 3^rd, and I’m with Daniella Moiseyev, retirement segment marketing manager for RidgeWorth Investments to talk about fee disclosure regulations.  So Daniella, we’ve had ERISA attorney David Williams with us in the past podcasts to discuss regulation 404(a)(5).  Can you give us a quick refresher?

DANIELLA MOISEYEV:  Sure, thanks David.  What we found over the last few months is a lot of people are talking about the plan provider disclosure which is the 408(b)(2), but not as many people are talking about the new regulation under ERISA 404(a)(5).  Now that regulation requires the disclosure of certain plan and investment-related information, most significantly expenses and fees, to participants in what they call participant-directed individual plans.  So things such as 401(k)-type plans.  Basically what it requires is that the plan sponsor, and what they call the plan administrator, but in most cases it is the plan sponsor, has to regularly disclose to plan participants the features of the plan that effect the investment of their plan account as well as a wide variety of expenses and fees that potentially could be charged to their account and then actually are charged to their account.  By regularly, it varies depending on what components are being disclosed; some are quarterly and some are annually.  That is discussed in more detail on our white paper about 404(a)(5).  Now the aim of this regulation, the reason the DOL undertook to write this, is to give the approximately 72 million participants in these types of plans better information about their expenses and fees in order for them to better manage their retirement savings.  The regulation goes into effect on May 31, 2012, for most plans.  There are some plans that will go earlier.  Then it is 45 days after the end of the first quarter after regulation goes into effect so effectively for most plans that will be August 14, 2012.

DAVID CRAIG:  Okay, so what do you think will be the effect on plan participants as a result of this new regulation?

DANIELLA MOISEYEV:  Well what we’re finding and what the research is showing is that most plan participants are completely unaware that their plans cost them anything.  Most of them think that they’re cost free.  What we think is going to happen after they get that first account statement is going to be a mixture of confusion and shock.  They’ll be able to see in black and white, in dollars and cents and in some cases percentages, what their plan is actually costing them and what is being deducted out of their account.  That’s going to cost quite a bit of consternation.  We think the first thing that most people will do is go ask their family and friends to see what they’re paying.  When you start comparing in that way, you know, one of the first things that they’ll realize is that those participants with higher value accounts are actually paying more than those with lower value accounts and in some cases they may not think that is fair.  What we think is that’s going to cause a lot of people to come into the HR office or call the call lines and on top of that, Dalbar which is an industry consulting group did a study of the model comparative disclosures that the DOL wrote up, and they assessed on a variety of factors; document length, Flesh reading ease, confusing terms, number of confusing concepts, etc. ,etc.  Basically they came up with it was very confusing that the reading ease is very low, that the length is too long to engage with most regular, ordinary participants, that it has a variety of confusing terms (seventeen I believe that they found) and has a lot of confusing concepts.  So that’s going to cause some problems.  Now Dalbar came up with the idea that this is going to cause spikes in call volumes, disgruntled participants and a mass exodus out of 401(k) plans.  We believe that it doesn’t necessarily have to be this way and there are certain things that plan sponsors can do to be prepared to help their participants not be so concerned and so upset and exit the plan.

DAVID CRAIG:  Okay, what are some of those things plan sponsors can do? 

DANIELLA MOISEYEV:  Well, we break it up into four things.  First, we think that a plan sponsor needs to understand and be able to articulate the different components of their plan fees in a way that participants can understand.  There are multiple components here, but the ones that we think people will be most concerned with and that most plan sponsors or whoever is staffing the call line or the HR office where participants are going to go need to be able to do that is investment management fees which are probably going to be the bulk of the fees that are being deducted and the participant’s specific fee  so things such as when they are taking a loan or when they’re doing some various transfers or rider charges or redemption fees or transfer fees and those kinds of things.  Then also the administrative expenses and fees which may also include an offset due to revenue share by the investment option.  So all of that are line items in the new disclosure are pretty confusing.  So you need to do as a plan sponsor need to be able to articulate what those means and understand them yourself.  We cover these fees in some detail in two pieces that we have available on our retirement plan website, www.planadvisortools.com.  We have a Managing your Plans Fees white paper and a 404(a)(5) fiduciary focus participant guide both of which go into some of these fees in detail to help you understand them in plain English.  Now the second thing that we feel plan sponsors should do to prepare is to understand and be able to articulate the comparative value of their plan.  There are a lot of ways that you can do that.  As an advisor of the plan, you can work with your plan sponsor client to benchmark their plans.  We do have some benchmarking tools available on our retirement site, but we also feel strongly that you shouldn’t only benchmark the fees of a plan.  You need to benchmark all the various aspects of the plan in light of participant success measures or participant outcome.  So how well is your plan performing relative to its peers will go a long way towards helping your plan participants understand why they pay what they pay.  Now that being said, if your plan is completely out of line or if it’s not having very good participant success outcome, you may wish to work with your advisor to find a better lower cost option.  The third thing we feel is very important to be prepared is to have your staff trained.  That front line staff that will be dealing with participants who come into the office whether it’s the person in the HR department or it may be the employer, the company owner himself, needs to be prepared to answer questions and really understand this.  Again, I think some of the materials that we have available will help go quite a way to help people understand it.  Then the fourth thing we really think is important is to consider distributing a participant guide in advance of the first disclosure.  So before they get that first statement with these fees, send something out to your participants so that they understand what’s coming.  We’re working on something like that now that we’ll have out ahead of the time of the required disclosures, and we’re working on making something that’s going to be in plain English that you’re average participant can understand it.

DAVID CRAIG:  Great.  And I assume advisers can also go to Plan Advisors Tools to get information to support that?’

DANIELLA MOISEYEV:  Absolutely.  Advisors can go to www.planadvisortools.com.  We have benchmarking tools there that can help you with all the plan sponsors that you work with benchmarking the plan.  We also have all of our printed materials around 404(a)(5) as well as managing your plan fees there that you can take a look at and see if it’s something you would like to use with your plan sponsor client.

DAVID CRAIG:  Great, thanks for your insights Daniella.

DANIELLA MOISEYEV:  Thank you.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

 

David Craig:  Good afternoon, welcome to Plan Advisor Tools Five.  It is the week of September 5^th, and I am talking with Brandon Shea, Managing Director and DCIO Team Lead for RidgeWorth Investments, discussing insights on building rapport with business owners.  So Brandon, you have five insights on how retirement plan advisors can build rapport; what are they and where exactly are they coming from?

Brandon Shea:  David, in my position I get the opportunity to work with some of the top 401(k) specialists around the country.  One person in particular I have had a working relationship for many years and he has become a personal friend is Joseph Burt, the owner of Pension Plan Specialists, a very successful third party administration in Vancouver, Washington.  Prior to founding Pension Plan Specialists, Joe is a top producer 401(k) wholesaler nationally for a 401(k) vendor.  He has sat through hundreds of finals presentation meetings with advisors and business owners and he became very methodical about asking business owners five specific questions in post final meeting wrap-ups, and those specific questions were:

1. When a financial advisor has called you what made you want to meet with that individual?
2. During the finals meeting presentation, what did you look for and what separated the good advisors from the not so good?
3. During the implementation process, what were your expectations?
4. What is the best way for an investment professional to earn ancillary business?
5. How do you maintain a long-term relationship with your investment professional?

So Joe was asking these questions with the express purpose of gaining a better understanding of how the best financial advisors build rapport with business owners from the business owner’s perspective.

David Craig:  All right Brandon that sounds great.  Let’s start with the first question.  When financial advisors have called upon business owners, what was it that made a business owner want to meet with one advisor over another?

Brandon Shea:  David the feedback from business owners state that they appreciate it when an advisor is brief and respectful of their time.  They also stated that they appreciated when an advisor made a “power statement” that applied to them, and this might have been in a form of a 15-second elevator pitch, but simply and effectively, the advisors were able to state who they were, why they were calling and how they could benefit the business owners.  Business owners also stated that they like it when advisors know their company and the good will and influence they have been able to generate in their local community.  They said they liked it when advisors are direct and exude confidence, but are not overbearing, and they said that they don’t like threats.  In other words, business owners want to be enlightened about the fiduciary risk that might be on their shoulders, but their advice to advisors is don’t overdo it by trying to frighten them with fiduciary risk and litigation; enlighten, but don’t threaten. 

David Craig:  Now Brandon during the finals meeting presentation, what did business owners look for and what separated the good advisors from the not so good in their eyes? 

Brandon Shea:  Well there were four consistent responses here from business owners as to how good advisors really separated themselves and the first thing was that image is very important.  When business owners were asked how important image was on a scale of 1 to 5, 5 being extremely important, they answered 4.5, or in other words, the image you project as an advisor is very important to extremely important in their eyes, and this encompasses your personal brand as a professional; this is your wardrobe, your manners, your marketing collateral.  I know of several top advisor firms nationally who conduct presentations solely with iPads just to demonstrate their technical proficiency; not to mention it adds a little bit of a “wow” factor on the prospective clients. 

The second area that helped advisors stand out in a good way during the finals presentation was that they demonstrated  an organized thought process and a clear meeting agenda, but were flexible enough to adjust to the business owner’s needs, so they brought an agenda, but as the meeting warranted, they flexed to answer the needs of the business owners. 

The third way that good advisors separated themselves in the finals meeting is that they do their homework in two notable ways to the business owners:

1. They address specific needs that the company is facing.
2. They come prepared to make a strong recommendation. 

It is one thing to work with a lot of different vendors.  The business owners don’t want to hear subtle nuances between five different platforms, they want the advisor to do their homework and make a strong recommendation based on their expertise.  Also, a fourth distinguishing factor is presenting oneself as the member of a team to business owners.  When these business owners were asked how important is it to work with a team of professionals on a scale of 1 to 5, with 5 again being extremely important, the answer was 4.  So the old adage is surround yourself with people smarter than you, but probably more appropriately, surround yourself with people who have complementing strengths where you might be weak. 

David Craig:  Okay, now during the implementation process what did business owners expect?

Brandon Shea:  Business owners expect a clear, concise action plan.  They want advisors to help them with a clear understanding of the roles and responsibilities during the implementation, specifically who is doing what, when and where.  Business owners are also looking for advisors who are energetic and can communicate to their employees enthusiastically.  Here is a key point, and an area that advisors can really generate goodwill with business owners if they execute this properly, and if they help employers really communicate to their employees that they are making a good faith effort to help them prepare for their retirement; for example, they are doing matching contributions, providing education, etc., that is really going to go a long way in the eyes of an employer. 

Another important expectation that business owners place upon an advisor is to hold the hands of the staff responsible for implementing the retirement plan.  So to get to the heart of the business owner, take care of the employee or employers that keep the business running.  This key employee or group of employees, their hand must be held after the decision makers make the decision so that he or she doesn’t feel like they are on an island trying to figure out this thing on their own. 

David Craig:  Okay, now what is the best way for investment professional to earn ancillary business?

Brandon Shea:  From the perspective of business owners, the best way to gain ancillary business is to gain their confidence and advisors do this by doing what is in the best interest of the company and its employees and consistently communicating why those specific actions the advisor is taking are in the best interest of the company.  Also business owners remarked that advisors should not seem overly eager to work with the company’s highly compensated employees to the neglect of the non-highly compensated employees.  They understand that it takes time to work with the non-highly compensated employees and often senior advisors will have a junior partner work with the non-highly compensated folks, but they are still willing to work with them.  This is a very important point because business owners often view their employees as family members and if you neglect part of the family, it is not going to bode well.

Finally, business owners acknowledge that when an advisor handles the plan correctly that ancillary business is expected to take place.  One suggestion from business owners though is to make an effort to know the ground rules on how and when to ask for ancillary business.  For example, maybe it is best to do it during non-work hours during their production time. 

David Craig:  Okay, now how does an investment professional earn a long-term relationship with a business owner? 

Brandon Shea:  Well a common response from business owners is that if an advisor exhibits honesty with a high level of integrity that is going to be a strategy that always wins in the end.  Another thing that was said is that the advisors who are present and continually communicate, the ones who don’t stick their head in the sand, but share the good and the bad news that is something that goes a long way to building a relationship.  They also said that when the advisor comes with solutions and ideas that is going to reinforce that relationship.   Let me give you a quick example, I heard about a case recently where a law firm won a large settlement and they were going to have a large influx of cash over a multi-year period of time that was going to incur a lot of taxes.  That law firm was courted by a lot of advisors trying to win that retirement plan business, but the advisor that really got the attention of the senior partners was the one that showed through smart plan decision solutions a way for the partners to maximize their savings in a tax advantage way.  In other words, the advisor truly understood the client’s problems and came with actual ideas on how to solve it, so just coming with solutions and ideas.

Another way to maintain the long-term relationship with a business owner is to continually provide oversight.  There is a great example of a 401(k) advisor in the Northwest who has over 220 retirement plans in his book of business.  He tells every client at the annual review “I called your 401(k) platform and tried to renegotiate the plan’s fees.”  He also asks “Has there been any changes to the program this year?”  So he is constantly reinforcing to the business owners that he is providing oversight to their plan.

Finally, loyalty goes a long way.  The advisors that can find ways to express loyalty to its employer and its employees will definitely make contributions in that long-term relationship. 

David Gray:  Great, that is great information.  Thanks again for your insights Brandon.

Brandon Shea:  My pleasure, thank you David.

DAVID CRAIG:  Welcome to the Plan Advisor Tools Five.  It's the week of August 1^st, and I'm with Daniella Moiseyev, retirement segment marketing manager for RidgeWorth Investments to talk about services advisors may wish to offer plan sponsors.  So Daniella, how have advisor services evolved in the market place over the last two years?

DANIELLA MOISEYEV:  Well, David, I think in the past a lot of advisors to retirement plans serve mainly as investment due diligence.  So they would report out on performance and report on how the various funds or other managers were doing on those investments within a plan.  That's really changed in the last several years.  What we've seen is the advisor to today's plan serves more as a consultant and almost as a quarterback for all the different other providers for that retirement plan.  They help the plan sponsor navigate the myriad regulations that have come to remain in compliance and also to keep an eye on what all the other providers to the plan are doing.  That's a real big change on how it's been in the past.

