Unconstrained Credit Fixed Income

An unconstrained approach seeking positive absolute returns with concentration in top credit ideas

Strategy Objectives

Our Unconstrained Credit Fixed Income Strategy is designed to deliver excellent absolute returns through market cycles for investors seeking broad exposure to the U.S. fixed income markets.

We build concentrated taxable bond portfolios bottom-up, allowing valuation and security selection to drive our portfolio construction. Portfolios include durable, well-managed, appropriately structured credits that can be thoroughly researched and understood.
  • Active Management: We believe in a bottom up, value-based approach to active management.

  • Durability: We only invest in securities we believe are built to withstand a variety of economic conditions.

  • High Conviction: We work to balance ample diversification while ensuring meaningful concentration in our highest conviction ideas.

  • Long-term Perspective: We underwrite our investments to perform through market cycles.

  • Discipline and Patience: We let valuation drive our investment process and will hold reserves when the opportunity set is limited.
     

*1st percentile of 143 strategies over 1 year and 1st percentile of 131 strategies over 5 years in the U.S. Core Plus Fixed Income Category based on gross return for the period ending 9/30/2021.

We let valuation drive our portfolio construction.



Andrew Hofer MD and Portfolio Manager

Investment Process

  • Our independent research serves as the foundation of our bottom-up investment process. We apply a proprietary quantitative framework to assess each security’s long-term return potential, and seek to own a concentrated portfolio of our top credit ideas. Fund duration is managed consistent with capital preservation. We will hold reserves when available opportunities do not meet our credit and valuation criteria.
  • Investment opportunities must meet four essential criteria: durability, transparency, excellent management, and appropriate structure.

Our valuation framework:

  • Allows uniform evaluation of the entire fixed income market.
  • Incorporates a margin of safetyClose
    Margin of Safety

    With respect to fixed income investments, a margin of safety exists when the additional yield offers, in BBH's view, compensation for the potential credit, liquidity and inherent price volatility of that type of security and it is therefore more likely to outperform an equivalent maturity credit risk-free instrument over a 3-5 year horizon.

    See More Definitions
    considering volatility differences across sectors and ratings tiers.
  • Highlights new opportunities and assesses the ongoing attractiveness of existing holdings.
  • Provides valuable input on position-sizing and allocating our credit team’s resources.

Buy Discipline:

  • Systematic review and ranking of available credit universe.
  • Deep fundamental credit review of identified opportunities.
  • Durable positions sized commensurate with expected excess return.
     

Sell Discipline:

  • Trim positions as margin of safety recedes.
  • Sell positions when a margin of safety no longer exists.
  • Immediate sale if the analyst’s credit outlook changes. 

We view investment risk in absolute, rather than relative terms.  We believe the greatest risk to a fixed income portfolio is the permanent impairment of a portfolio holding. Our primary defense against impairment is the rigorous credit underwriting process we employ prior to each purchase and through its holding period.  We underwrite all credit holdings to maturity and only purchase performing credits we believe to be highly durable.  Every credit we purchase has been pre-stressed to withstand the most severe adversity that we anticipate for its industry or asset type.

We believe that investors should only accept credit risk for which they are amply compensated.  We have designed a valuation framework that quantifies the risk associated with credit to identify opportunities that are worthy of a deeper credit review and size their allocation in portfolios.  This process of risk management interacts with the investment process by narrowing the universe of securities to which we will apply our valuable analytic resources.

We ensure both a well-controlled trading platform and compliance with client guidelines through a comprehensive enterprise risk management framework that includes an automated front-end trading system, pre-trade guideline clearance by a dedicated risk management team, independent senior management compliance oversight, and formal weekly portfolio reviews.

What Makes Us Different?

  • We own concentrated positions in our top ideas and are absolute return focused.
  • We are entirely bottom-up with a team-based approach emphasizing security selection.
  • Our portfolio sector exposures take shape through a strict adherence to our valuation and credit criteria.
  • We avoid large macroeconomic and directional positions that add volatility, but not return.
 

How to Invest

Our Unconstrained Credit Fixed Income Strategy can be accessed through a variety of investment vehicles. To learn more please contact a member of our institutional relationship management team.
 

Visit the BBH Funds website and the BBH Luxembourg Funds website for more information about our public fund offerings.

 

John Ackler

Senior Vice President
New York City, NY | USA

As a Fixed Income Product Specialist, John Ackler is responsible for overseeing many of the firm’s US institutional fixed income client and consultant relationships. John also participates in…  Learn More

Our Team

Our Latest Insights

  • Upward View of Washington Square Monument on Cloudy Day

    Strategies: Core Fixed Income; Limited Duration; Unconstrained Credit; Intermediate Duration

    September 30, 2021
    • Investment Management

Performance and Portfolio Characteristics

  Composite Performance as of 9/30/2021
Unconstrained Credit Fixed Income
Total Returns
Average Annual Total Returns
Composite/Benchmark
3 Mo.
  YTD  
1 Yr.
3 Yr.
5 Yr.
Since Inception
(06/01/2014)
BBH Unconstrained Credit Fixed Income Composite
(Gross of Fees)
1.37%
6.44% 11.80% 6.51%
6.79% 4.71%
BBH Unconstrained Credit Fixed Income Composite
(Net of Fees)
1.27% 6.12% 11.36% 6.09% 6.37% 4.30%
Bloomberg US aggregate Bond Index
0.05% -1.55% -0.90% 5.36% 2.94% 3.14%

Past performance does not guarantee future results.  

