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.
Strategy Objectives
The Intermediate Duration Fixed Income Strategy is designed to deliver excellent returns through market cycles for investors seeking broad exposure and intermediate duration to the U.S. fixed income markets.
Our active management approach seeks to build 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.
Replacing fear with facts leads to strong performance.
Investment Process
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.
What Makes Us Different?
- We strive to identify strong absolute-value, not relative-value, opportunities.
- 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
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.
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.
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.
Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax.
NOT FDIC INSURED ● NO BANK GUARANTEE ● MAY LOSE VALUE
