Diversified Sources of Return
"Top Down" Approach
Bond Sector Allocation. By researching and understanding the various distinct bond sectors within a given universe, we know that sectors and spreads react to different shapes of the yield curve. We extensively analyze the historical relationships between sector groups and future anticipated yield curve shapes, risk appetite/aversion and risk premiums.
Yield Curve Positioning. Within our macro-framework, we target positions that will benefit from our six month forward looking yield curve analysis, and then position issues along the curve that will most benefit from these changes.
Duration Management. Because interest rate risk is the most volatile of fixed income risks, we maintain controlled levels of duration to add alpha but not such that it can overwhelm other alpha factors.
"Bottom Up" Approach
Security Selection. After a sector is identified, we begin the "Bottom Up" process. This process begins with a detailed analysis of both volatility and correlated markets. This helps to identify the issues we believe are best poised to outperform their respective benchmark on a risk-adjusted basis. It concludes with in-depth standard credit work and cash flow analysis.
Trading and Execution. Market inefficiencies and dislocations equate to opportunities for the savviest and most skilled managers. Since the bond market is an "over the counter" market, aggressive buy/sell negotiations and efficiently executed trades can add value. Our portfolio managers implement their strategy and handle all trading actively, thus benefiting our clients with added value.