The Long Credit Strategy invests in U.S. dollar denominated, investment grade fixed income securities – and seeks total return versus the Bloomberg Barclays Credit Long Index while providing protection against interest rate risk. The long-term objective of the account is to outperform the Bloomberg Barclays Credit Long Index when measured over 3 to 5-year periods.
Since inception, our philosophy and structure has been in place to add value through issue selection and sector rotation, minimizing interest rate risk by adhering to a duration neutral posture, while working towards reducing downside risk. We look to reduce portfolio risk while relinquishing the least amount of income/spread. We have experienced that spread changes may overwhelm income return, depending on the horizon and starting point and that wider spreads may mean higher spread volatility. Obtaining relative value at the issue level, we examine the historical relationships with comparative bonds and sub-sectors, identifying those issues that display lower risk from the issuer such as operational health, financial health or possible leverage events. As our firm has evolved, the driving forces of our philosophy have been adhered to, and the background and profile of the individuals that make up our asset management team have led to the long-term nature of our team being in place, and our ability to add value in this framework.
Our historical performance attribution and research has shown that issue selection and sector rotation are repeatable processes and we strive to generate excess returns without taking duration or macroeconomic bets. We believe that these objectives are best achieved through active issue selection while operating within the credit quality limitations of the Bloomberg Barclays Credit Long Index. The benefit of this approach has been expressed by realizing lower risk adjusted returns through the cycle.
The following three factors have guided the formulation of our investment philosophy:
- We use a repeatable process: We believe that bottom up security selection using a repeatable process creates value. We seek “upgrade” candidates and mispriced securities (particularly in securitized credit). We look for relative value at the issue level by examining historical relationships with comparative bonds and sub-sectors to isolate mean reversion trades in both structured and corporate credit. We take a neutral stance on interest rates.
- We are opportunistic: We believe in actively managing portfolios to seek relative value. We look for risk that is fundamentally or technically mispriced in order to find investment opportunities. Avoiding the downside is critical to outperformance, and we are willing to underweight any sector.
- Our team is integrated: We believe portfolios are best managed by nimble teams who integrate fundamental and technical credit analysis with portfolio management execution.