Our fixed income philosophy is based on the following beliefs:
Pricing inefficiencies exist and can be exploited: We believe that the imperfect transfer of information between markets, regions and different asset classes presents significant opportunity for active fixed income management. Opportunities also exist when securities or combinations of securities with equal economic value are priced differently. We believe we can continue to add value through active management by exploiting these pricing inefficiencies.
The opportunities of fixed income markets demand significant resources organized in specialist teams: We believe both wide and in-depth market coverage is needed. Our fixed income resource includes specialists in the fields of credit, interest rates, currency and sub-investment grade debt. We believe that the size of our fixed income research function and the strong lines of communication within it give us an advantage in processing information.
Operating a clearly defined team structure provides transparency and accountability: We believe small, focused decision-making teams with clear ownership and accountability are key to exploiting inefficiencies and have structured the fixed income team accordingly. The performance generated provides a transparent record of each investment team’s added value, for which they are fully accountable. This framework ensures clear ownership of positions and provides each team with the motivation and freedom to generate higher risk-return characteristics.
Investment returns should be generated within a risk framework: Adding value from multiple independent sources creates natural diversification of positions which should smooth the return profile over time and increase the out-performance potential for a given risk budget. We believe that each team should consider the broadest set of investment opportunities available, their thinking not constrained by individual client mandates. In our opinion, this ensures that the best investment ideas from the widest universe are implemented in all portfolios where guidelines permit.
A dynamic and evolutionary investment process to keep ahead of changing market opportunities: Our investment process has continued to evolve as markets have changed and new instruments have developed. We have extended our expertise and expanded our resources within new sectors of fixed income markets such as emerging markets, high yield and credit where high information ratios can be achieved. We have increasingly used derivatives to expand the investable universe including interest rate swaps and credit default swaps for position taking and hedging. The use of derivatives has broadened the opportunity set allowing us to create less correlated strategies within our portfolios.