We use the following four steps in our optimal portfolio construction process:
Step 1: Identify Each Client’s Specific Needs including investment objectives and risk tolerance, as well as investment constraints such as time horizon, cash flow needs, liquidity, and legal/tax status.
Step 2: Develop a Strategic Baseline Allocation using various fixed income asset classes to meet each client’s unique investment objectives and constraints.
Step 3: Construct a Tactical Portfolio based upon the strategic allocation identified in Step 2 and the unique opportunities available in the market.
Step 4: Actively Manage Fixed Income Portfolios to capitalize on market inefficiencies and opportunities based upon the changing economic and interest rate landscape.
Our fixed income investment process is a combination of both top-down and bottom-up analysis.
For Taxable Fixed Income, we manage duration targets within a 20% range of the appropriate benchmark, while generally tending to overweight “spread products” (Mortgage-Backed Securities, Corporate Bonds, and Agency Debt) and underweight Treasuries for a core yield advantage. We actively manage sector and security selections, rotating out of market sectors and individual securities when they are fully valued by the market. We utilize scenario analysis to support portfolio construction strategies.
For Tax-Exempt Fixed Income, we manage duration targets within a 20% range of the appropriate benchmark, while seeking to purchase municipal bonds showing strong economic fundamentals, supportive structural characteristics, and reasonable valuations. We view industry credit ratings as lagging indications of quality. Therefore, we monitor “market prices” as a parallel rating system and a precursor of creditworthiness. Our approach seeks to provide institutional execution to the retail investor through a broad network of national and regional municipal broker-dealers to promote competition and reduce the bid-ask spread. We utilize various tax strategies in an attempt to provide each client with enhanced after-tax returns. Purchases and sales are aggregated to support best execution and improve yields. We utilize scenario analysis to support portfolio construction strategies.