DAVID CRAIG:  How does the advisor in today's more complex market decide what to offer?

DANIELLA MOISEYEV:  Well of course, it's very much a personal decision depending on your firm size, your preferences, your client size, the amount of revenue that you're getting from that plan.  That being said, there are several broad brush categories that we feel encompass the main types of services that an advisor can offer.  A lot of advisors don't necessarily offer all of these or they don't necessarily offer every service in a specific type of service plan or they may create bundled service models based on the type of plan it is.  So some of the broad brush categories we think of are plan design services and these are basically consulting services to aid and define the features of the plan; things such as consulting on plan size, consulting on plan provider evaluation and other things of that nature.  Additionally, there's investment services which are kind of the more traditional, what an advisor used to offer as the main services to a plan; things like investment policy, statement development, asset allocation, manager evaluation and selection, performance monitoring or reporting, services around QDIA (Qualified Default Investment Alternatives), investment reviews, managed portfolios, etc., etc.  Then there's employee education services, so basically enrollment, investor education, investment advice, ERISA, 404(c) education so helping the plan participants to make sure they understand details and timing information that allows the plan to be in compliance with 404(c).  One thing we found is that advisors can really leverage a lot of the material that is out there if they choose to do employee education.  There's a lot of material they can leverage from their DCIO partners such as RidgeWorth or from their plan provider, partners and record keepers.  Then the final category that we think of is and its one of the most important ones, increasingly more important in today's regulatory environment, is fiduciary services.  So basically consultant services to help make sure that the plan is in compliance with ERISA and other fiduciary requirements.  So there are to be fiduciary audits, plan benchmarking, which we feel is very important that we do provide a plan benchmarking tool on planadvisortools.com, our website for retirement plan advisors, fiduciary education, fee reporting and analysis, ever more important with the advent of 408(b)(2), 404(c) compliance and ERISA 3(38) fiduciary services if your firm allows you to offer those.

DAVID CRAIG:  Okay.  Once an advisor determines what services they are going to offer, then how do they go about pricing those?

DANIELLA MOISEYEV:  Well, first we need to figure out what your competition is doing and benchmark your fees accordingly.  Now with that being said, we don't believe that it's important to be the cheapest out there because I think your fees need to be commensurate with what you're providing in terms of a service.  If you're providing a superior service, your fees can be higher than the lowest guy on the street.

DAVID CRAIG:  Right.

DANIELLA MOISEYEV:  But additionally, you need to be aware that you need to now list out specifically what services you're offering for each component of your fee due to regulation 408(b)(2) which launches April 1, 2012, and that change is very new for all of us in the retirement plan industry, but we can no longer provide a bundled fee and just decide really merely what you're offering.  You have to really have a thoughtful approach for  how you're going to decide on your feel and what you're offering and then list out those services in writing.

DAVID CRAIG:  Okay, great.  Well thanks again for your insights, Daniella.

DANIELLA MOISEYEV:  Thank you, David.

DAVID CRAIG:  Good afternoon, welcome to Plan Advisors Tools Five.  It's the week of July 4^th, and I'm talking with Brandon Shea, managing director and DCIO team lead for RidgeWorth Investments discussing personal branding.  So Brandon, I'm sure most of the people listening to the call have heard of personal branding before, but what specifically does this mean to a retirement plan advisor.

BRANDON SHEA:  Well, let's first define what a personal brand is.  Your personal brand is your personal identity that stimulates a meaningful, emotional response in another person or audience about the values and qualities for which you stand.  So when your name or the name of your advisory team is said, your clients or perspective clients are going to have one of three emotional reactions to your personal brand.  It's either going to be positive, it's going to be neutral or it's going to be negative.  I argue that if it's neutral, that also falls in the negative category.  So it's important as advisors to realize that all of us have a personal brand.  What separates some from others is that they realize this fact and are proactive about building the brand and others are reactive in the process and allow others to define the brand for them.  Another thing that's really important about branding is that it's critical to recognize that we are walking, talking contributors to and detractors from our personal brand every single day.  In sports for example, think of LeBron James, the professional basketball player, think of his personal branding:  Cleveland, Ohio, before and after he decided to take his talents to the Miami Heat in Florida.  I mean it's a pretty extreme example, but it illustrates that we need to be aware of the fact that every day we add or subtract from a brand, and we need to be conscious of the word or phrase we want others to think about when they think about it.  We need to be intentional about reinforcing this message with our words, our body language, our wardrobe, our presence on the web, our office environment, our market collateral, everything.  So again, what does this mean as a retirement plan advisor?  It means that there's a real opportunity today to brand yourself in a positive light because there's a real confluence of trends affecting our market place and it's confusing clients.  Let me give you a couple of examples.  New fee disclosure rules are about to roll out because the majority of plan sponsors or participants think that their plans are free, that they don't pay any costs.  So there's a lot of confusion there.  There's a lot of chatter about what the definition of fiduciary is and how that applies to plan sponsors and participants, and also with the recent product innovation a lot of plan sponsors and participants are confused about what a target date product versus a target risk versus a target income solution.  So for retirement plan advisors who are intentional about it, they can brand themselves as knowledgeable experts who can cut through all the noise and provide guidance for their clients.

DAVID CRAIG:  Great.  So Brandon what are a few tips or tools that an advisor can use to develop his or her personal brand?

BRANDON SHEA:  David, from my experience few advisors have a personal biography or a team biography and even fewer have what I would deem an effective personal biography.  I've seen a lot of different formats, but I've come across a formula for an effective bio that really works.  The formula goes like this.  Open your biography with a one- to two-sentence mission statement and address what you're truly trying to accomplish in your clients or your prospective client's future to make their lives better.  Follow this mission statement with a second paragraph that establishes your credibility statement.  Talk about your years in the business, your industry and retirement planning accreditations and your unique qualities that allow you to perform at a high level.  Next I recommend you list in bullet-point form the four to five specific ways you bring value to your retirement plan clients.  It could be a plan benchmarking or a plan fee analysis or quarterly participation education; whatever your value prop is, you name it.  I recommend you put it in bullet points for those value-added services to really pop off the page.  Next I recommend you list your educational information.  For example, I live in Southern California.  If you attended a Southern California college like UCLA or USC, that could provide some common ground immediately to folks around here when you meet them.  Last and finally I'd share your personals info in regard to your personal interests, your hobbies, your family and so forth.  I'd have this bio in hard copy, I'd have it in PDF form for you to mail to every new perspective client you meet for the form and I'd have it accessible on your website.  The first tool I recommend is really having an effective bio.  The second branding tool I would recommend would be your statement of services, and I'd also recommend that this be in hard copy form, emailable PDF form and also on your website.  This statement of services simply states all the value added services you and your team bring to each client in totality or in an a la carte manner.  I was recently speaking to a retirement plan advisor who's managing a billion dollar book of business, and he said he's still astonished to find how many plans he comes across where the current broker record has never supplied a statement of services or a service contract.  This advisor is winning business because of the statement of services he's bringing to the table.  The third branding tool I'd recommend is having a 36-month educational game plan that you can present to the plan sponsors which lay on the documents specific recurring times in the future and specific subject matters you're going to present to the plan's executive board and the plan's participants.  So not only are you managing their expectations in a very positive way, but you're providing them with a scorecard to measure your services as advisor.  If you follow through with what you promise, it's going to be pretty tough for the competition to take that plan away from you.

DAVID CRAIG:  Okay, that's great.  So how do the advisors with whom you've worked apply this in their practice?

BRANDON SHEA:  In regard to the personal bio, I've worked with numerous advisors to make sure they're more intentional about the brand they're trying to get across with that tool.  I've seen them brand themselves as a true professional.  One of the key byproducts is that they've been able to compress the timeline it takes to identify common ground with perspective clients because the information they're sharing throughout that biography.  Regarding the statement of services, the gentleman I mentioned earlier managing that billion dollar book of plan business, shared several examples with me where he had won new business because of the service contract his team was providing.  Regarding the educational game plan I mentioned, the first time I had ever heard about that concept was when an advisor I knew won a $12 million plan and he was selected over three competitors and when he did his followup interview with the plan sponsor, he was the only one to provide an educational game plan and was the only one to manage his expectations on what their working relationship was going to look like in the immediate future and several years down the road.  So the beautiful thing is if you have an effective personal biography, a compelling statement of services and an educational game plan you separate yourself from the majority of the competition and you've taken positive steps to branding yourself as a true retirement plan professional.

DAVID CRAIG:  That's great information.  Thanks for insight, Brandon.

BRANDON SHEA:  Thanks David.  I appreciate the time.

 

DAVID CRAIG:  Good afternoon.  Welcome to Plan Advisor Tools Five, it’s the week of June 6, and I’m with David Williams, attorney with Schiff Hardin, discussing the 404(a)(5) regulations.  Now, Dave, when we talked in March, we talked about the 408(b)(2) regulations for plan sponsors.  Could you give us some insights into this new 404(a)(5) regulation?

DAVID WILLIAMS:  Yes, I can, David, and thank you for the opportunity to speak with you today.  A general overview is that the new 404(a)(5) regulations that the Department of Labor has issued and approved will require plan administrators of retirement plans such as 401(k) plans to regularly provide information to plan participants with detailed information about the plan.  More particularly, the plan administrator will be required to regularly provide participants with fees and expenses that potentially can effect the value of their plan accounts along with an explanation of what services will be rendered with respect to which those fees and expenses will be charged.  In addition, the second broad category that the regulations address will be that the plan administrator is going to regularly have to provide participants with fees and expenses that actually have been charged to their plan accounts, not just ones that may be charged to their plan accounts. 

DAVID CRAIG:  Okay.

DAVID WILLIAMS:  And the plan administrator for those fees and expenses that are actually charged to plan accounts and that they have to tell the participants about, have to describe to the participants what services were rendered and by whom that earned those fees and expenses that adversely effected the value of the participant’s accounts. 

DAVID CRAIG:  Now, do they have to disclose those in dollars or percentages?

DAVID WILLIAMS:  Yes, that’s a very good question.  The Department of Labor has given plan administrators a number of alternatives about how to express those fees and expenses.  In many instances it can be a fixed dollar amount or it can be a percentage of assets under management, for example, with investment advisory fees and certain other alternative ways of explaining those fees and expenses.  So, plan administrators should consult the regulation to determine what they think is the best way to explain those fees and expenses to participants. 

DAVID CRAIG:  Okay, now how do you think this will affect plan sponsors once they have to begin providing this disclosure?

DAVID WILLIAMS:  It’s becoming clear to me and others that for the first time participants are now going to be acutely aware of the fees and expenses that can be charged to their accounts, and that are charged to their plan accounts and will know those fees and expenses and the impact they’ve had in detail.  So, participants, I believe, are going to get a lot more interested in the subject, are going to ask plan sponsors about those fees and expenses and their size, and perhaps even begin to put pressure on employers to ensure that the employers, the plan sponsors, are purchasing competitively-priced services and products for the plan.  I truly believe that, David, the people that you and everyone else that works with in the industry will have the opportunity to, if you will, put that pressure to good use if, for example, advisors can help employers pursue alternative services and products that meet the needs of participants that are more cost effective perhaps than the ones that are now in the plan in question.

DAVID CRAIG:  Okay.  So, are there any other significant items in 2011 you’re keeping your eye on?

DAVID WILLIAMS:  There’s one, David, that I am.  The Department of Labor has proposed a regulation that will affect 401(k) plans and retirement plans in general.  It has not quite yet adopted it in final form, and that is an expansion of what persons and parties will be fiduciaries to 401(k) plans and other retirement plans.  There will, if the regulation is proposed, is adopted, there will be an expansion of the categories of people who will have that mantle on them, if you will.  With that characterization as a fiduciary, goes responsibility to conduct themselves in accordance with ERISA’s fiduciary standards.  Failure to comply with those standards can result in fiduciary liability and significant damages to individuals who have that characterization.  There’s a lot of controversy about this regulation.  A lot of parties have given comments to the Department of Labor as and when it becomes final, I suspect your audience and the market with which you deal will want to know about the details.

DAVID CRAIG:  Right.  Great.  Well, that’s great information.  Thanks again for your insights, David. 

DAVID WILLIAMS:  Thank you. 

DAVID CRAIG:  Welcome to Plan Advisor Tools Five, it’s the week of May 9^th, and I’m with Daniella Moiseyev, Retirement Segment Marketing Manager for RidgeWorth Investments to talk about retirement planning committees.  So Daniella, we recently released a whitepaper about the best practices of retirement plan committees.  Why does RidgeWorth believe these committees are important?

DANIELLA MOISEYEV:  Well David, for many plan sponsors managing a 401(k) plan can be an overwhelming job.  In many cases, especially in the small plan market, the so called committee or the person running the retirement plan, is one overworked HR manager with many, many other responsibilities. Let’s face it, with the regulatory environment and the economy being what it is, that’s a big job.  We at RidgeWorth feel strongly that a 401(k) committee staffed by qualified internal members, and advised by knowledgeable external advisors, can serve to both mitigate a plan’s fiduciary challenges and to create a better plan to help employees reach their retirement goal.

DAVID CRAIG:  What are some of the best practices and steps?

DANIELLA MOISEYEV:  David we’ve outlined a step-by-step process for creating, structuring, and managing a 401(k) committee in our whitepaper that’s available for downloading at planadvisortools.com, but I can touch on a few of those day.  First, you need to determine if there was previously a committee in place, perhaps by looking through old paperwork, trying to determine if there is a charter or some sort of bylaws that you can look at, and that’s a great place to start if there is one existing you can kind of modify what’s already been done.  Now if not, the next step is really to get buy-in from senior management.  If you don’t have that then your committee is never going to get off the ground.  The next step after that is to determine who should be on the committee, and there’s more specific guidance on how you determine who should be on that committee in our whitepaper.  Then you should really establish clear bylaws.  You should outline the purpose, the responsibilities, the logistics, who’s required to attend, who are optional attendees.  You should document the proceedings and all your additional meetings.  Perhaps the best thing to do is to vote on those bylaws and bring them in in your first meeting.  Then you need to think about the fiduciary basics, and that’s kind of what you should cover in your early meeting.  A big part of your meeting should be the investment review and there are all kinds of other issues that can be covered, and again we go through this in much more detail in our whitepaper available for download on planadvisortools.com. 

