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.
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
Seven 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