Strategic Income Strategy

Strategic Income Strategy

Strategic Income Strategy

 
 
Summary

The Strategic Income Strategy seeks a positive absolute return by investing primarily in fixed income securities across a spectrum of asset classes including high yield bonds, investment-grade bonds, mortgage and asset-backed securities and convertibles. The strategy’s unconstrained approach provides the flexibility to allocate across these fixed income sectors and seek the best ideas through bottom-up security selection globally. The team seeks to construct a portfolio with less sensitivity to interest rate movements and the potential to capture positive returns across varying interest rate environments.

 
 
Investment Approach
Philosophy

The team believes that markets can be inefficient and by performing rigorous analysis, the team can position portfolios appropriately to add value over time. Bond prices reflect market forecasts for a variety of factors, such as economic growth, inflation, monetary policy, credit risk, and prepayment risk; yet markets tend to be poor forecasters of future events, especially when the implied market forecasts are out of line relative to historic trends. They seek to identify these mispricings and position client portfolios to exploit the value inherent in these opportunities. 

The team believes that successful portfolio management depends on four factors:

  • Global Perspective
  • A Value-Driven Processs
  • Diversified Holdings 
  • Deep Fundamental Research
 
Differentiators
Unconstrained

The team's active approach provides not only flexible asset allocation between the sleeves of fixed income, but also the ability, via bottom-up security selection, to own what they believe are the best bonds in each segment while avoiding the idiosyncratic risks inherent in a passive approach. 

Interest Rate Management

There’s a climate change taking place in bonds right now—the three-decade secular decline in interest rates appears to have ended—and it’s time to consider a shift from passive to active strategies. Unconstrained management techniques enable the team to better diversify risks and reduce exposures to movements in interest rates, which tend to be the primary source of return volatility.

Risk Mitigation

A well-balanced portfolio with exposure to a diverse range of fixed income asset classes is an important start, but it’s not enough to ensure uncorrelated returns or appropriate diversification. By managing risk at every stage of the process and paying close attention to the correlations between asset classes, the individuals risks within the portfolio can be blended optimally to decrease the overall risk of the portfolio and ensure no single risk dominates.

 

Right-Sized

Since the financial crisis, liquidity and inventories have been reduced due to stricter regulations. This restricts the ability for very large funds to hedge risks and limits their investment opportunities. The team believes a portfolio now needs to be “right-sized” to maximize investment-return opportunities.

 
 
 
Investment Process
1
Macro Analysis:

The team seeks to determine what themes are driving asset prices across rates, countries and currencies and to evaluate the investment opportunity set based on a thematic investment thesis. The top-down process uses a combination of fundamental and quantitative analysis to identify and evaluate these investment opportunities.

2
Asset Allocation:

The Asset Allocation team is led by Michael Kushma, the CIO of the Global Fixed Income team and is comprised of the heads of each research group. The team seeks to first, identify areas where implied market forecasts are out of line relative to historic trends and second, to identify the catalyst for the market to adjust. Internal debate is a key feature of our investing philosophy, ensuring investment ideas are tested thoroughly. The team debates relative value across sectors and determine broad strategy targets. 

3
Research:

The team's approach to fixed income investing uses a disciplined investment process and a commitment to research. Research is conducted by dedicated teams specializing in a particular niche of the fixed income market. The research teams use in-depth fundamental analysis, complemented by quantitative tools, to generate bottom-up investment ideas and are responsible for security selection. 

4
Portfolio Construction and Risk Management:

Portfolio managers are responsible for implementing the investment strategies. They work to construct each portfolio in a way that conforms to individual client/strategy guidelines and objectives, while staying true to the broad strategy targets that are set by the Asset Allocation team. The portfolio managers achieve these targets by working with the research analysts to fill the sector buckets with bottom-up security selection ideas. 

The team views risk management as an integral part of their investment process. Based on this belief, portfolios are protected against a variety of risks through diversification, credit risk protection, and liquidity with the goal that no single risk dominates the portfolio.

5
Trading:

All fixed income trades are executed by centralized Global Fixed Income trading desk. Central dealing segregates the trading function away from the decision making process, and allows the portfolio managers to focus on managing the portfolio. This procedural separation ensures that all accounts are structured according to the parameters established by the team.

Global-Fixed-Income-A-Disciplined-Investment-Process_1000px_FINAL-2
 
 
Portfolio Managers  
Michael Kushma
Michael B. Kushma
CIO, Broad Markets Fixed Income
37 years industry experience
Richard Ford
Richard Ford
Co-Head, Broad Markets Fixed Income
33 years industry experience
Utkarsh Sharma
Utkarsh Sharma
Executive Director
14 years industry experience
Leon Grenyer
Leon Grenyer
Head of European Multi-Sector
28 years industry experience
Vishal Khanduja
Vishal Khanduja, CFA
Co-Head, Broad Markets Fixed Income
19 years industry experience
 

Effective November 1, 2022, Leon Grenyer was added as a Portfolio Manager for this strategy. Effective October 31, 2022, Jim Caron no longer serves as Portfolio Manager. Effective December 1, 2023, Vishal Khanduja was added as Portfolio Manager on the Strategy, and Chris Roth is no longer serving as Portfolio Manager.

 
 
 
 
 

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