The strategy focuses on primarily higher quality, more liquid securities across 14 fixed income sectors through the application of a time-tested approach of active sector rotation, extensive credit research, and disciplined risk management to capitalize on opportunities across undervalued areas of the fixed income markets. The strategy seeks to generate attractive total return from both current income and capital appreciation with an emphasis on maintaining low volatility and overall short duration.
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 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.
- 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.
- Foreign Investing: Investing internationally involves additional risks such as currency, political, accounting, economic, and market risk.