Active Intermediate
Fixed Income

Disciplined approach to fundamental research and bottom-up security selection

Philosophy

The objective of our Intermediate strategy is to provide desired alpha without taking fundamental risk. We only use investment grade securities and our portfolios typically have had a higher quality profile than their benchmarks. Individual security selection drives our corporate, asset backed, agency, commercial mortgage-backed securities (CMBS) and collateralized mortgage obligation (CMO) sector management.

We actively trade within each of these sectors. We manage pass-throughs based both on individual security analysis as well as the richness or cheapness of the sector as a whole. Portfolio durations are kept very close to benchmark durations. At extremes in yield curve shape, we will make moderate yield curve bets.

Our decision-making is based on the belief that investment values revert to the mean over time. This belief applies to yield spread and yield curve shapes. Because we use higher quality securities, we have confidence that such reversion will take place.
 

Process

We make decisions based on the attractiveness of individual securities. We are much more of a “bottom up” than “top down” firm and seek ways to take advantage of our ability to perform fundamental credit analysis and quantitative analysis of individual securities. Our tight-knit team is extremely responsive to market opportunities, both in terms of making timely decisions and in analyzing individual securities – we are not encumbered by a slow management process. Located in an open office environment, portfolio managers, sector managers and sector traders continuously discuss and analyze potential investment opportunities. As a result, there is a constant awareness of opportunities within and relative value among sectors and, importantly, with respect to yield curve shape.

All of our portfolios are managed on a team basis by our fixed income portfolio managers. Sector specialists generate ideas within their areas of expertise and then compare these to relative value in other market segments. The decision making process is consensus oriented with the team scrutinizing and challenging investment ideas across the sectors. We believe this close and constant interaction among our sector managers is a key competitive advantage allowing us to make faster and better cross-sector decisions.

Key Characteristics

Preferred Benchmark: Bloomberg Barclays US Intermediate Government/Credit Bond Index
Quality: Investment Grade
Number of Holdings: Typically 80-200 issues
Maximum Position Size: Typically 2% of the portfolio for AAA/AA securities; 1% or less for A/BBB
Duration: Neutral (Typically within 1/4 year of the benchmark duration)

 

Sector Allocation Normal Ranges

 Minimum  Maximum
US Treasury / Agency 20% 60%
Investment Grade Credit 10% 65%
Asset-Backed Securities 0% 50%
Mortgage-Backed Securities 0% 40%

Investment Team

Eight portfolio managers are responsible for managing active intermediate fixed income accounts. We designate a lead portfolio manager and a back-up for each account. The lead manager is responsible for coordinating and implementing the team’s decisions for the individual accounts. The lead is also the key contact person for the client.

 

Meet the Team

Please remember that there are inherent risks involved with investing in the markets, and your investments may be worth more or less than your initial investment upon redemption. There is no guarantee that the investment managers’ objectives will be achieved. Professional money management is not suitable for all investors. The risks associated with investing include but are not limited to: derivative securities, which may carry market, credit, and liquidity risks; short sales, which involve costs and the risk of potentially unlimited losses; leveraging, which may magnify losses; high yield (“junk”) bonds, which are subject to greater market risks; small/mid cap stocks which may be subject to more erratic market movements than large cap stocks; foreign securities, which are subject to currency fluctuation and political uncertainty; real estate, which poses certain risks related to overall and specific economic conditions as well as risks related to individual property, credit and interest-rate fluctuations; and mortgage-backed securities, which are subject to prepayment and extension risks.

Thematic and concentrated portfolios may not be suitable for all investors. Such portfolios are non-diversified, so a loss resulting from a particular security will have greater impact on the portfolio’s return. Fixed income investments are subject to interest rate risk, and their value will decline as interest rates rise.

Your investment objectives, risk tolerance, and liquidity needs must be reviewed before suitable programs can be recommended. Asset allocation and diversification strategies do not assure a profit or protect against loss in declining markets. Investors should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation.

Additional considerations:
This web site is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services.
The does not constitute investment advice and should not be used as the basis for any investment decision. There is no assurance that the strategy objectives as discussed will be met. Further, there is no assurance that any strategies, methods, sectors, or any investment programs herein were or will prove to be profitable, or that any investment recommendations or decisions we make in the future will be profitable for any investor or client.
These materials do not purport to provide any legal, tax or accounting advice.