Yield focus
Credit analysis is the cornerstone of our selective, bottom-up process in which credit research drives alpha in plus sectors.
Proprietary process
Our proprietary credit process checklist ensures a disciplined and repeatable process whilst mitigating risks.
Responsible risk
The team’s risk management approach is critical to the goal of delivering strong results over the long term.
Our investment believe income is the most significant component of total return over time, while price change is highly volatile and less significant.
An investment process that emphasizes the yield component of total return minimizes the need to forecast interest rates and economic activity.
- Seeks to exceed the yield of the appropriate benchmark.1
- Portfolio duration will generally be close to that of the peer group/benchmark.
- Variance from peer group/benchmark durations will be a function of tactical positioning with macro views incorporated rather than a change in philosophy.
Efficient management of realized gains and losses can significantly enhance after-tax returns.
Attractive tax-exempt income
- Municipal bonds historically have provided attractive tax-adjusted income versus taxable alternatives.
Historical low defaults
- The default rate for municipal-rated debt is significantly lower than similarly rated corporate bond counterparts (source: Moody’s).
Intermediate duration
- Intermediate-term municipal bond strategies can provide more income than short-term strategies without taking on the volatility associated with long-term strategies.
We strive to preserve capital while maximizing total after-tax return. Our disciplined, bottom-up, research-driven investment process emphasizes the yield component of total return, minimizing the need to forecast interest rates and economic activity. We maintain a flat organizational structure across portfolio managers, research analysts, and traders.
1: Portfolio construction
- Guidelines and benchmark/peer group comparison
- Monetary/fiscal policy
- Portfolio strategy
- Bottom-up security selection
- Duration management
- Buy/sell discipline
2: Trading and risk management
- Manage new issue process
- Identify secondary market opportunities that satisfy portfolio strategies
- Familiarity with credit nuances
- Relative value analysis
- Rolldown analysis/yield curve shape
- Execution/risk management compliance
- Monitor pricing/NAV variances
3: Credit analysis
- Cornerstone of bottom-up process
- Proprietary, independent research
- Focus on key financial and credit metrics
- Assign internal rating
- Active surveillance structure
- Monitor trading comps
5: Portfolio surveillance and reporting
- Daily performance monitoring versus benchmark/peers
- Portfolio adjustments
- Periodic client reporting and meetings
- Board reporting
4: Tax management
- Loss harvesting
- Controlled turnover
- State taxes
- De minimis
- Multiple manager coordination
1 The benchmark is the Bloomberg 3-15 Year Blend Municipal Bond Index. The Bloomberg 3–15 Year Blend Municipal Bond Index measures the total return performance of investment grade, US tax-exempt bonds with maturities from 2 to 17 years. Investors cannot invest directly in an index.
For more information about our Credit capabilities
Risks
Fixed income securities can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer's ability to make interest and principal payments on its debt. The strategy may be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the portfolio may be prepaid prior to maturity, potentially forcing the portfolio to reinvest that money at a lower interest rate.
High yielding, non-investment-grade bonds (junk bonds) involve higher risk than investment grade bonds. The high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult to obtain precise valuations of the high yield securities.
Securities in the lowest of the rating categories considered to be investment grade (that is, Baa or BBB) have some speculative characteristics.
Liquidity risk is the possibility that securities cannot be readily sold within seven days at approximately the price at which a fund has valued them.
IBOR risk is the risk that changes related to the use of the London interbank offered rate (LIBOR) or similar rates (such as EONIA) could have adverse impacts on financial instruments that reference these rates. The abandonment of these rates and transition to alternative rates could affect the value and liquidity of instruments that reference them and could affect investment strategy performance.
The disruptions caused by natural disasters, pandemics, or similar events could prevent the Strategy from executing advantageous investment decisions in a timely manner and could negatively impact the Strategy’s ability to achieve its investment objective and the value of the Strategy’s investments.
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