ANNUAL REPORT 2011 - IFAD

Appendix D
Table 1
Asset class and investment policy weights (IFAD-only)
As at 31 December 2011 and 2010
Investment
Asset class Portfolio
Millions of
policy
2011
Short-term
% US dollars %
liquidity 8.1 199.9 5.5
Held-to-maturity
Government
15.6 383.9 15.6
bonds
Diversified fixed-
38.7 950.5 43.5
income 16.9 413.9 15.4
Inflation-linked 20.7 507.3 20.0
Total 100.0 2 455.5 100.0
Asset class Portfolio
Millions of
Investment
policy
2010
Short-term
% US dollars %
liquidity 7.2 182.6 5.5
Held-to-maturity
Government
15.8 397.7 15.8
bonds
Diversified fixed-
40.2 1 013.7 43.5
income 17.6 444.2 15.2
Inflation-linked 19.2 484.6 20.0
Total 100.0 2 522.8 100.0
Each asset class is managed according to its own
investment guidelines. The guidelines address a variety of
market risks through restrictions on eligibility of instruments
and on managers’ activity by setting:
1. Pre-assigned benchmarks and limits on deviations from
benchmarks in terms of tacking error limits
2. Credit floors (please refer to (h) credit risk).
The benchmark indices used for the respective portfolios
are shown in table 2.
Table 2
Benchmark indices by portfolio
Portfolio Benchmark index
Short-term Not applicable
liquidity
Government
bonds
Diversified fixedincome
JP Morgan Global Government Bond
Index (1-3 years), customized to the
four component currencies of the SDR
valuation basket
Barclays U.S. Aggregate Index (Aa+ or
above) and Barclays U.S. Aggregate
Index (Aa+ or above) excluding ABS
and CMBS
Inflation-linked Barclays Capital World Government
Inflation-Linked Index (1-10 years)
Held-to-maturity Equally-weighted extended sector
benchmark (internally calculated on a
quarterly basis)
Note: ABS - asset-backed securities; CMBS – commercial
mortgage-backed securities
Exposure to market risk is adjusted by modifying the
duration of the portfolio, depending on the outlook for
changes in securities market prices.
The upper limit for the duration is set at:
One year above the benchmark for the global
government bonds asset class.
Two years above the benchmark for the diversified
fixed-interest asset class.
Two years above the benchmark for the inflation-linked
bonds asset class.
The average duration of IFAD’s investment portfolio at 31
December 2011 and 2010 and respective benchmarks are
shown in table 3.
12
Table 3
Average duration of portfolios and benchmarks in years
(IFAD-only)
As at 31 December 2011 and 2010
Portfolio Benchmark
Portfolio 2011 2010 2011 2010
Short-term
liquidity - - - -
Government
bonds 1.8 1.7 2.0 1.8
Diversified
fixedinterest
4.6 4.4 4.4 4.6
Inflationlinked
6.0 2.9 5.1 5.0
Held-tomaturity
2.3 2.3 2.3 2.3
Total
average 2.6 3.1 2.5 3.7
The sensitivity analysis of IFAD’s overall investment portfolio
in table 4 shows how a parallel shift in the yield curve (-300
to +300 basis points) would affect the value of the
investment portfolio as at 31 December 2011.
Table 4
Sensitivity analysis on investment portfolio (IFAD-only)
2011 2010
Basis
point
shift in
yield
curve
Change in
value of
externally
managed
portfolio
(US$
million)
Total
portfolio
(US$
million)
Change in
value of
externally
managed
portfolio
(US$
million)
Total
portfolio
(US$
million
-300 196 2 652 159 2 681
-250 164 2 619 132 2 654
-200 131 2 586 106 2 628
-150 98 2 554 79 2 602
-100 65 2 521 53 2 575
-50 33 2 488 26 2 549
0 - 2 456 - 2 522
50 (33) 2 423 (26) 2 496
100 (65) 2 390 (53) 2 469
150 (98) 2 357 (79) 2 443
200 (131) 2 325 (106) 2 417
250 (164) 2 292 (132) 2 390
300 (196) 2 259 (159) 2 364
The graph below shows the negative relationship between
yields and fixed income portfolio value.
Sensitivity analysis on investment portfolio value
(IFAD-only)
(Millions of United States dollars)
2,750
2,650
2,550
2,450
2,350
2,250
Portfolio value 31/12/2011
-300 -250 -200 -150 -100 -50 0 50 100 150 200 250 300
Total portfolio 31/12/11 Total portfolio 31/12/10
At 31 December 2011, if the general level of interest rates
on the SDR markets had been higher/(lower) by 300 basis
points (as a parallel shift in the yield curves), the overall
portfolio value would have been lower/(higher) by US$196
million as a result of the capital losses (gains) on the
marked-to-market portion of the portfolio.
Table 5 shows the tracking error limits defined by the
Investment Guidelines. Tracking error represents the
annualized standard deviation of the excess return versus
the benchmark, and is a measure of the active positions
taken in managing a portfolio with respect to the
benchmark.