The strategy is appropriate for investors seeking diversification and the potential rewards associated with investing in high-yield, fixed income securities. The investment process strives to add value through issue selection, sector/industry selection, and opportunistic trading. The strategy will generally overweight sectors and industries with well-valued companies whose business profiles are viewed to be improving.
Step 1: Top-Down Sector and Industry Analysis
- Identify risks and opportunities
Step 2: Intensive Credit Research
- Determine business viability
Step 3: Portfolio Construction and Opportunistic Trading
- Diversify across credit ratings, issues, and industry groups
- Dedicated trader takes advantage of mispricings, market dislocations, and other special situations
Important risk considerations
- Credit & Interest: Debt securities are subject to various risks, the most prominent of which are credit and interest rate risk. The issuer of a debt security may fail to make interest and/or principal payments. Values of debt securities may rise or fall in response to changes in interest rates, and this risk may be enhanced with longer-term maturities.
- Foreign & Emerging Markets: Investing internationally, especially in emerging markets, involves additional risks such as currency, political, accounting, economic, and market risk.
- High Yield-High Risk Fixed Income Securities: There is a greater level of credit risk and price volatility involved with high yield securities than investment grade securities.
- ABS/MBS: Changes in interest rates can cause both extension and prepayment risks for asset- and mortgage-backed securities. These securities are also subject to risks associated with the repayment of underlying collateral.
- Bank Loans: Loans may be unsecured or not fully collateralized, may be subject to restrictions on resale and/or trade infrequently on the secondary market. Loans can carry significant credit and call risk, can be difficult to value and have longer settlement times than other investments, which can make loans relatively illiquid at times.