Active Core Fixed Income
Disciplined approach to fundamental research and bottom-up security selection
Philosophy
Jennison’s bond products are viewed as complements to our clients’ equity exposure. Thus, we seek to structure our portfolios to provide adequate alpha but also to perform well in adverse economic times when equities (and lower quality bonds) are likely to underperform. As a result, our portfolios have historically been of higher quality than the benchmark.
We seek to generate alpha from a combination of security selection, yield curve management, sector rotation and active trading. We do not make duration bets; as a result portfolio duration will likely be within a ¼ year of the duration of the benchmark.
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.
Characteristics
- Preferred Benchmark: Bloomberg Barclays US Aggregate 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 | 10% | 70% |
| Investment Grade Credit | 10% | 50% |
| Asset-Backed Securities | 0% | 20% |
| Mortgage-Backed Securities | 10% | 60% |
Investment Team
Eight portfolio managers are responsible for managing active core 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