Process

The Firm employs a multi-stage investment process that takes into account the macroeconomic forces driving global and regional economies, along with the bottom-up drivers of individual markets, sectors and securities.

Top-down Macroeconomic Viewpoint

The investment team strongly believes that fixed income investing begins by assessing the most likely near-and long-term global economic outlook, which serves as the overall framework for building a portfolio. From this framework, an assessment of current and projected future yield curve scenarios is developed, providing a key input into the process of assessing asset classes for possible investment, managing rates and portfolio duration through the various themes ultimately employed in its portfolios.

Sector/Market Selection

With an emphasis on industries and sectors that typically provide both tax-exempt and taxable credit issuance, the team diversifies its portfolios to support those investing themes that it believes will serve as a major driver of overall performance. Traditional industries and sectors include airlines, diversified finance, energy, healthcare, industrials, power generation, pulp & paper, transportation, utilities and certain asset-backed securitizations, as well as obligations of states, municipalities and territories.

Individual sector and market concentrations are strictly adhered to as part of the overall risk management process within the portfolio, in addition to the concentration limits for individual credits.

Risk Management

The firm's primary risk management focus is managing interest rate and credit risks. This is accomplished in several ways:

- Managing portfolio duration to isolate interest rate risk

- Emphasizing effective credit selection, surveillance and diversification to reduce credit risk

- Actively managing liquid, highly traded securities to reduce both interest rate and credit risks

- Using US Treasury securities to manage duration and improve flexibility in liquidity management

By incorporating an ongoing and active Risk Management approach, the firm ensures that risk is effectively managed as an integral part of the ongoing investment process.

Bottom-up Security Selection

Long Strategy

Individual security selection is the second major driver of performance in the portfolios. A typical portfolio will draw from the following security types:

  • municipal bonds (both tax-exempt and taxable)
  • distressed credits
  • high yield corporate bonds
  • high grade corporate bonds
  • preferred securities

As part of its active, total return strategy, the portfolio management team continuously monitors the individual credits and holdings in the portfolio, and will actively trade between and among securities to best position the portfolio for the highest likelihood of success.

Short Strategy

The Firm utilizes a credit and rates hedging approach as part of its overall short strategy. Two primary types of securities are employed in the management of the short portfolio.

  • Short positions in corporate bonds serve one of three functions: as an outright rates hedge within the portfolio, as part of a credit “pair trade” within the portfolio or to express a particular negative view on a market, sector, or individual credit.
  • Short positions in US Treasury securities provide a rates hedge enabling credit risk to be isolated within the portfolio, or as a function to offset interest rate risk and manage portfolio duration corresponding to views expressed in the long book.