DAVID CRAIG:  So are retirement plan committees a requirement, and if they’re not what percentage of companies do you think actually have a retirement plan committee?

DANIELLA MOISEYEV:  They’re definitely not a requirement, although we really truly believe that they are a fiduciary best practice.  There aren’t necessarily statistics on what percentage of companies have a retirement committee in a formal sense, but definitely on the small plan size market there’s less retirement plan committees, and often the committee is really just one person, either the employer, the owner of the company, or perhaps their HR person.  We feel strongly that it needs to be a broader audience to make that committee be really important and really work well for the plan.

DAVID CRAIG:  How can an advisor help his or her plan sponsor clients or prospects in creating a committee?

DANIELLA MOISEYEV:  Well no single individual possess all of the legal investment and administrative knowledge needed to master all the complexities of managing a 401(k) plan on their own, so bringing in the knowledge and expertise of a qualified team together can help provide oversight.  A knowledgeable advisor can help guide their plan sponsor to create a committee that will make their plan better.  It also creates a more consultative role for the advisor, which is what I think all of us in the market really want to be, we want to be a trusted consultant to the plan.  Helping them structure a retirement plan committee that’s going to make their plan better is really a great step to getting there. 

DAVID CRAIG:  Great, alright well thanks again for insights Daniella.

DANIELLA MOISEYEV:  Thank you David.  

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG:  Welcome to Plan Advisor Tools Five.  It's the week of April 4^th, and I'm with Daniella Moiseyev, Retirement Segment Marketing Manager for RidgeWorth Investments, talking about benchmarking.  So Daniella we've seen a renewed focus plan fees lately and a lot in the industry press about benchmarking.  Why do you think that's happening?

DANIELLA MOISEYEV:  Well the SEC and FINRA and the Department of Labor and lots of other regulatory bodies have been very active lately.  Everyone knows that new regulations are on the horizon.  These new regs including the 408(b)(2) provider fee disclosure regulations, the 404(a)(5) participant fee disclosure regulations and a myriad of other new regulations are all coming down the pike.  They're really going to change the industry.  But one point more than that, they're going to send plan sponsors and participants scrambling for answers and then for help and understanding of the plan fees and plan features.  With this new focus on transparency comes a great opportunity for advisors to provide clarity on what these fees mean and how they compare and what they can do.  I think that segues very nicely into the benchmarking.

DAVID CRAIG:  Okay.  How does benchmarking play into that?

DANIELLA MOISEYEV:  Well, one of the most important functions of an advisor to retirement plans is to help their clients meet their fiduciary duty.  As an advisor to the plan, they want to make sure that the retirement plan is the best that it can be and that the plan sponsor is providing for their employees in a way that really helps them meet their retirement readiness goals.  Plan benchmarking gives sponsors a better way to understand their plan relative to their peers.  The Department of Labor has a clause that says fiduciaries should establish and follow a formal review process at reasonable intervals to decide if it wants to continue using current service  providers or look for replacements.  Regular benchmarking can really help meet that so called formal review process standard.

DAVID CRAIG:  So what types of benchmarking can an advisor do and how do you think they add value?

DANIELLA MOISEYEV:  I think there are two main types of benchmarking.  The first is benchmarking plan design features.  That can really help plan sponsors understand how their plan compares to others of similar sizes as well as the overall industry.  It also shows what plan design features might not be common among their peers and it helps them to understand and evaluate their service providers and the services that they currently receive.  The other type that is the main type of plan benchmarking is fee benchmarking.  We've heard so much about that in the industry lately.  Benchmarking of plan fees can show plan sponsors how competitive their plan is on overall fees as well as different components of those fees.  It can create leverage to negotiate the best deals with their service providers, and it can enable the plan sponsor to compare their plan costs to costs of other plans in their peer group.  Plan fees cannot be looked at purely in a vacuum because it really needs to look at in the light of or relative to participant outcomes.  So we at RidgeWorth have a plan fee benchmarking tool available at planadvisorstools.com that does just that.

DAVID CRAIG:  So if I'm a retirement plan advisor, RidgeWorth has a tool, what are some other sources I could use to benchmark:

DANIELLA MOISEYEV:  There's lots of industry research and industry consultants and all kinds of ways to do it out there.  We work with Fiduciary Benchmarks, there's also the BrightScope folks, there's lots and lots of vendors that do this.  We really feel that it's important for an advisor to do that.

DAVID CRAIG:  Okay, can you provide a summary for all of this for us?

DANIELLA MOISEYEV:  Absolutely.  We at RidgeWorth really believe that plan sales and plan servicing on the advisor side has changed from that merely of a participant enrollment coordinator or someone who recommends funds or evaluates funds for the plan to that of an industry expert.  Plan sponsors are looking for guidance.  As an advisor to a plan, you can guide the plan sponsor to the murky waters of plan optimization and service provider negotiation.  Benchmarking is a big part of that.  We also feel that plan benchmarking is one of the building blocks of being a true consultant to a plan.  It gives sponsors a better way to see their plan, to look at their plan, and it allows them to figure out and help you make their plan the best it can be.  We think of positions of advisors as a trust expert and it can be a big part of the consultive sales process and ongoing service of the plan.  It also differentiates the advisor services and can lead to new opportunities and new plan sponsor clients.  Not many advisors can offer a plan sponsor in an unbiased look at their plan, and it really positions them as a true expert which are very strongly that's a win/win both for the advisor, the plan sponsor and the plan clients - the participants at the end.

DAVID CRAIG:  Thanks for your insights, Daniella.

DANIELLA MOISEYEV:  Thank you, David.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG:  Good afternoon, welcome to Plan Advisors Tools Five, it’s the week of March 3rd and I’m with David Williams, attorney with Schiff Harden, discussing the 408(b)2 regulations.  So David, can you give me a very high level overview of what 408(b)2 is?

DAVID WILLIAMS:  David, thanks, I will.  The Department of Labor that governs retirement plans has promulgated this new regulation that is addressed to a variety of service providers, that is individuals and companies that provide services to retirement plans.  This regulation is going to require these various service providers to disclose the plans to the fiduciaries of those plans the services that the service providers are going to provide to the plans and the compensation that the service providers are going to receive for those services, direct compensation that they’re going to receive from the plans, as well as indirect compensation the service providers are going to receive in the forms of various types of revenue sharing, and the other ways that the service providers can be compensated.  This is all now going to be have to be transparent disclosed to the fiduciaries so they know from the service provider what are they getting for their money, and what’s the service provider getting paid, and who’s paying them.  

DAVID CRAIG:  What do you think financial advisors should pay special attention to?

DAVID WILLIAMS:  I think that financial advisors have to fundamentally be concerned with whether or not this regulation even applies to them and consult with their advisors or their legal counsel about whether the rules apply.  For example, if you are a fiduciary providing fiduciary services to a plan, these disclosure requirements apply to you.  If you’re a financial advisor, the type of financial advice you may be giving may make you a fiduciary under ERISA or it may not.  It depends upon the kind of advice and the understanding that you and the plan have about whether the plan’s going to rely on that advice, so you may think you’re not a fiduciary, somebody may have told you that you are not and were not, but you might be nonetheless because of what you’re doing.  So you ought to first of all, day one, decide whether the regulation applies to you or not.  

DAVID CRAIG:  What do you think is the best way for an advisor to prepare for the implementation of this rule?

DAVID WILLIAMS:  David, I get asked that question more than any, and my advice is in two categories.  If you are affiliated with a large organization, a nationwide organization, a wirehouse for example or some similar organization, you need to stay in close touch with your home office, with the compliance department of the home office.  They are struggling right now with coming up with compliance programs, and I can assure you they are going to tell everybody, all their advisors how those advisors are going to have to comply and exactly what the advisor can do or not do as it interacts with retirement plan clients.  On the other hand, if you’re an advisor with a small organization, and there is no home office so to speak or no compliance department, then you’re going to be tasked with getting ready yourself.  How do you do that?  This regulation is a sea-change in fee disclosures for service providers, so I think it behooves you to spend the resources it’s going to take to get legal counsel advice on how to pull together your compliance requirements and how to deliver them.  I think you need to stay in touch with the product people whose products you sell or advise on, mutual funds for example, because you’re going to have to start gathering compensation data from them, on the compensation revenue sharing for example that they pay you, and then together with counsel come up with a disclosure agreement to give to the fiduciaries of the plan that describe the services you’re performing and the pay you’re receiving.  Working as a team with your legal counsel and the organizations whose products you sell will help you deliver what’s required.

DAVID CRAIG:  Great, thanks.  For those of you listening to Podcast, David did a 45 minute webinar on the 408(b)2 regulations, so it’s obviously a lot more than just a five minute conversation.  Did this last week.  investment professionals can access this by going to planadvisortoolsvkc.com.  David, thank you very much for your insights.

DAVID WILLIAMS:  Thank you, I enjoyed being with everybody.

 

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG: Good afternoon, welcome to Plan Advisor Tools Five. It’s the week of February 7th, and I’m with Brandon Shea, managing director and DCIO team lead for RidgeWorth Investments, discussing attributes of successful retirement plan advisors. So Brandon, you’ve worked with a number of retirement plan advisors over the years. What are some of the characteristics you think have been consistent among the top advisors.

BRANDON SHEA: David, one think I’ve seen is that the top advisors have a business plan in writing and it is something that they revisit. If they work with a team, that whole team can articulate what that business plan is. It might sound pretty obvious, but as I travel in a calendar year and work with over 1,000 financial advisors, I found that it’s only one out of every four or five advisors actually have a business plan where they’ve identified a niche that they want to go after, they’ve articulated a specific value proposition that they want to bring to that niche, they’ve set asset goals, and then they’ve structured a tactical plan to acquire those assets. So in other words the top advisors I’ve seen out there in the retirement plan space are very intentional about how they go after the growth. In terms of service model characteristics, the top advisors tend to offer four main benchmarking services to their clients, and they are investment due diligence, plan expense analysis, compliance due diligence, and 401(k) provider benchmarking. Now circling back to the investment due diligence, they typically offer the service quarterly. What they’ll do with the plan sponsor is identify what funds do or do not pass the monitoring criteria that they set with the plan sponsor. They’re either using a proprietary system provided by the broker dealer, or they’re using a third party service like FI360. What they’ll do is they’ll produce a copy of the quarterly investment due diligence for the client, which there by kind of justifies their fee providing that quarterly service; they’re using that as a branding tool, and also a fiduciary tool. They’ll also produce a second copy and put it in a fiduciary audit file so if the Department of Labor ever comes knocking and asks to see what process they had in place to monitor the funds, they can furnish that in short order. In terms of the second benchmarking service is that they are very clear about plan expense analysis with their plan sponsors. They explain what 408(b)2 means and best practice associated with that to kind of talk about what appropriate fees and what services should look like. In terms of compliance due diligence, they explain what 404 (c) is and best practices associated with it. In terms of provider benchmarking, typically about every three years they’ll go to market to ensure that their clients have the best access to tools and technology offered by the industry. Now additional characteristics of top advisors I’ve seen is that they stay on top of relevant regulatory changes and communicate ERISA guidelines with their clients, because top advisors recognize it’s very important that their clients view them as a conduit of information, and it’s a business risk if another advisor is providing your client with regulatory insights. Another characteristic is they’re very flexible with their pricing models, and they tend to be very transparent about the fees they receive and the services they offer. They offer co-fiduciary status if clients want that. The last two characteristics is one, they’re very process oriented in terms of client communication and service. So what I mean by that is they focus intently on helping their plan sponsors create a strong DEC. What I mean by that is the D stands for Documentation, E stands for Education, and C stands for Communication, because if a Department of Labor representative comes in during an audit, if you can talk about the documentation, the education, and the communication you’ve had with the plan, that’s really a good start. The last characteristic is that top advisors provide and implement an educational game plan. They typically do that about 36 months out, because what that means is you’re managing the plan sponsors expectations in terms of when they can expect communication and educational meetings for their plan participants over that three year time frame. By doing something like that you serve two purposes, number one you manage your expectations, but number two, you also provide a plan sponsor with a score card to benchmark the services you said you were going to do. If you fulfill those, that plan’s most likely going to stay with you. If you don’t fulfill that score card and all the services you said you were going to provide, very likely that plan is going to go market and you might lose that.

DAVID CRAIG: Great, that’s great information Brandon. So Brandon, what value do you think you and your team bring to these retirement plan advisors?

BRANDON SHEA: David, I’m confident we bring a lot to the retirement focused advisors. This RidgeWorth DCIO team I have the pleasure of managing, lives, eats, and breaths their retirement plan space. RidgeWorth external wholesalers have on average thirteen years industry experience. Our internals have on average eleven years industry experience, so when you combine our six externals and or five internals, that’s 133 years of experience. Now I put that against any asset manager in the business, but an advisor should ask why should that even matter to me if I focus on the retirement plan space. We use that experience at RidgeWorth to put ourselves in the shoes of 401(k) advisors to come up with tools to help them grown their practice, and help them run that practice more efficiently. So case in point, at RidgeWorth we want to be a voice of clarity to 401(k) advisors and retirement platform wholesalers on what the new 408(b)2 regulations will mean for their businesses. We’ve come up with a whole suite of 408(b)2 materials, which includes a white paper, a PowerPoint presentation, and handouts that bullet point what the regulatory changes mean for advisors and where the opportunity will be moving forward. Also, on February 24, 2011, from 3:00 – 5:00 p.m., EST, we’re hosting a retirement focused webinar, from 3:00 – 4:00 p.m. EST, we’ll present tools and technology to help 401(k) advisors grow their practice. From 4:00 – 5:00 p.m., EST, we’ll host a 408(b)2 webinar conducted by David Williams. He’s an ERISA attorney with the law practice of Schiff Harden. You can register for this at www.planadvisortoolsvkc.com. There will be a time at the end of that webinar that you can also ask questions to David. So another way we’re adding value is by helping advisors benchmark existing or perspective plans with our plan and fee benchmarking tools. If you haven’t seen these yet you can visit the tools at www.planadvisortools.com. Finally, in any given year my wholesalers and I will work with over 1,000 financial advisors in our respective territories. My team is equipped with knowledge that there are specific things you need to think about for your personal branding efforts and your marketing pieces to resonate with your clients. If you haven’t already, contact your local RidgeWorth DCIO wholesaler to hear our perspective on personal branding. If you have not been introduced already to a RidgeWorth wholesaler, call the following number at 866-595-2470 and we’ll get you connected.

