Active Fixed Income Portfolio
The investment objective for our Active Fixed Income portfolio is to maximize total return within the intermediate investment grade area of the fixed income markets. A low exposure to market and credit risk will be maintained in seeking this goal.
Our fixed income philosophy is based upon the belief that forces in the fixed income markets create the opportunity for active bond management that will improve total returns beyond what can be achieved by a buy-and-hold-until-maturity strategy. We focus on areas of the fixed income market where our securities’ research can produce positive relative returns, and at the same time maintain a low exposure to market and credit risk. By assessing risk in relationship to interest rate trend, market sector, yield curve, and coupon analysis, we can achieve these goals over a full market cycle.
PIMG’s fixed income process focuses on identifying the current trend in interest rates. We will lengthen or shorten a portfolio’s average maturity within a narrow range of one to ten years, only after we receive confirmation of a change in the interest rate trend. The maturity adjustment, in turn, is done on a “gradual move” basis. Furthermore, we only utilize U.S. Government/Agency or investment-quality corporate, mortgage-backed or municipal securities. Value is added to our fixed income portfolios by analyzing and monitoring, at all times, five decisions. These decisions are:
1. What is the trend in interest rates?
2. Based upon the trend, what average maturity or duration do we want to have?
3. What market sector offers the most value based on the rate trend?
4. What specific maturities should be purchased based on the rate trend and the shape of the yield curve?
5. What coupons should be utilized in maximizing total return and/or income needs?
The net effect of our fixed income philosophy and process, over a complete interest rate cycle, will be positive relative returns combined with a low-risk profile.
Based upon our ongoing analysis of the trend in interest rates, securities will be purchased or sold in making adjustments for duration changes. Buy and sell decisions will also be made upon the outlook for various economic sectors, as well as the shape of the yield curve.