Maintenance Management
Maintenance management is portfolio activity that seeks to ensure that portfolio metrics continue to meet previously established parameters.
For example, a portfolio is established with investment guidelines that state that the maturity structure is to be an evenly weighted ladder of three-to-seven years with a five-year average life. One year later, the portfolio is now a two-to-six-year ladder with a four-year average life, one year shorter than stated in the investment guidelines. One way to get the portfolio back in line with its established guidelines would be to sell the two-year bonds and purchase new seven-year bonds, re-establishing the three-to-seven-year ladder and a five-year average life. Selling two-year bonds and purchasing seven-year bonds as described above is an example of maintenance management.
The amount of maintenance management a portfolio requires is correlated to its maturity structure. Portfolios invested in longer-term issues require less maintenance management than shorter-term portfolios aimed at keeping duration constant. In duration terms, shorter-term portfolios age faster than longer-term portfolios.
For example, a portfolio is established with investment guidelines that state that the maturity structure is to be an evenly weighted ladder of three-to-seven years with a five-year average life. One year later, the portfolio is now a two-to-six-year ladder with a four-year average life, one year shorter than stated in the investment guidelines. One way to get the portfolio back in line with its established guidelines would be to sell the two-year bonds and purchase new seven-year bonds, re-establishing the three-to-seven-year ladder and a five-year average life. Selling two-year bonds and purchasing seven-year bonds as described above is an example of maintenance management.
The amount of maintenance management a portfolio requires is correlated to its maturity structure. Portfolios invested in longer-term issues require less maintenance management than shorter-term portfolios aimed at keeping duration constant. In duration terms, shorter-term portfolios age faster than longer-term portfolios.