DAVID CRAIG: Great, well thanks for your time Brandon.

BRANDON SHEA: My pleasure, thank you David.

DISCLOSURES: All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

DAVID CRAIG: Good afternoon. Welcome to the Plan Advisor Tools Five. It’s the week of January 4th and I’m with Daniella Moiseyev, Channel Marketing Manager for RidgeWorth Investments, discussing what’s going on in the retirement marketplace. So, Daniella, what do you think will be the biggest stories of 2011 in the defined contribution space?

DANIELLA MOISEYEV: Well, you know, I think overall it’s the regulatory environment. I think this is going to be a very different industry a year from now than it was last year or even five years ago. I think, you know, just this week in a live webcast, there was Phyllis Borzi, who is the Assistant Secretary of Labor for the DOL, was saying that the agency’s top priority for 2011 is its fee transparency initiatives. So we have several of those coming out this year. The first of which is the 408(b)2 regulations regarding provider transparency to plan sponsors. So, going forward, this initiative goes into effect on July 16th, unless something changes, which, you know, you never know, but… Any service provider to a plan will be providing not only whether they are the fiduciary to the plan or not, specifically declaring whether they are serving in a fiduciary capacity, but they’ll also have to provide all fees and all compensations that they received, both direct and indirect, as well as a statement of services or some sort of a service description that details exactly what services the plan sponsor gets for those fees. So that’s very new and that’s going to be a huge game changer. Additionally, on the heels of that, the particpant disclosure regs, which are known as 404(a)5, those were announced in October of 2010 and those will be coming out soon and they will require a quarterly statement of fees and expenses deducted from each participant’s account expressed in dollar amounts. That has a direct effect on 72 million people and is going to be a huge game changer. You know, if you could imagine, they’re going to get their quarterly statements and fee hard dollar amounts deducted from their account each quarter, then in many cases most participants think that their 401(k) is free. So it’s going to be a very big, big story.

DAVID CRAIG: So how do you think these new regulations will impact the advisors who have retirement plan business?

DANIELLA MOISEYEV: Well I think it’s going to be very difficult for those that just dabble in the space to continue. You know, there are about 300,000 financial advisors in the marketplace, but only about 5,000 of those have at least 10 plans. And the regulatory environment is changing so drastically that it’s going to be very difficult for those that aren’t specialists in the space to continue. Not necessarily impossible, but certainly they’re going to need to rely on some assistance from a specialist or perhaps from the providers that they work with. You know, advisors who are heavy in the retirement market, those who get at least 60% of their income from their 401(k) business, they average about $185 million in assets each. And by comparison, the advisors who get paid less than 20% of their income from retirement plans only have an average of about $14 million in assets. So, I think those folks that are just dabbling in it, these regs are going to drive them, often many of them, out of the business.

DAVID CRAIG: Okay, now, is RidgeWorth doing anything to help advisors with these new regulations coming out?

DANIELLA MOISEYEV: Well, I think one of the benefits of fee transparency, and we strongly believe that fee transparency, both at the participant level and at the plan sponsor level is a great thing for the industry. You know, we have had for a couple of years now, some really great tools around fee benchmarking. On our site planadvisortools.com, we have both a fee benchmarking tool and a plan design benchmarking tool. The fee benchmarking tool is powered by data from Fiduciary Benchmarks and I think once these regs go into effect and plan sponsors have a much clearer view of their fees, the next question will be, “well, how do my fees stack up with other plans’ of my size? Other plans in my industry?” And we have tools that will allow an advisor to be able to look at that and really come back to his planned sponsor client or prospect with something that’s very meaningful and very, very useful.

DAVID CRAIG: Do we have anything beyond the site itself?

DANIELLA MOISEYEV: Absolutely, we have a wealth of resource materials. We have a white paper that’s coming out in a few weeks about the 408(b)2 regulations. We worked very closely with an ERISA attorney to craft that. We have some tools that go for plan sponsors, for example, a white paper that discusses the plan fees in plain English. I think often plan sponsors, especially in the small plan market, are really kind of stymied by the language in a lot of what they get. So this discusses the plan fees in a plain English way that’s really great for them to understand. You know, the DC (defined contribution) market is projected to reach $5.5 trillion by 2015, according to McKinsey. And I think, you know, fee transparency is just going to be such a huge win for everyone that’s willing to work in this industry and really learn it.

DAVID CRAIG: Great. Well thanks for your time, Daniella.

DANIELLA MOISEYEV: Thank you, David.

DAVID CRAIG: And thank you to all who listened today. And please join us next month for the Plan Advisor Tool Update.

DAVID CRAIG:  Welcome to Plan Advisor Tools Five, it’s the week of May 9^th, and I’m with Daniella Moiseyev, Retirement Segment Marketing Manager for RidgeWorth Investments to talk about retirement planning committees.  So Daniella, we recently released a whitepaper about the best practices of retirement plan committees.  Why does RidgeWorth believe these committees are important?

DANIELLA MOISEYEV:  Well David, for many plan sponsors managing a 401(k) plan can be an overwhelming job.  In many cases, especially in the small plan market, the so called committee or the person running the retirement plan, is one overworked HR manager with many, many other responsibilities. Let’s face it, with the regulatory environment and the economy being what it is, that’s a big job.  We at RidgeWorth feel strongly that a 401(k) committee staffed by qualified internal members, and advised by knowledgeable external advisors, can serve to both mitigate a plan’s fiduciary challenges and to create a better plan to help employees reach their retirement goal.

DAVID CRAIG:  What are some of the best practices and steps?

DANIELLA MOISEYEV:  David we’ve outlined a step-by-step process for creating, structuring, and managing a 401(k) committee in our whitepaper that’s available for downloading at planadvisortools.com, but I can touch on a few of those day.  First, you need to determine if there was previously a committee in place, perhaps by looking through old paperwork, trying to determine if there is a charter or some sort of bylaws that you can look at, and that’s a great place to start if there is one existing you can kind of modify what’s already been done.  Now if not, the next step is really to get buy-in from senior management.  If you don’t have that then your committee is never going to get off the ground.  The next step after that is to determine who should be on the committee, and there’s more specific guidance on how you determine who should be on that committee in our whitepaper.  Then you should really establish clear bylaws.  You should outline the purpose, the responsibilities, the logistics, who’s required to attend, who are optional attendees.  You should document the proceedings and all your additional meetings.  Perhaps the best thing to do is to vote on those bylaws and bring them in in your first meeting.  Then you need to think about the fiduciary basics, and that’s kind of what you should cover in your early meeting.  A big part of your meeting should be the investment review and there are all kinds of other issues that can be covered, and again we go through this in much more detail in our whitepaper available for download on planadvisortools.com. 

DAVID CRAIG:  So are retirement plan committees a requirement, and if they’re not what percentage of companies do you think actually have a retirement plan committee?

DANIELLA MOISEYEV:  They’re definitely not a requirement, although we really truly believe that they are a fiduciary best practice.  There aren’t necessarily statistics on what percentage of companies have a retirement committee in a formal sense, but definitely on the small plan size market there’s less retirement plan committees, and often the committee is really just one person, either the employer, the owner of the company, or perhaps their HR person.  We feel strongly that it needs to be a broader audience to make that committee be really important and really work well for the plan.

DAVID CRAIG:  How can an advisor help his or her plan sponsor clients or prospects in creating a committee?

DANIELLA MOISEYEV:  Well no single individual possess all of the legal investment and administrative knowledge needed to master all the complexities of managing a 401(k) plan on their own, so bringing in the knowledge and expertise of a qualified team together can help provide oversight.  A knowledgeable advisor can help guide their plan sponsor to create a committee that will make their plan better.  It also creates a more consultative role for the advisor, which is what I think all of us in the market really want to be, we want to be a trusted consultant to the plan.  Helping them structure a retirement plan committee that’s going to make their plan better is really a great step to getting there. 

DAVID CRAIG:  Great, alright well thanks again for insights Daniella.

DANIELLA MOISEYEV:  Thank you David.  

DAVID:  Welcome to Fund Focus Five.  It's the week of April 16, 2012.  I'm talking with George Goudelias, Portfolio Manager of the RidgeWorth Seix Floating Rate High Income Fund about first quarter performance.  So George, how did the bank loan market do in the first quarter?

GEORGE:  Thank you David.  The bank loan market performed fairly well in the first quarter relative to other fixed income asset classes returning 3.12% for the Credit Suisse Institutional Levered Loan Index. 

DAVID:  And then what specifically worked for the Fund during the quarter.

GEORGE:  I would say the three sectors that helped the performance the most during the first quarter were sectors like wireless telecommunications, broadcasting and the financials and then some of the names within those sectors include Level 3, Intelsat and iStar Financial 

DAVID:  And then what didn't work as well.

GEORGE:  The sectors that were weaker included energy, utilities, the primary culprit there was the low prices of natural gas, as well as metals and minerals, and again some of the names that detracted from performance included Genon Energy, Airvana. 

DAVID:  Were there any other highlights from the first quarter?

GEORGE:  I think the highlight to talk about regarding the first quarter is really the return of positive fund flows.  After a pretty strong start in 2011 we saw the last five months of the year turn negative and that carried into the very beginning part of 2012, but since reversed and fund flows now through the first three and a half months are up roughly $550 million dollars. 

DAVID:  And then why do you think that is.

GEORGE:  I think folks are again focused on higher inflation.  We have seen some days also where treasuries did not perform very well, treasuries had a negative return for the first quarter and that I think put rates and inflation and the natural hedge that floating rate provides back to then the forefront of the discussion. 

DAVID:  And what is your outlook for bank loans for the balance of 2012.

GEORGE:  Right now David we are sticking with our 5% to 6% return for 2012. Obviously you can't take the first quarter and extrapolate that to the rest of the year, but we believe that we're off to a good start and our 5% to 6% target remains unchanged at this point. 

DAVID:  Alright, well thanks a lot for your insights George.

GEORGE:  Thank you David.  

DAVID:  Hello and welcome to Fund Focus Five.  It’s the week of April 16^th and I’m talking with Jim Keegan, Portfolio Manager for the Ridgeworth Total Return Bond Fund, about first-quarter performance.  So Jim, how did the investment grade fixed income market do in the first quarter?

JIM:  It was a risk-on quarter, David, and I’d say that was true in the investment grade markets, it was true in the high-yield markets, obviously true in the stock market.  You had the S&P up, you know, 12%, following on a 12% rally in the fourth quarter, after the disastrous third quarter.  What’s interesting when you look at the market, retail investors continue to vote with their feet, as there was $77 billion in net inflow at the taxable bond funds, which compares with $136 billion for all of 2011, so just in the first quarter, you could see that money is still flowing in to fixed income, which, I think gets into this safe income at a reasonable price in the ZIRP (zero interest rate policy) world that we’re talking about.  But the first quarter was a high beta quarter, led the way in both stocks and bonds, high-yields led by triple C’s, corporates did very well led by bank bonds, and CMBS commercial mortgage-backed securities), so really the worst performers, whether it be markets or sectors in 2011, have been the best performers thus far in 2012, at least through the end of the first quarter.

DAVID:  Now the fund had a good quarter relative to the benchmark and continues to lead the benchmark over the 1, 3, 5, and 10-year periods.  What led to the recent outperformance?

JIM:  Well, in the first quarter, the primary driver of the outperformance was our exposure to high-yields, and then, secondarily, our securitized exposure was a net contributor, so those were the two primary drivers of returns for us in the first quarter.

DAVID:  Okay.  What were the areas that held fund performance back? 

JIM:  Well, our overall defensive orientation in the corporate bond market and I’m specifically referring to our underperformance or, I’m sorry, our underweight in money-centered banks and banks, in general.  As I said, bank bonds led the way in the corporate market in the first quarter, and with our underweight, that was a drag on performance and then we were void the government-related sectors, which also had positive excess returns.

DAVID:  Okay.  Any other highlights during the quarter you want to discuss?

JIM:  Oh yeah, the first quarter was actually an interesting one.  The data was okay, the tracking models indicate that the first quarter GDP (gross domestic product) is going to come in at about 2.5% based on data that we have through today.  However, what we’ve seen now is that the Economic Surprise Index has fallen significantly, so, the trend in data coming in better than expected has fallen off significantly, and the question that we still believe is the question of the day relates to sustainability, and you’ve heard us talk about that for the last few years.  We still think that that’s the issue, and it’s complicated by the weather and lack of a winter, particularly, here in the Northeast, but throughout the country in general, and that pull-forward affect that a seasonally mild winter has had and we are in the camp that we, in fact, did pull forward demand and they’ll be some pay-back for that in the second and third quarter.

DAVID:  And then what’s your outlook for investment-grade bonds in 2012?

