Active Long Duration Fixed Income
Disciplined approach to fundamental research and bottom-up security selection
Table of Contents
History
We have specialized in the management of long duration assets since 1975 – one of the longest records in the fixed income business.
We begin with an in depth discussion with the client of their investment goals and risk tolerance in order to establish the proper benchmark. Our experience in long duration includes a wide range of both market benchmarks and customized solutions. We utilize long duration market benchmarks with the correct characteristics when appropriate or create a custom blend of market benchmarks to better reflect the client’s needs. Additionally, we have extensive experience creating custom benchmarks based upon liabilities.
Examples include but are not limited to:
Government/Credit Related Indices:
- Bloomberg Barclays US Long Government/Credit Bond Index
- Bloomberg Barclays US Long Government/Credit A+ Bond Index
- Bloomberg Barclays US Long Government/Corporate Bond Index
- 60% Bloomberg Barclays US Long Credit Bond Index / 40% Bloomberg Barclays US Treasury STRIPS 15+ Year Index
- 70% Bloomberg Barclays US Long Credit Bond Index / 30% Bloomberg Barclays US Long Government Bond Index
- 70% Bloomberg Barclays US Long Corporate Bond Index / 30% Bloomberg Barclays US Long Government Bond Index
- 75% Bloomberg Barclays US Long Credit Bond Index / 25% Bloomberg Barclays US Long Government Bond Index
- 75% Bloomberg Barclays US Long Corporate Bond Index / 25% Bloomberg Barclays US Long Government Bond Index
- 50% Bloomberg Barclays US Long Corporate A+ Bond Index / 13% Bloomberg Barclays US Long Baa Corporate Bond Index / 37% Bloomberg Barclays US Long Government Bond Index
- 15% Bloomberg Barclays US 10-20 Year Treasury Bond Index / 10% Bloomberg Barclays US Long Government Bond Index / 35% Bloomberg Barclays US Long Credit Bond Index / 20% Bloomberg Barclays US Government/Credit 1-5 Year Bond Index / 20% Bloomberg Barclays US Government/Credit 5-10 Year Bond Index
- 50% Bloomberg Barclays US Long Government/Credit Bond Index / 20% Bloomberg Barclays US Long Credit Bond Index / 15% Bloomberg Barclays US 10-20 Year Treasury Bond Index / 15% Bloomberg Barclays US Intermediate Government/Credit Bond Index
- Custom Liability Driven Investment (LDI) Indices
Credit Related Indices:
- Bloomberg Barclays US Long Credit Bond Index
- Bloomberg Barclays US Long Credit A+ Bond Index
- 67% Bloomberg Barclays US Long Credit Bond Index / 33% Bloomberg Barclays US Intermediate Credit Bond Index
- 75% Bloomberg Barclays US Long Credit Bond Index / 25% Bloomberg Barclays US Long Government/Credit Bond Index
- 80% Bloomberg Barclays US Long Corporate Bond Index / 2% Bloomberg Barclays US Long Treasury Bond Index / 18% Bloomberg Barclays US Intermediate Treasury Bond Index
- 80% Bloomberg Barclays US Long Corporate Bond Index / 20% Bloomberg Barclays US Long Treasury Bond Index
- 90% Bloomberg Barclays US Long Corporate Bond Index / 10% Bloomberg Barclays US Long Government Bond Index
- 90% Bloomberg Barclays US Long Credit Bond Index / 10% Bloomberg Barclays US Long Government Bond Index
- Bloomberg Barclays US Long Corporate Bond Index
- Bloomberg Barclays US Long Corporate 2% Capped Bond Index
- Bloomberg Barclays US Long Corporate A+ Bond Index
- BofA Merrill Lynch 10+ Year AAA-A US Corporate 3% Constrained Index (C91C)
Government Indices:
- Citigroup 20+ Year STRIPS Index
- Bloomberg Barclays US STRIPS 20+ Year Index
Philosophy
We believe that the primary risk in a defined benefit plan is the risk of underperforming the liabilities, not just the chance of having negative returns on assets. A portfolio of corporate bonds that matches the cash flows of the liabilities would help minimize the risk of underperforming the liabilities. However, we strongly believe in active management of fixed income portfolios as default risk can lead to significant divergence between the asset and liability performance.
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.
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.
Investment Team
Eight portfolio managers are responsible for managing active long government/credit 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.