*2nd percentile of 230 strategies over 1 year, 1st percentile of 221 strategies over 5 years, and 1st percentile of 210 strategies over 10 years in the U.S Core Fixed Income Category based on gross returns for the periods ending 12/31/2020.
Credit spreads are often more volatile than underlying credit fundamentals, creating recurring active management opportunities.
Our valuation framework:
- Allows for uniform evaluation and ranking of the entire fixed income market.
- Incorporates 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 considerations which vary across sectors and ratings tiers.
- Countercyclical by design, it signals new opportunities when valuations are attractive, and reduced exposures when valuations are approaching full value.
- Provides valuable input on position-sizing and allocating our credit team’s resources.
- Systematic review and ranking of available credit universe.
- Deep fundamental credit review of identified opportunities.
- Durable positions sized commensurate with expected excess return.
- 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 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
Performance and Portfolio Characteristics
|Composite Performance as of 12/31/2020
Core Fixed Income
||Average Annual Total Returns
|BBH Core Fixed Income Composite
(Gross of Fees)
|BBH Core Fixed Income Composite
(Net of Fees)
|Bloomberg Barclays Aggregate Bond Index
Past performance does not guarantee future results.
The Bloomberg Barclays 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 12/31/2020
Core Fixed Income
| Effective Duration (years)
Yield to Maturity
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 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.
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.
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.
The value of some asset- backed securities and mortgage-backed securities may be particularly sensitive to changes in prevailing interest rates and are subject to prepayment and extension risks, as well as risk that the underlying borrower will be unable to meet its obligations.
Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax.
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