JIM:  Our outlook continues to be that we think, because of the interference if you will, of central bankers and Central Bank policy, that we’re going to remain in this binary risk-on, risk-off environment and we’ve just had two fairly significant risk-on environments in the fourth quarter of 2011 and the first quarter of 2012, but our view is that we’re going to get a risk-off and retracement sometime in the Q2, Q3 time frame.  We know that the end of Operation Twist is slated for the end of June and, while the patient is out of intensive care, our central bankers continue to employ extraordinary measures.  So, there has been a slight nuanced change to what’s going on within the FOMC (Federal Open Market Committee).  Chairman Bernanke, New York Fed President Dudley and Vice-Chair Yellen continue to talk down confidence, particularly talking down confidence in the labor markets, in particular, to justify the fact that they want to do more quantitative easing QE3, but the FOMC ex-Bernanke, Dudley, and Yellen seem to be pushing back on additional easing and QE3 in general.  We do, however, expect that Bernanke, Dudley and Yellen will carry the day at the end of the day, we believe, they carry a disproportionate weight on the FOMC and they will succeed in getting QE3 launched or, at least, committed to launch, but probably not before the end of Operation Twist, so we’d expect something towards the June FOMC meeting, and, in order, for them to do QE3, we think you’re going to need a sell-off in the stock market or GDP to start tracking below 2%.  Then, you know, Europe is back once again and that may be the catalyst, as the trillion Euro LTRO (Long Term Refinancing Operations) seem to not last very long and Spain is now in the crosshairs of the market; and again, I know we sound a bit like broken records here but, Europe continues to try and solve an excessively leveraged sovereign system and European banking system solvency problems with unlimited liquidity, and it just does not work, it just postpones the day of reckoning.  At the end of the day, you’ve heard me say this before, that the problem in Europe is too little growth, uncompetitive peripheral European economies, and, in particular, the peripheral countries are in a monetary strait jacket called the Euro.  So, we expect the ECB (European Central Bank) to continue to throw liquidity whether it be via the Securities Market Purchase Program, whether it be through more LTRO, or whether they use the ESM (European Stability Mechanism)/EFSF (European Financial Stability Facility) to invest directly in banks. 

But once again, you know they’re trying to throw liquidity at a solvency problem.  In the process, they further compromise the ECB’s balance sheet while, in the short term, potentially placating traders in this binary risk-on, risk-off market that we find ourselves in largely because of the behavior of Central Banks around the world.

DAVID:  Alright - well, Jim, thanks for your insights.

JIM:  Okay, David, thank you.

DAVID CRAIG:  Welcome to Fund Focus Five.  It's April 12, 2012 and I'm talking with Michael Sansoterra, Portfolio Manager of the RidgeWorth Large-Cap Growth Stock Fund, about first quarter performance.  So Michael, how did large-cap growth equities do in the first quarter.

MICHAEL SANSOTERRA:  Ah, they did very well.  The Russell 1000 Growth Index rose over 14.5% during the first quarter.  That outpaced the S&P 500 up probably 12.5% and the Russell 1000 Value about 11%.  Large even actually outperformed small-cap growth which doesn't happen very often.  The Russell 2000 Growth Index was up about 13%.  So, growth equities did well but it was really a large growth, large cap growth quarter.

DAVID CRAIG:  Okay.  Now the Fund had a very good quarter relative to the benchmark and its peers.  What led to that outperformance?

MICHAEL SANSOTERRA:  Yes.  We saw good performance across almost all the economic sectors that we invest in.  There were Technology companies like Apple and SalesForce.com, Consumer Discretionary companies like Monster Beverage and BorgWarner and even some select Financials, like Capital One, all rising over 30% during the quarter.  Each of them took market share from their rivals, maintained and in some instances, raised pricing and really exceeded investor expectations pretty widely. 

DAVID CRAIG:  Okay.  Now, as I look at the attribution, it looks like Industrials had a very slight drag on performance.  Why was that?

MICHAEL SANSOTERRA:  We had a few industrials that lagged the total group, particularly those that have some additional exposure to the slow economic conditions in China, and they were also outperformed slightly by Caterpillar which is a rather large weight in the index that we don’t own.  So, you combine the two and we saw a little bit of weakness in our total Industrials return but we expect that to rebound as the year progresses. 

DAVID CRAIG:  Okay.  Were there any other highlights during the quarter you want to discuss?

MICHAEL SANSOTERRA:  You know, I think one of the most important things we’ve seen is stock correlations finally fell in the first quarter which we think is a huge positive.  We think that just gives stock pickers a better chance to outperform when there is a real difference between the companies that are doing well and those that aren't.  So, that's actually quite a bit different than the markets, you know, have experienced all of last year.  So, it's good to see that correlation falling off and separation coming back.

DAVID CRAIG:  Okay.  Now what's your outlook for large-cap growth equities in 2012? 

MICHAEL SANSOTERRA:  You know, we still think that the recovery continues along its bumpy ride.  Company expectations are broadly in check and they appear to still be executing.  So, it's obviously been a very big quarter.  So, we'll likely see some short-term pull back which we would view as healthy but after that, we're constructive on market returns for the rest of 2012.  

DAVID CRAIG:  Great.  All right, Michael, thanks for your insights. 

MICHAEL SANSOTERRA:  Thank you, David.  

DAVID CRAIG:  Welcome to Fund Focus Five.  It’s April 12, 2012, and I’m talking with Don Wordell, Portfolio Manager of the RidgeWorth Mid-Cap Value Equity Fund about first quarter performance.  So Don, how did mid-cap value equities do in the first quarter?

DON WORDELL:  Really well.  Mid-cap value equities had a great first quarter.  The overall look with equity market had the best first quarter it’s had since 1998, really driven by continued strong earnings performance as well as stabilization in some of the macro risks, primarily Europe and feeling like there’s some kind of bottoming in the Chinese economy really helped drive the equity market.  

DAVID CRAIG:  Okay.  Now the fund had a pretty good quarter relative to the benchmark and its peers.  What led to that outperformance?

DON WORDELL:  We had some really strong stock selection in healthcare.  We owned St. Jude and Cigna which were both up very strong in the quarter for very stock company specific reasons, and then as well as the outperformance was also driven by what we didn’t own, which was our underweight in utilities.  Utilities coming out of 2011 had a great year but, as you are well aware, our process is driven by three things, dividends, valuation, and fundamentals, and we just could not make the valuation case for utilities and so we were underweight going into the first quarter.

DAVID CRAIG:  Okay.  Now as I look at the attribution, it looks like Telecom had very slight drag on performance.  Why was that? 

DON WORDELL:  I think part of the reason for Telecom was the same as utilities, I mean that’s a defensive sector and so the market was not as, there just wasn’t as strong a bid to those stocks in the quarter because more of your procyclical stocks or more offensive risk on stocks did better in the quarter. 

DAVID CRAIG:  Now were there any other highlights during the quarter you want to discuss? 

DON WORDELL:  Yeah, just the fact that we had some really strong selection in a bunch of different sectors I think it’s a, the highlight for me is that you’re seeing, and it kind of goes to what I think you’re going to ask me in the last question which is going to ask me about my outlook, these two questions, my answer is going to go along for both of them, which is that you’re really starting to see the economy get its own footing.  It’s starting to be able to be self-sustaining.  The leading economic indicators are doing very well.  You’ve had a, you’re seeing continued growth in jobs, maybe not the level that we’re all hoping for with our history of prior cycles, but we’re still seeing strong job growth.  You’ve got strong corporate balance sheets and corporate earnings are continuing to do very well and exceed expectations.  We’re doing this call in April and so we’re starting to get our quarterly reports on first quarter earnings, and most of them are above expectations.  There’s still continued to be some risk with Europe, tail risks around maybe North Korea or Iran and Israel, and then you have the elections coming up, but at the end of the day, I think fundaments are really, are getting better and that’s the thing that I took away from the first quarter was that fundamentals are stronger and companies are still doing very well and equities look cheap, especially relative to bonds. 

DAVID CRAIG:  Alright, well Don, thanks for your insights. 

DON WORDELL:  You’re welcome.  

DAVID CRAIG:  Welcome to Fund Focus Five.  It’s the week of January 16, and I’m talking with Jim Keegan, Portfolio Manager of the RidgeWorth Total Return Bond Fund, about fourth quarter and 2011 performance.  So Jim, how did the investment grade fixed income market do in the fourth quarter and for the year?

JIM KEEGAN:  Fixed income investment grade market did fine in the first quarter.  You had the key investment grade benchmark, the Lehman (Barclay’s) Aggregate was up just over 1%, 1.12%, and for the year, it was up about 7.84%, so, very, very good year, and Treasuries led the way for the year and had a positive return in the fourth quarter, and the fourth quarter was really, from a capital markets perspective, was about October because that’s where corporate bonds, high yield bonds, CMBS (commercial mortgage-backed securities), and equities outperformed and that really set the tone for the quarter. 

DAVID CRAIG:  Now the Fund had a very good quarter and the year relative to the benchmark.  What led to that outperformance?

JIM KEEGAN:  Well, basically, you’re right, David.  In the fourth quarter, we beat the index by about 43 basis points and then for the year, beat it with a 9.79% return, so almost 200 basis points better than the index, and 300 basis points better than the median fund in the competitive universe.  Really, I think the quarter for us was about our tactical allocation to high yield and security selection within the corporate bond sector, but 2011 was really another example of bond funds not necessarily performing like bond funds, and if you look at the dispersion between returns of the best performing funds and the worst performing funds, it was pretty wide.  So, our alpha, relative to the index and the peer group, was really driven by 50% security selection/strategic positioning and then 50% security selection within the plus sectors that are available to us in the Total Return Bond Fund so tactical allocation and trading of high yield, and then our global strategies generated positive alpha for us. 

DAVID CRAIG:  Okay, great.  Now what were areas that held Fund performance back during the quarter? 

JIM KEEGAN:  We really didn’t have anything hold the performance back.  If there was one thing that was a slight drag on performance, because you remember we outperformed by 43 basis points, it was out exposure to the agency mortgage-backed securities area. 

DAVID CRAIG:  Okay, were there any other highlights during the quarter you want to discuss?

JIM KEEGAN:  Well, I mean, it sounds like a broken record here, but the fourth quarter was much like last year where it was all about Europe and Europe planning to have a plan and it just seemed like there was one summit after another and it almost seemed like the European leadership was meeting weekly, so, I guess if there’s one observation we’ve had, it’s been that it’s probably been a pretty good business to own a catering business in Brussels.

DAVID CRAIG:  Right.  Now what’s your outlook for investment grade bonds in 2012?

JIM KEEGAN:  Well, I mean, our view is that we’ve been on two themes that I think will continue to play out and that’s that we believe rates are going to stay lower for longer, and “safe income at a reasonable price” is the way we are thinking about how we invest.  And lower rates for longer are about the sub-par recovery that we’ve had here in the U.S. and then the pressures being brought on by Europe and the fact that this is a global, synchronized deleveraging cycle that has a long way to play out here, and that if you overlay that or juxtapose that against the zero interest rate policy environment that the Fed has telegraphed that we’re going to be in for at least another two to three years, we believe that there’s going to continue to be demand for investment grade fixed income – so U.S. corporates particularly from our perspective, U.S. non-financial corporates, agency mortgage-backed securities, CMBS, and high yield.  We’re in a world that is starved for income and the demographics are such that we’ve got the start of 78 million baby boomers that are going to be eligible to retire over the next eighteen years, and they have inadequate savings and therefore, we believe, pent up demand to save and we believe that this mantra of “safe income at a reasonable price” is going to continue to benefit the investment grade fixed income markets and the high yield market for those who need more income.  If we need any more evidence of what retail is voting with, just look at the, I think it’s $670 billion that has flowed into taxable bond funds since the beginning of 2009. 

DAVID CRAIG:  Absolutely.  Well Jim, thanks again for your insights.

JIM KEEGAN:  Thank you, David.  

DAVID CRAIG:  It’s the week of January 16, and I’m talking with George Goudelias, portfolio manager of the RidgeWorth Seix Floating Rate High Income Fund about fourth quarter performance.  So George, how did the bank loan market do in the fourth quarter and the year?

GEORGE GOUDELIAS:  The bank loan market rebounded in the fourth quarter after a tough August and September, so the bank loan market, the index was up 2.7%, and the Seix Floating Rate High Income Fund was up 3.27%, so outperforming the benchmark by 57 basis points. 

DAVID CRAIG:  Okay, and what worked specifically for the Fund during the quarter?

GEORGE GOUDELIAS:  I’d say the sectors that performed best were Telecom and Energy, and the sectors that probably lagged the most were Food & Tobacco and Food & Drug, and those are two sectors where we happen to be underweight relative to the index.

DAVID CRAIG:  Okay, and then what didn’t work as well?

GEORGE GOUDELIAS:  What didn’t work as well in the fourth quarter were some of the bond positions that we have, specifically a couple that have exposure to Europe and with all of the sovereign noise that was out there in the fourth quarter.  These companies were performing well; they nonetheless underperformed because of the macro issues.

DAVID CRAIG:  Okay.  And then what’s your outlook for bank loans for 2012?

GEORGE GOUDELIAS:  2012 we’re expecting that to return between 5 and 6%.  With an average coupon right now of just over 5%, naturally a 5% return would just be clipping your coupon; an assumption of 6% would imply some principal return as well, and given that repayments have quickened and were reaching 40% in 2011 from 27% in 2010, and the average price of a loan at roughly 96, there is some opportunity to receive some principal back in addition to the coupon.

DAVID CRAIG:  Okay.  And then over the past twelve to eighteen months, supply has been a concern.  Is supply a concern any more or not?

GEORGE GOUDELIAS:  I would say 2012 will likely see a lower supply in the loan market.  It’s been relatively balanced over the last six months, so the market has seen typically just refinancing opportunities; we’re not getting much in the way of LBO (leveraged buy-out) and not getting much in the way of just strategic financing, so most of the refinancing opportunities are for refi’s of 2013 and 2014 maturity, and because of the benign LBO environment now, we don’t believe issuance will be over $200 billion in the institutional loan market.  

DAVID CRAIG:  All right George.  Well, thanks for your insights.

GEORGE GOUDELIAS:  Thank you, David.   

