Independent Banker - July 2023 - 34

PORTFOLIO PORTFOLIO MANAGEMENT
Portfolio power
Barbell structure may be the right regimen.
By Jim Reber, ICBA Securities
s yields continue to set cyclical highs
during 2023, many community
bankers have asked me questions about
what their next best purchase should
be. Some of them have been surprised
to hear an answer that I've been giving
for the better part of this decade, even
though absolute yields and the shape of
the curve look nothing like, say, 2015.
Since the difference in yields between
short maturities and longer ones is still
upside-down (i.e., the curve is inverted),
most bond analysts, economists and
the Federal Reserve itself are predicting
that we'll see some economic slowdown,
cooling of inflation and eventually some
rate cuts. (Although, to be sure, they
differ greatly as to the timing.) If and
when we see a normalization to the shape
of the curve, a portfolio structure that
would perform well is a " barbell. " This
month, we review the structure and the
advantages of such an exercise for your
investment portfolio.
Repetition and resistance
The barbell is simple to build and easy to
evaluate later. It just requires an investor
to define what it considers to be suitable
short-term and long-term investments.
Of course, community bankers have
differing opinions on what counts as
a long-term investment, but generally
speaking, those with durations of five
years and greater are considered as being
on the high end of the price-risk scale.
Once you've identified the target
investments, the portfolio manager will
simply purchase roughly similar amounts
of both and keep the weightings balanced
through ongoing monitoring. By having
a collection of bonds that are heavy on
both ends of the maturity spectrum,
you've successfully built a barbell.
Classic structure
Among the bonds that meet community
banks' criteria of liquidity and credit
quality are those issued by the Small
Business Administration (SBA). They
A
34 // ICBA Independent Banker // July 2023
Photo by Juan Moyano/Stocksy

Independent Banker - July 2023

Table of Contents for the Digital Edition of Independent Banker - July 2023

Contents
Independent Banker - July 2023 - Intro
Independent Banker - July 2023 - Cover1
Independent Banker - July 2023 - Cover2
Independent Banker - July 2023 - Contents
Independent Banker - July 2023 - 2
Independent Banker - July 2023 - 3
Independent Banker - July 2023 - 4
Independent Banker - July 2023 - 5
Independent Banker - July 2023 - 6
Independent Banker - July 2023 - 7
Independent Banker - July 2023 - 8
Independent Banker - July 2023 - 9
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Independent Banker - July 2023 - Cover3
Independent Banker - July 2023 - Cover4
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