The strategy seeks current income with an emphasis on maintaining low volatility and overall short duration by investing in higher quality, more liquid securities across 14 bond market sectors. The strategy utilizes a value-oriented, research driven approach that seeks to strategically overweight undervalued sectors while applying strict risk controls.
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.
- 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.