Bloomberg U.S. Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $300 million paramount outstanding and with at least one year to final maturity. The index is not available for direct investment.

 

   Portfolio Characteristics as of 9/30/2021 
Unconstrained Credit Fixed Income
Number of holdings
137
Effective Duration (years)
2.07
Yield to Maturity (hedged)
4.81%
Yield to Maturity (unhedged)
4.71%

Portfolio holdings and characteristics are subject to change. 

Portfolio Characteristics are of the Representative Account. The Representative Account is the account whose investment guidelines allow the greatest flexibility to express active management positions. It is managed with the same investment objectives and employs substantially the same investment philosophy and processes as the Unconstrained Credit - Fixed Income strategy.

 

Gross of fee performance results for this composite do not reflect the deduction of investment advisory fees. Actual returns will be reduced by such fees. Net of fees performance reflects the deduction of the maximum investment advisory fees.  Returns include all dividends and interest, other income, realized and unrealized gain, are net of all brokerage commissions, execution costs, and without provision for federal or state income taxes. Performance is calculated in U.S. dollars.

eVestment rankings are based on gross of fee performance of the Composite and reflect reinvestment of earnings. The deduction of an advisory fee reduces an investor's return. Return may not be representative of any one client's experience. Past performance does not guarantee future results. eVestment rankings are as of 1/22/2021.

The BBH Unconstrained Fixed Income Strategy was previously called the Credit Value Strategy.

Effective duration is a measure of the portfolio’s return sensitivity to changes in interest rates.

Yield to Maturity is the rate of return the portfolio would achieve if all purchased bonds and derivatives were held to maturity, assuming all coupon and principal payments are received as scheduled and reinvested at the same yield to maturity. This figure is subject to change and is not meant to represent the yield earned by any particular security. Yield to Maturity is before fee and expenses.

This communication is for informational purposes only and does not constitute an offer or a solicitation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor’s circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice.  Any views and opinions are subject to change at any time.

Strategies are shown without regard to whether they are offered as separately managed account mandates or through pooled vehicles.  Any discussion of or reference to any given strategy herein should not be taken as a recommendation or solicitation of any pooled vehicle which has an investment objective featuring or similar to such strategy.

This material does not constitute an offer or solicitation in any jurisdiction where or to any person to whom it would be unauthorized or unlawful to do so.

“Bloomberg®” and the Bloomberg U.S. Aggregate Bond Index are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by Brown Brothers Harriman & Co (BBH). Bloomberg is not affiliated with BBH, and Bloomberg does not approve, endorse, review, or recommend the BBH Unconstrained Credit Fixed Income Strategy. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to the strategy.

Risk Considerations

There is no assurance that a portfolio will achieve its investment objective or that the strategy will work under all market conditions.  The value of the portfolio can be affected by changes in interest rates, general market conditions and other political, social and economic developments.  Each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market.

Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, maturity, call and inflation risk; investments may be worth more or less than the original cost when redeemed.  Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices. Mortgage-backed securities have prepayment, extension, and interest rate risks.

Asset-Backed Securities ("ABS") are subject to risks due to defaults by the borrowers; failure of the issuer or servicer to perform; the variability in cash flows due to amortization or acceleration features; changes in interest rates which may influence the prepayments of the underlying securities; misrepresentation of asset quality, value or inadequate controls over disbursements and receipts; and the ABS being structured in ways that give certain investors less credit risk protection than others.

Below investment grade bonds, commonly known as junk bonds, are subject to a high level of credit and market risks.

The strategy invests in derivative instruments, investments whose values depend on the performance of the underlying security, assets, interest rate, index or currency and entail potentially higher volatility and risk of loss compared to traditional bond investments.

Foreign investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.  Prices of emerging market securities can be significantly more volatile than the prices of securities in developed countries, and currency risk and political risks are accentuated in emerging markets.

The strategy may engage in certain investment activities that involve the use of leverage, which may magnify losses.
A significant investment of assets in one or more sectors, industries, securities and/or durations may increase its vulnerability to any single economic, political, or regulatory developments, which will have a greater impact on returns.

Illiquid investments subject the investor to the risk that she may not be able to sell the investments when desired or at favorable prices.

NOT FDIC INSURED ● NO BANK GUARANTEE ● MAY LOSE VALUE

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