Bonds which offer a relatively stable level of income, although bonds prices will fluctuate providing the potential for principal gain or loss. Although the Fund's yield may be higher than that of fixed income funds that produce higher rates, the potentially higher yield is a function of the greater risk that the Fund share price will climb. Floating rate loans are typically senior and secured in contrast to other below investment securities. However, there is no guarantee that the value of the collateral will not decline, causing a loan to be substantially unsecured. Loans generally are subject to restrictions on resale. Certain types of loans may limit the ability to fund and forces rise and may involve assuming additional risks. Past performance is not indicative of future results. For performance data, current and most recent month's end, please visit our website at www.RidgeWorth.com. An investor should consider the Fund's investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth funds can be found in the fund's prospectus. To obtain a prospectus, please call 1-888-784-3863 or www.RidgeWorth.com/">visit www.RidgeWorth.com. Please read the prospectus carefully before investing. RidgeWorth Investments is a trade name for RidgeWorth Capital Management, Inc., an investment adviser registered with the SEC and the adviser for the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors, LLC, which is not affiliated with the advisor. Mutual funds are not FDIC insured, have no bank guarantee and may lose value. All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advice. RidgeWorth does not provide legal, estate planning or tax advice.

 

DAVID CRAIG:  Welcome to the Fund Focus Five.  It’s the week of January 16, and I’m talking with Don Wordell, Portfolio Manager of the RidgeWorth Mid-Cap Value Equity Fund about fourth quarter performance.  So Don, how did mid-cap stocks do in the fourth quarter?

DON WORDELL:  Mid-cap stocks did very well in the fourth quarter.  The overall group was up ahead of the S&P 500 for the quarter and it was just a function of getting some relief on the macro front with Europe and with the U.S. economy actually showing some better economic data throughout the end of the quarter.

DAVID CRAIG:  Okay, and the Fund actually had a great quarter relative to the benchmark with both sector allocation and stock selection having positive impacts relative to the benchmark.  Can you first talk about the sector impact?

DON WORDELL:  Sure, I would guess that the sector impact is going to be with Financials and Technology stocks doing very well, plus a rebound in Industrials and Materials.  All the things that you did not want to own over the summer, did very well in the fourth quarter simply because it seems, it appears that the economic data, again, coming out of the U.S., all the macro things that are reported, was better than the market had feared.  Now we’re going go get fundamental looks over the next three weeks when companies report their individual earnings and give us guidance for 2012, but we’re still cautiously optimistic that earnings are in good shape and guidance will be probably at least in line. 

DAVID CRAIG:  Okay, and then stock selection was led by Financials and Technology, which were responsible for some underperformance in the third quarter as you mentioned, they were the key drivers of outperformance in the fourth quarter.  What happened in each of those sectors?

DONALD WORDELL:  Well, sure, so in Financials, again, it comes back to this issue all summer long that was high correlations to Europe.  The European debt issue has not been resolved; however, I think the market is now more comfortable that the leaders in Europe are at least working on a plan to get the situation resolved, get the situation under control, and that gave just some clarity and a bid to the financial stocks which are so universally hated, and so the Financials did very well.  On a stock specific basis, you could just, most of the banks we owned, things like Fifth Third which moved from below $10 to almost $14 a share, things like that, so very big moves on individual stock basis in the fourth quarter.  In Technology, it was really more related to the macro economic data in the U.S.  That data continues to get just to be better than expected, things like ISM (Institute of Supply Manufacturers), manufacturing data, seems to be a bit better.  You’re also getting better consumer data, as well as just we had an okay Christmas holiday season, which is really good for the technology chain.

DAVID CRAIG:  Okay, now the primary detractor from performance was an overweight in telecom.  What was going on in that sector that caused it to underperform?

DONALD WORDELL:  Well, it’s just the reverse.  The Telecom sector did very well on a relative basis in the first nine months of the year.  There was nothing company specific.  It was more when the higher beta sectors or the pro-cyclical sectors do well in Telecom, which is essentially a utility, isn’t going to do as well.  There was nothing fundamental that had an impact there; it was just we were overweight in the telecom sector.  It’s very small.  It’s less than 1% of the benchmark and we’re at 4%, so it looks like a dramatic overweight but it’s really not and those are big yielding stocks we’re very attracted to and we’ve maintained our positions there.  There’s nothing fundamental in telecom that we’re concerned about.

DAVID CRAIG:  Okay, any other highlights during the quarter you want to discuss?

DONALD WORDELL:  Yeah, I thing the interesting thing with the quarter is that this macro economic data.  I think that’s very important.  There were a lot of naysayers over the summer; double dip fears, recession fears, there’s a lot of talk out there that the U.S. economy is really in trouble and that is just, does not seem to be the case.  The recovery from the great recession of 2008 was not as robust as a lot of investors, or even people out there looking for a job might have wanted, but we’re still recovering.  Jobs are being created, the holiday season was okay, and I think that corporate earnings are going to be okay and guidance should be okay for 2012 and looking forward, so we remained cautiously optimistic on the equity markets looking out into 2012, and especially for mid-cap stocks looking out into 2012. 

DAVID CRAIG:  Great.  Alright, well, Don, thanks for your insights.

DONALD WORDELL:  Oh, you’re welcome.

As of 12/31/11, Fifth Third Bancorp was 1.88% of the portfolio.
Equity securities can be more volatile and carry more risks than other forms of investments, including investments in high grade fixed income securities. The net asset value per share of this fund will fluctuate as the value of the securities and portfolio changes. Midcap funds simply carry additional risks since smaller companies generally have a higher risk of failure. Past performance is not indicative of future results. For performance data, current and most recent month end, please visit our website at www.ridgeworth.com. Investors should consider the fund's investment objectives, risks and charges and expenses carefully before investing or sending money. This, and other important information about the RidgeWorth Funds, can be found in the Fund's prospectus. To obtain a prospectus, please call 1-888-784-3863 or visit us at www.ridgeworth.com. Please read the prospectus carefully before investing. RidgeWorth Investments is a trade name for RidgeWorth Capital Management, Inc., an investment adviser registered with the SEC and the adviser for the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors LLC, which is not affiliated with the advisor. Mutual funds are not FDIC insured, have no bank guarantee and may lose value. All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advice. RidgeWorth does not provide legal, estate planning or tax advice.

 

DAVID CRAIG:  Hello and welcome to Fund Focus Five.  It’s the week of January 16, and I am talking with Brian Nold, portfolio manager of the RidgeWorth High Income Fund, about fourth quarter and 2011, performance.  So Brian, how did the high yield market do in the fourth quarter and for the year?

BRIAN NOLD:  The high yield market rebounded nicely in the fourth quarter after a fairly disappointing third quarter which was trading in conjunction with basically the global equities markets with a risk-off trade in third quarter risk came back into the market in the fourth quarter and high yield performed well.  The high yield market was up a little over 6% for the fourth quarter and that took it for a total return of about 4.5% for the year.  We did see some volatility within the quarter with October being fairly strong.  The month of November was very weak again, but then we rebounded again and finished the year with a solid footing in December which has continued on into January.

DAVID CRAIG:  Okay, and then what specifically worked for the Fund during the quarter?

BRIAN NOLD:  Well, Finance underperformed and that did not help the Fund but we did have numerous individual credit positions that did trade well in the quarter.  There was some benefit from M&A (mergers and acquisitions) activity mostly from investment grade companies coming down and purchasing high yield companies.  We have seen particular activity in the Energy space and would expect that to probably continue into 2012.

DAVID CRAIG:  Okay, and then what didn’t work as well?

BRIAN NOLD:  Well, as I mentioned Finance did not work well for the quarter, but that was really a trend that was there for most of the second half of the year since the summer volatility.  Another sector that was under pressure was Utilities in the high yield market.  That was largely driven by the fairly liquid trading characteristics meaning these bonds trade frequently and they get moved around a lot when there is volatility in the market, but also weakness in natural gas pricing drove some under performance in the utility space.

DAVID CRAIG:  Okay, and then what is your outlook for high yield? 

BRIAN NOLD:  We actually have a fairly positive outlook for high yield going into 2012.  When we look at the bottom-up fundamentals that we are seeing from the companies we follow we are actually seeing very positive trends.  Companies continue to generate strong earnings, generate good free cash flow and are using that free cash flow to generally benefit their credit profile, so they are paying down debt or they are improving liquidity, so fundamentally we’re actually very positive.  The biggest uncertainty that we see is the macro environment whether it is China, Europe, and what implications that may have on U.S. growth given the high yield market is most greatly affected by what is happening here in the U.S., but as of now we do have a positive view on fundamentals.  We would expect probably some spread tightening in the high yield asset class.  That is probably going to be offset slightly by a slight rise in the default rate but nothing too dramatic, so if we saw returns in the general area of where high yield is yielding which is close to 8% as we entered the year.  We would view that as a pretty positive scenario, but one that is definitely possible.

DAVID CRAIG:  Okay, great.   Well Brian, thanks for your insights. 

BRIAN NOLD:  Thank you.

Bonds offer a relatively stable level of income although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate term higher quality bonds generally offer less risk than longer term bonds and a lower rate of return. Although the Fund's yield may be higher than that of fixed income funds that purchase higher grade securities, the potentially higher yield is a function of the greater risk that the Fund's share price will decline. Past performance is not indicative of future results. For performance data, current and most recent month's end, please visit our website at www.RidgeWorth.com. An investor should consider the Fund's investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth funds can be found in the fund's prospectus. To obtain a prospectus, please call 1-888-784-3863 or visit www.RidgeWorth.com. Please read the prospectus carefully before investing. RidgeWorth Investments is a trade name for RidgeWorth Capital Management, Inc., an investment adviser registered with the SEC and the adviser for the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors, LLC, which is not affiliated with the advisor. Mutual funds are not FDIC insured, have no bank guarantee and may lose value. All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advice, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advice. RidgeWorth does not provide legal, estate planning or tax advice.

DAVID CRAIG:  Hello and welcome to Fund Focus Five.  It’s the week of October 17^th, and I’m talking with George Goudelias, portfolio manager of the RidgeWorth Seix Floating Rate High Income Fund about third quarter performance.  So George, how did the bank loan market do in the third quarter?

GEORGE GOUDELIAS:  Consistent with other asset classes bank loans were down for the quarter on renewed worries about European sovereign debt and a slowdown in U.S. economic growth that resulted in a global flight to quality in August that continued into September.  As a result the Seix Floating Rate High Income Fund was down 3.66% for the quarter and that compares to the Credit Swiss Institutional Index down 2.64% and the Leveraged Loan Index, which was down 3.76%.  The difference between those two indices being a function of the institutional index dropping loans once their price drops below 90, so it understates markets in very volatile times as it doesn’t capture the full price impact. 

DAVID CRAIG:  Right, so once the loans go under 90 they drop out of the institutional and into the general?

GEORGE GOUDELIAS:  Correct. 

DAVID CRAIG:  Okay, tough quarter but worked specifically for the Fund during the quarter?

GEORGE GOUDELIAS:  The positions that worked well were primarily higher quality names like Royalty Pharma, NDS, which is a technology name, Gray TV, which is a broadcaster, but those were positions that were up and companies that are generating free cash flow and growing their businesses.  

DAVID CRAIG:  Okay, and then what didn’t work as well?

GEORGE GOUDELIAS:  What didn’t work was one segment in our Fund that was roughly 8% of the Fund were high-yield bonds and those underperformed relative to loans.  So, bonds in names like Intelsat and Spingleaf Finance underperformed as well as a couple of loans.    

DAVID CRAIG:  So, what’s your outlook for bank loans?

GEORGE GOUDELIAS:  We still remain constructive on bank debt that our fundamental view remains positive.  We believe companies have been managing their balance sheets with the possibility of an economic slowdown in mind, really since the credit crisis in 2008 they have been focused on refinancing shorter term maturities and using proceeds to pay down the short-term maturities, extend the term of their debt and giving themselves plenty of liquidity over the next 24 to 36 months.  In addition, overall credit metrics for bank debt have improved steadily over the last two years and we’re starting to see the results of that as October starts to turn around with the bank debt fund up almost 1.8% just in the first nineteen days of the month and our Fund continues to perform well relative to peers with an eighteenth percentile Lipper ranking over the last twelve months.    

DAVID CRAIG:  Okay, that’s great.  All right, well George thanks for your insights. 

GEORGE GOUDELIAS:  Thank you David

 

DISCLOSURES: As of September 30, 2011, Royalty Pharma was 2.24% of the portfolio. NDS Finance was 0.77%. Gray Television was 0.56%. Intelsat Bonds were 2.97%. Springleaf Finance was 1.34%. The Lipper rankings for the fund in the loan participation category were 31 out of 119 funds for the one-year period, 49 out of 102 funds for the three-year period and 8 out of 66 for the five-year period. The fund does not have a ten-year Lipper ranking. Lipper rankings are based on total return and do not include sales charges. For the performance of the Fund’s I Shares for the one, five and since inception time periods was 2.05%, 3.51% and 3.57% respectively. Bonds which offer a relatively stable level of income, although bonds prices will fluctuate providing the potential for principal gain or loss. Although the Fund’s yield may be higher than that of fixed income funds that produce higher rates, the potentially higher yield is a function of the greater risk that the Fund share price will climb. Floating rate loans are typically senior and secured in contrast to other below investment securities. However, there is no guarantee that the value of the collateral will not decline, causing a loan to be substantially unsecured. Loans generally are subject to restrictions on resale. Certain types of loans may limit the ability to fund and forces rise and may involve assuming additional risks. Past performance is not indicative of future results. For performance data, current and most recent month’s end, please visit our website at www.RidgeWorth.com. An investor should consider the Fund’s investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth funds can be found in the fund’s prospectus. To obtain a prospectus, please call 1-888-784-3863 or visitwww.RidgeWorth.com. Please read the prospectus carefully before investing. RidgeWorth Investments is a trade name for RidgeWorth Capital Management, Inc., an investment adviser registered with the SEC and the adviser for the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors, LLC, which is not affiliated with the advisor. Mutual funds are not FDIC insured, have no bank guarantee and may lose value. All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

 

DAVID CRAIG:  Hello, welcome to Fund Focus Five.  It’s the week of October 17^th and I’m talking with Don Wordell, portfolio manager of the RidgeWorth Mid-Cap Value Equity Fund, about third quarter performance.  Don, how did mid caps stocks do in the third quarter?

