We believe that opportunities exist to generate alpha relative to benchmark indices with active management and that income is the primary driver of total return. The cornerstone of the investment team’s philosophy is establishing a yield advantage over a benchmark to generate alpha over the long term. We seek to accomplish this using sector allocation, security selection and yield curve positioning, which play important roles in helping us to build and maintain this yield advantage throughout market cycles. The strategy does not engage in short-term tactical trading based on the direction of interest rates.
The investment process is framed to address three objectives: preservation of principal, maintenance of liquidity and maximizing total return. The process begins with a top-down analysis of the economic landscape, concentrating on changes in growth, inflation expectations, monetary and fiscal policies. Themes (1) are developed from the analysis which helps determine optimal sector allocation (2). Our outlook for the economy, anticipated monetary policy shifts and interest rate levels determine our yield curve positioning (3). Our security selection process (4) utilizes in-depth fundamental credit research, cash flow and bond structure analysis as well as sensitivity and break-even analysis. The duration (5) of managed portfolios is maintained within a narrow range relative to a portfolio’s benchmark. The first five steps culminate in the portfolio construction process (6), which incorporates liquidity as a key parameter in the “value” analysis conducted before a security is purchased in the portfolio. Our sell discipline is driven by macro theme changes. Portfolio risk (7) is continuously monitored and managed using risk budgets that set limits on sector, sub-sector, issuer concentration, duration, spread duration and yield curve exposures relative to a benchmark.
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