The strategy seeks to generate high total return from both current income and capital appreciation by investing primarily in intermediate-term debt securities across 14 fixed income sectors. The strategy employs a time-tested approach of active sector rotation, extensive credit research and disciplined risk management designed to capitalize on opportunities across undervalued areas of the fixed income markets.
Step 1: Sector Analysis and Allocation
- Top down, relative value approach
- Relative value analysis looks at: yield and spreads; supply and demand; investment environment; sector fundamentals
Step 2: Issue Selection
- Bottom up, fundamental research driven
- Fundamental analysis includes assessment of: credit risk; company management; issue structure; technical market conditions; focus on valuations
Step 3: Portfolio Construction, Oversight, and Risk Management
- Duration neutral strategy
- Sector concentration
- Issuer exposure: maximum 5%, average <1%
- Manager review
- Systematic review
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 security may fail to make payments in a timely manner. Values of debt securities may rise and fall in response to changes in interest rates. This risk may be enhanced with longer-term maturities.
- 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.
- 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.