DON WORDELL:  Well, mid cap stocks did poorly during the third quarter.  As you know, the overall macro-related issues really drove underperformance of the stocks, the fears around the debt issues in Europe, the fears around the United States debt downgrade all drove stocks down during the third quarter.

DAVID CRAIG:  The Fund had a tough quarter with both sector allocation and stock selection having negative impacts relative to the benchmark.  Can you first talk about the sector impact?

DON WORDELL:  Sure, we were overweight banks, we were overweight Industrials, we were overweight Materials and we were overweight Energy.  You know between banks, Materials, Industrials and Energy probably the worst four sectors you can be overweight in a macro malaise that we went through over the last three months.

DAVID CRAIG:  Then with stock selection, it seems that Industrial, Financials and Technology were the key drivers of underperformance.  What happened in each of those sectors?

DON WORDELL:  Yeah, in Financials, it was really banks.  The issues there are very frustrating because what you saw was very high correlations among stocks.  So for example over the summer you had big declines in Morgan Stanley and Bank of America.  Yet they took down banks in the mid cap space that have zero exposures that those companies have.  The risk profile of Comerica and Lazard is very different to the risk profile of Morgan Stanley, but it didn’t matter.  The high correlations, highly correlated markets just took those stocks down as well.  In Industrials, the stock selection there was Ingersoll Rand and Parker Hannifin and FlowServe as names that we believe have outstanding long-term earnings potential, but because they have multi-national or are considered to be global, the issues in Europe and the expectations for a hard-landing in China really drove the industrial stocks lower.  Technology, that was really driven by the same reasons that Industrials were brought down.  Technology and industrial stocks are very much, they trade very similar.  Again, it speaks to the high correlations of stocks that we saw.  In that environment that we saw over the summer with high correlation, it’s very difficult for managers like us that are stock pickers that do fundamental work from the bottom up to outperform.  We can’t differentiate ourselves in that type of market.

DAVID CRAIG:  Now on a positive note, both Materials and Telecomm had positive contributions to relative performance.  Why was that the case? 

DON WORDELL:  Well, the positive contributions from material stocks is driven by a couple of stocks we one; one being Airgas.  This was a company that was trying to fend off a suitor all summer long and so you had a highly motivated management team that really outperformed and really beat the market’s expectations all summer long.  Then in Telecomm, names like Windstream and CenturyLink are very high-yielding stocks with dividend yields well over 8%, and the market was very much attracted to those yields as the bond markets strengthened and yields on bonds went very low.

DAVID CRAIG:  Okay.  Any other highlights during the quarter you want to discuss?

DON WORDELL:  You know, I would just say the thing I would add at the very end is that you know we continue to be positive as we look forward.  Corporate balance sheets are in great shape, cash balances have never been higher.  The other thing too, as we’re recording this we’re in the middle of earning season.  Earnings are in line to better than expectations across the board, and we think that will be very positive for stocks as we get resolution to some of these macro issues.

DAVID CRAIG:  Okay.  Great, well, Don, thanks for your insights.

DON WORDELL:  You’re welcome.

DISCLOSURES: As of September 30, 2011, Comerica was 3.48% of the Fund, Lazard was 3.06%, Ingersall Rand was 0.88%, Parker Hannafin was1.05%, FlowServe was 0.98%, Airgas was 0.80%, Windstream was 1.65% and CenturyLink was 2.05%. Equity securities can be more volatile and carry more risks than other forms of investments, including investments in high grade fixed income securities. The net asset value per share of this fund will fluctuate as the value of the securities and portfolio changes. Midcap funds simply carry additional risks since smaller companies generally have a higher risk of failure. Past performance is not indicative of future results. For performance data, current and most recent month end, please visit our website at www.ridgeworth.com. Investors should consider the fund’s investment objectives, risks and charges and expenses carefully before investing or sending money. This, and other important information about the RidgeWorth Funds, can be found in the Fund’s prospectus. To obtain a prospectus, please call 1-888-784-3863 or visit us at www.ridgeworth.com. Please read the prospectus carefully before investing. RidgeWorth Investments is a trade name for RidgeWorth Capital Management, Inc., an investment adviser registered with the SEC and the adviser for the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors LLC, which is not affiliated with the advisor. Mutual funds are not FDIC insured, have no bank guarantee and may lose value. All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

 

DAVID CRAIG:  Hello, and welcome to Fund Focus Five, it’s the week of October 17^th, and I’m talking with Jim Keegan, portfolio manager for the RidgeWorth Total Return Bond Fund, about third quarter performance.  Jim, how did the investment grade fixed income market do in the third quarter?

JIM KEEGAN:  The investment grade fixed income market did pretty well David.  Led by treasuries, treasuries had the best performance.  You had 125 basis points decline in the ten year rate, and as you know the spread sectors tend to key off the treasuries, so they did well but within the various sectors treasuries did very well, mortgage product did ok, corporate did ok, but you needed to get below the surface to really understand there were aspects of the mortgage market that didn’t perform as well, and then in the corporate market the financials really underperformed.  It wasn’t just about being in the right sectors so much in the third quarter; it was being in the right subsectors, as well as your overall risk profile.

DAVID CRAIG:  How did the Total Return Bond Fund do relative to the benchmark and its peer group?

JIM KEEGAN:  Total Return Bond Fund did quite well, and you might step back and say oh so they must have been overweight treasuries and in fact we were not overweight treasuries.  We were modestly underweight treasuries, but we did have a yield curve flattener on and by that meaning that we felt that longer rates were biased to fall while short rates obviously with the fed conveying that we’re going to be in the zero interest rate policy environment for at least two more years, short rates have no where to go, so that was a winner for us.  We took the beta down in our portfolios towards the end of the second quarter, actually at the end of the second quarter, and we did that primarily through decreasing our bank bond exposure, as well as our cyclical corporate bonds.  Then within the mortgage space we moved to more structure convexity positive profile bonds and away from what had been an open coupon bias that we had coming in to this year, which outperformed in the first half of the year, but we took profits and moved into more stable cash flow like securities, figuring that rates were biased to fall in the third quarter due to the end of QE2 and the global slowdown. 

DAVID CRAIG: Now rates came down in the third quarter and generally bond prices are suppose to go up when that happens, but there are some funds in the peer group that actually had negative performance.  What do you think was happening with some funds in the category?

JIM KEEGAN:  Well, what’s interesting is that interest rates fell across the curve, so bond funds should not have a negative return, so why would a bond fund have had a negative return.  Now you could have had a bond fund that underperformed the market or underperformed treasuries, but it still should have had a positive return, which means that those bond funds that had a negative return had large exposures to either Financials would be my guess, and potentially some peripheral European sovereign debt, and/or some of the European bank papers. I think it would have been a combination of financial exposure both here in the U.S. and in Europe, and I’d say the other thing would have been exposure to some of the peripheral European sovereign markets. 

DAVID CRAIG:  Were there things that didn’t work as well for the funds during the quarter?

JIM KEEGAN:  Well you know, everything pretty much kicked in in the third quarter largely related to us having an out of consensus view of what the end of QE2 meant for financial markets in general and risk assets in particular.  As you know, the end of QE2 to us meant that you were taking out a big part of not only the treasury market, as the Fed would go in and buy treasuries, but the mechanics of the way that works is the Fed infuses cash into the marketplace when they take out those treasuries and buy those treasuries, and that cash is then meant to go into risky assets, i.e., stocks, high-yield bonds, leverage loans, even commodities and corporate bonds.  The big catalyst in the third quarter to us was going to be that when you remove that cash from the market the implications were that risky assets were more vulnerable, and then if you think about the global slow down, which was becoming pretty clear as we ended the second quarter, that that would potentially lead to a flight to quality into treasuries and you’d have treasuries rallying.  I guess if there is something that we could have done better, I guess we could have owned more treasuries.  In spite of the fact that we were over rate spread product, we pretty significantly outperformed the market.

DAVID CRAIG:  What is your outlook for investment grade fixed income? 

JIM KEEGAN:  Our outlook for investment grade fixed income is a pretty constructive outlook, and it’s driven by the fact that, I said it before, I’ll say it again, the Fed is conveying that we’re going to be in this zero interest rate policy environment for at least another two years, people need income, and our mantra right now is safe income at a reasonable price.  We think investment grade fixed income right now has the elements of safe income at a reasonable price.  We think that treasury rates can stay low for a long period of time and potentially head lower, and then within the investment grade fixed income space we continue to be favorably disposed towards both the corporate sector and the agency mortgage backed security sector, but again, being in the right parts of each of those sectors is going to be pretty important as they were in the third quarter going forward.

DAVID CRAIG:  Alright Jim, thanks for your insights. 

JIM KEEGAN:  Thank you David.

DISCLOSURES: Bonds offer a relatively stable level of income although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate term higher quality bonds generally offer less risk than longer term bonds and a lower rate of return. For performance data current and most recent month end, please visit our website at www.RidgeWorth.com. An investor should consider the funds investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth Funds can be found in the fund prospectus. To obtain a prospectus, please call 1-888-784-3863 or visit www.RidgeWorth.com. Please read the prospectus carefully before investing. RidgeWorth Investments is a tradename for RidgeWorth Capital Management, Inc. an Investment Adviser registered with the SEC and the adviser to the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors, LLC, which is not affiliated with the advisor. Mutual funds are not FDIC insured, have no bank guarantee and may lose value. All investments involve risk. Comments and general market-related projections are based on information available at the time, are for informational purposes only, are not intended as individual or specific advise, may not represent the opinions of the entire firm, and may not be relied upon for individual investing purposes. Information provided is general and educational in nature, provided as general guidance on the subject covered, and is not intended to be authoritative. All information contained herein is believed to be correct, but accuracy cannot be guaranteed. This information may coincide or conflict with activities of the portfolio managers. It is not intended to be, and should not be construed as investment, legal, estate planning, or tax advise. RidgeWorth does not provide legal, estate planning or tax advise.

 

DAVID:  Hello and welcome to Fund Focus Five.  It's the week of July 11th, and I'm talking with Perry Troisi, portfolio manager of the RidgeWorth Total Return Bond Fund about second quarter performance.  Perry, how did the investment-grade fixed income market do in the second quarter? 

PERRY:  Hi David.  The investment-grade market performed pretty well in the second quarter.  If you look at the Barclays Aggregate or the Barclays Gov Credit, or for that matter the Intermediate Gov/Credit, returns were from 2.1% to 2.3% for Q2.

DAVID:  Okay, that sounds good.  And how did the Fund do relative to the benchmark?

PERRY:  The Total Return Fund modestly lagged the benchmark.  The total return for the Fund was 2.15% versus the bench at 2.29%.

DAVID:  Okay.  What works specifically for the Fund during the quarter?

PERRY:  The primary driver of how it performed in the quarter was our positioning and overweight in residential mortgage-backed securities (RMBS).  We were able to make money both in how we positioned ourselves within the mortgage market as well as being overweight in the sector.  We like to look at sector performance using a concept called excess return, which measures the performance of the asset relative to the risk-free asset.  In that context, mortgages performed well in the second quarter while commercial mortgages and corporate bonds underperformed in the second quarter. 

DAVID:  Okay.  And generally for the year you've been overweight corporates and commercial mortgage backed, haven't you?

PERRY:  Correct, we have.  In fact, those two positions were, you know, unfortunately drivers of underperformance in the second quarter.

DAVID:  Okay.

PERRY:  Being overweight corporates and commercials, both those sectors suffered modestly in the second quarter, so that hurt us a little bit, and our overweight high yield also was a modest drag on performance, as May and June provided a similar drag to the performance of high yield. 

DAVID:  Okay.  So that led right into our next question of what things didn't work.  Were there other things besides those sectors where their individual securities had to take effect?

PERRY:  Well, within each of those, you know, we have some, within commercial mortgages in particular, we're able to get some of the return back with regard to our securities selections.  Within corporate, we really didn't produce much to offset the sector underperformance in the second quarter.

DAVID:  Okay, great.  And then what's your outlook for investment grade?

PERRY:  Our view has been that the recovery will continue to be subpar, sort of a muddle through-type environment that produces 1% to 2% growth.  That unfortunately feels all too similar to a recession.  Much of the fundamental story that evolved in the second quarter solidified this reality in our view.  Now optimists, which include an awful lot of investors and economists, will put out there that this was more a function of the one-off exceptions that we experienced recently, the most prominent being the supply chain disruptions that were due to Japan's earthquake and tsunami as well as high energy prices that, you know, obviously pinched consumer discretionary spending, and that that should inevitably reverse itself in the third quarter.  We remain skeptics.  There are significant headwinds that are not new.  They've been present for most of this recovery, and we don't see sort of a change anytime soon.  The labor market growth remains stalled.  The housing market remains depressed and is still under pressure.  Both those forces sort of depress income growth and depress consumer sentiment.  Then you've got fiscal stimulus continuing to roll off, and we've got debt and deficit concerns that are going to make major fiscal initiatives exceptionally hard to pass in the balance of the year.  You know, we've got global issues that we probably don't need to get into in something this short, but we've got issues in Euro land with their own debt crisis, and China is still tapping on the brakes and will continue to do so given the inflationary environment they're dealing with.  Given that backdrop, the indications for our investment-grade markets are reasonably good in our view.  Rates will continue to be range bound.  There's an inevitable sort of threat out there that higher rates are imminent, and that's going to really hurt investment-grade bonds, but that's not a 2011 story.  Spreads for most of the major sectors remain reasonable.  They performed well.  They're much tighter than they were, you know, 12 or 24 months ago.  Corporate bonds with an OAS (option adjusted spread) at 153.  RMBS with about 90 basis points is spread for the perfect current coupon, and commercial mortgages with an OAS of even 200 basis points for the top of the capital structure in our view represents, you know, reasonable relative value in this market environment.  This is a prime market environment for, you know, bond portfolio managers like Seix Advisors.  We feel pretty confident in our ability to navigate this trying market and deliver strong performance for the fund shareholders.

DAVID:  Okay, great.  And just for those listening that don't understand, OAS is option-adjusted spread, right?

PERRY:  Yes, yes.

DAVID:  Okay.  Well great, Perry, thanks for the update.

PERRY:  Thank you, David.

DISCLOSURES: Past performance is not indicative of future results. For the 1-, 5- and 10-year periods ending June 30, 2011, the Total Return Bond Fund I Shares returned 5.19%, 6.62% and 5.50%, respectively.  Investment risks for this Fund include: Bonds offer a relatively stable level of income although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate term higher quality bonds generally offer less risk than longer term bonds and a lower rate of return. For performance data current and most recent month end, please visit our website at www.RidgeWorth.com. An investor should consider the funds investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth Funds can be found in the fund prospectus. To obtain a prospectus, please call 1-888-784-3863 or visit www.RidgeWorth.com. Please read the prospectus carefully before investing. RidgeWorth Investments is a tradename for RidgeWorth Capital Management, Inc. an Investment Adviser registered with the SEC and the adviser to the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors, LLC, which is not affiliated with the advisor. Mutual funds are not FDIC insured, have no bank guarantee and may lose value. 

David Craig:  Hello, and welcome to the Fund Focus Five.  It is the week of July 11^th , and I’m talking with Don Wordell, Portfolio Manager of the RidgeWorth Mid-Cap Value Equity Fund about second quarter performance.  Don, how did midcaps perform in the second quarter?

Don Wordell:  David, midcaps did okay in the second quarter.  The quarter was really volatile from the stock performance perspective, where when first quarter earnings got reported in April the market did really well and midcaps did really well because as we have been talking about for the last year, and as we see going forward, corporate earnings are in good shape and corporate balance sheets are in great shape, and we are going to continue to see that, but as the second quarter played out, what we had in the second half of the quarter was just volatility around bad weather in the United States and European sovereign debt issues. 

David Craig:  Okay, so how did the Fund do relative to the benchmark during the quarter?

Don Wordell:  The Fund lagged the benchmark a little bit in the second quarter and that was really driven by the overweight in banks.  The banks continue to be unloved and most investors are worried about the issues in Europe and the contagion that that could spread to the United States, although we continue to follow our process, which is focused around dividends, evaluation and fundamentals, and we see our bank holdings as being able to grow their dividends, their valuations are extremely attractive, and the fundamentals will improve over the next eighteen months.  The overweight in banks coupled with the underweight or the lack of exposure to REITs in the quarter as those continue to do very well due to a yield grab, was what hurt us relative to the benchmark. 

David Craig:  So Don you mentioned banks that didn’t do very well in the quarter.  Are there any ones that you are really committed to long-term even though it had a tough quarter?

Don Wordell:  Absolutely.  My favorite bank is Comerica – ticker CMA.  This is a bank that has deposits and operations in Michigan, Texas and California and Florida.  They made an acquisition early this year that some investors didn’t like; it accelerated their strategy in Texas by four years.  When you look at our process, again, I want to walk you through dividends, valuation and fundamentals; Comerica’s balance sheet is in great shape.  They have been growing their dividend actually in the near term.  Their capital positions are well above the capital that is going to be required for all the new regulatory standards, and the evaluation is very compelling; at one time’s tangible book, just a slight premium to tangible book value.  Our earnings estimates for 2013 are north of $4 a share and here is a stock that is trading at less than nine times, or right around nine times that number.  The fundamental case for Comerica is that they are a CNI lender and we are expecting to be able to grow their balance sheet in some of the best places in the country.  They had a near term blip because they have exposure to the auto industry being the disaster in Japan and the pullback in production, although we think that is a one quarter blip and we think that they are actually going to keep on their strategy very well and we see about 40% upside in the stocks. 

David Craig:  Okay, so you mentioned what didn’t work as well.  What did work for the fund during the quarter?

Don Wordell:  In the quarter, we really did well in our industrial holdings.  We have got names that we continue to put up strong earnings growth, a great topline growth globally, and then also our energy positions did very well in the quarter because of the spike in oil prices. 

David Craig:  Okay, great, and then what is your outlook for midcaps?

Don Wordell:  My outlook for midcaps has not changed.  I continue to see a strong bid for the midcap space over the next twelve to 24 months.  Corporate earnings will surprise; starting this week we are going to see earnings begin to kick in over this week and next week.  I think that investors will be surprised by what they find.  Balance sheets are in great shape, and beyond that, corporate balance sheets for the larger cap stocks are in great shape, and since they can’t grow organically, they are going to look to make acquisitions and they will be acquiring the small and midcap stocks.  So we think midcaps are in a great position over the next twelve to 24 months. 

David Craig:  Great.  Well thanks for the update Don.

Don Wordell:  You’re welcome.

DISCLOSURES: As of June 30, 2011, Comerica was 3% of the RidgeWorth Mid-Cap Value Equity Fund portfolio.  Investment risks for this Fund include equity securities can be more volatile and carry more risks than other forms of investments, including investments in high grade fixed income securities.  The net asset value per share of this fund will fluctuate as the value of the securities and portfolio changes.  Midcap funds simply carry additional risks since smaller companies generally have a higher risk of failure.  Past performance is not indicative of future results.  For performance data, current and most recent month end, please visit our website at www.ridgeworth.com.  Investors should consider the fund’s investment objectives, risks and charges and expenses carefully before investing or sending money.  This, and other important information about the RidgeWorth Funds, can be found in the Fund’s prospectus.  To obtain a prospectus, please call 1-888-784-3863 or visit us at www.ridgeworth.com.  Please read the prospectus carefully before investing.  RidgeWorth Investments is a trade name for RidgeWorth Capital Management, Inc., an investment adviser registered with the SEC and the adviser for the RidgeWorth Funds.  RidgeWorth Funds are distributed by RidgeWorth Distributors LLC, which is not affiliated with the advisor.  Mutual funds are not FDIC insured, have no bank guarantee and may lose value.        

 

DAVID CRAIG:  Hello and welcome to Fund Focus Five.  It’s the week of July 11th and I’m talking with Brian Nold, portfolio manager of the RidgeWorth High Income Fund about second quarter performance.  Brian, how did the high yield sector do in the second quarter?

BRIAN NOLD:  Performance was positive with the index up about 1.05% for the quarter.  We saw some increased volatility in the month of June but overall the quarter was a positive quarter.

DAVID CRAIG:  Okay, great, and how did the fund do relative to the benchmark?

BRIAN NOLD:  The fund outperformed the index by about 32 basis points.  The fund was up 1.37%. The fund continues to perform very well versus its peer group.  It’s five-year Lippir number is second percentile overall so very positive there and actually since inception of the management here at Seix, it’s also second percentile.   

DAVID CRAIG:  Okay, great.  Then what worked specifically for the fund during the quarter?

BRIAN NOLD:  We had a number of positive credits that contributed to the portfolio’s performance.  One was Nortel as a company that is actually liquidating the company and had some positive news on its patent portfolio asset sale that drove bonds higher.  Another one of our positions, Telcordia announced that it is selling itself to an investment grade company and the bonds rallied on that news and the news of the Level 3 Global Crossing proposed merger also drove solid price action in their bonds. 

DAVID CRAIG:  Okay, great.  Were there things that didn’t work as well in the quarter?

BRIAN NOLD:  We had two companies that had softer earnings than expected, ConvaTec Health Care and CHC Helicopter; however, we actually still own the positions.  We believe that this is a temporary soft patch that the companies are going through, that earnings should improve in the future and that the asset coverage thesis is intact.   

DAVID CRAIG:  Okay, great.  Then, what is your outlook for high yield?

BRIAN NOLD:  Well, the spread of the high yield index remains wide relative to the current default rate if the market is about 1% to 2%.  So, we believe that if macro issues stabilize spreads should tighten or could tighten and the high yield market could actually generate returns in excess of its yield and close to double digit levels. 

DAVID CRAIG:  Okay, great.  Well, thanks for the update Brian. 

BRIAN NOLD:  All right, thank you.

DISCLOSURES: As of June 30, 2011, ConvaTec Health Care was 2.3% of the portfolio, Nortel Network was 1.9%, Level 3 Communications was 1.5%, Telcordia Technology was 1.2%, CHC Helicopter was 1.1% and Global Crossing was 1.1%. For the 1, 3 and 5-year periods ending June 30, 2011, the Fund finished in the third, fourth and first percentile out of 439, 432 and 361 funds respectively in the Lipper High Current Yield category based on total return. Investment risks for this Fund include: Bonds offer a relatively stable level of income although bond prices will fluctuate providing the potential for principal gain or loss. Intermediate term higher quality bonds generally offer less risk than longer term bonds and a lower rate of return. Although the Fund’s yield may be higher than that of fixed income funds that purchase higher grade securities, the potentially higher yield is a function of the greater risk that the Fund’s share price will decline. Past performance is not indicative of future results. For performance data current and most recent month end, please visit our website at www.RidgeWorth.com. An investor should consider the funds investment objectives, risks and charges and expenses carefully before investing or sending money. This and other important information about the RidgeWorth Funds can be found in the fund prospectus. To obtain a prospectus, please call 1-888-784-3863 or visit www.RidgeWorth.com. Please read the prospectus carefully before investing. RidgeWorth Investments is a tradename for RidgeWorth Capital Management, Inc. an Investment Adviser registered with the SEC and the adviser to the RidgeWorth Funds. RidgeWorth Funds are distributed by RidgeWorth Distributors, LLC, which is not affiliated with the advisor. Mutual funds are not FDIC insured, have no bank guarantee and may lose value.

 

Speaker one:  Hello and welcome to the Fund Focus Five.  It is the week of July 11^th, and I’m talking with George Goudelias, the portfolio manager of the RidgeWorth Seix Floating Rate High-Income Fund about second quarter performance.  So George how did bank loans do in the second quarter?

George Goudelias:  Bank loans performed fairly well in the second quarter given the volatility in the market, returning a positive 45 basis points for Q2. 

Speaker one:  Okay and how did the fund do relative to the benchmark?

George Goudelias:  Just slightly outperformed by three basis points, so the Seix Floating Rate High Income Fund I shares returned a total of 48 basis points for Q2. 

Speaker one:  Okay, and what worked for the fund during the quarter?

George Goudelias:  The kind of larger trends were Telecom and Energy in names like OneLink Communications, which was a refinancing, Instant Web and Level 3 Communications were the top three contributors. 

Speaker one:  Okay, was there anything special about those three contributors that made them contribute?

George Goudelias:  OneLink was a refinancing and so there was in essence the loan was trading in the mid-90s and the refinancing, which caused a pay down of our loan at 100 cents on the dollars; it caused a nice capital gain.  Instant Web improved numbers and Level 3 –  the big event there was the deleveraging merger announcement with Global Crossing. 

Speaker one:  Okay, great.  Were there things that did not work as well during the quarter?

George Goudelias:  Yes.  The broader themes there were Broadcasting and Health Care and some of the specific names were Clear Channel, CareStream and Community Health. 

Speaker one:  Okay, and what specifically about those made those underperform? 

George Goudelias:  Clear Channel I think really is somewhat tied to the economy.  They are broadcasters so they rely on advertising and as the economy got a little sloppy, Clear Channel traded down in sympathy.  CareStream is somewhat more unique in that they are actually tied to the price of silver, and as they produce film, which relies on silver, and silver approached $50 for an ounce before trading back down to $35, so then it essentially recovered, but it did trade down in the second quarter.  Community Health just had some soft numbers for the quarter.

Speaker one:  Okay, great.  What is your outlook for bank loans?

George Goudelias:  I think we are still on track for the expectations that we had set out in the beginning of the year, which was 5 to 7% for the year.  We are roughly at half of the lower end of that range, so thus far I would say that we are still comfortable, with the caveat being that the macro environment, assuming no real more negative surprises on the macro side, we think the 5 to 7% is still achievable. 

Speaker one:  Okay, well thanks for the update George.

George Goudelias:  Thank you David. 

DISCLOSURES: As of June 30, 2011, Community Health was 1.33% of the portfolio, Clear Channel Communication was 1.05%. Level 3 Communications was 0.99%, CareStream Health was 0.60%,  OneLink or San Juan Cable was 0.50% and Instant Web or IWCO Direct was 0.34%.  Investment risks for this Fund include: Bonds, which offer a relatively stable level of income, although bonds prices will fluctuate providing the potential for principal gain or loss.  Intermediate term, higher quality bonds generally offer less risk than longer term bonds and a lower rate of return.  Although the Fund’s yield may be higher than that of fixed income funds that produce higher rates, the potentially higher yield is a function of the greater risk that the Fund share price will climb.  Floating rate loans are typically senior and secured in contrast to other below investment securities.  However, there is no guarantee that the value of the collateral will not decline, causing a loan to be substantially unsecured.  Loans generally are subject to restrictions on resale.  Certain types of loans may limit the ability to fund and forces rise and may involve assuming additional risks.  Past performance is not indicative of future results.  For performance data, current and most recent month’s end, please visit our website at www.RidgeWorth.com.  An investor should consider the Fund’s investment projectives, risks and charges and expenses carefully before investing or sending money.  This and other important information about the RidgeWorth funds can be found in the fund’s prospectus.  To obtain a prospectus, please call 1-888-784-3863 or visitwww.RidgeWorth.com.  Please read the prospectus carefully before investing.  RidgeWorth Investments is a trade name for RidgeWorth Capital Management, Inc., an investment adviser registered with the SEC and the adviser for the RidgeWorth Funds.  RidgeWorth Funds are distributed by RidgeWorth Distributors, LLC, which is not affiliated with the advisor.  Mutual funds are not FDIC insured, have no bank guarantee and may lose value.