Our Investment Grade investment philosophy relies on three key pillars:
- Rigorous bottom-up research
- Top-down macroeconomic analysis
- Holistic approach to assessing credit quality
- Analyze supply and demand factors
- Review comprehensive quantitative data
- Study in-depth qualitative information
- Evaluate credit price: relative to industry and non-industry peers
- Compare current prices to relevant averages and historical ranges
- Examine credit value: relative to “risk-free” and spread assets
The implementation of Seix’s investment philosophy has resulted in attractive absolute, relative and risk-adjusted returns over various market cycles. Past performance is not indicative of future results.
We have time-tested processes for investing in investment grade sectors that have served our clients well over many business and credit cycles.
Corporate Credit Process
Our rigorous corporate credit process identifies the credits for our clients' portfolios.
- Investment grade corporates
- Liquid issues
- Multiple market makers
Industry Relative Strength
- Identify where each industry currently resides within the credit cycle
- Pursue purchases within industries experiencing stable-to-improving credit strength
- Seek to sell or avoid industries that are on the decline
Business Risk Analysis
- Determine companies' competitive position
- Evaluate management and track record from bondholders' perspective
- Look for red flags
Financial Risk Assessment
- Focus on positive free cash flow, applying a deleveraging thesis
- Round it out: secure asset protection, access to liquidity, and a strong competitive position
Proprietary Debt Ratings
- Assign internal credit ratings to each company under consideration
- Our internal credit rating can be quite different from the ratings agencies', often leading to "ratings arbitrage" opportunities
- Determine factors that could lead to a bond's outperformance
- Identify our expected catalyst to trigger outperformance
- Determine the exit strategy: how to monetize outperformance most efficiently
Capital Structure Analysis
- Identify optimal spot in capital structure
- Common choices: operating company versus holding company; senior versus subordinated
Target Spread and Sell Discipline
- Attempt to capture 80% of upside while avoiding 80% of downside
- Use price targets and downside tolerances
- Quantitatively analyze a company relative to peers and overall market; optimize risk management process
Securitized Sector Process
We employ a model aware/reality-focused approach to the various sectors of the mortgage-backed universe that has served as a positive contributor to alpha over time.
- Base case economic forecast
- Medium-term interest rate view (6 months)
- Prepayment and supply view
- Based on market-based origination information
Regulatory / Legislative Risk
- View regarding potential government action
- Cumulative view ultimately drives relative value equation
- Selective risk-taking versus predictions and benchmark
Past performance is not indicative of future results.
Investment Risk Management
Prudent risk management is paramount to our Investment Grade process. We employ a rigorous portfolio construction methodology, sell discipline, and trading strategy to mitigate risk.
We manage our Investment Grade Strategies dynamically, tailoring to clients' objectives. Allocation decisions are a collaborative effort between our Senior Portfolio Managers and our CIO, who is responsible for the overall allocation decision.
Our sector teams construct each client portfolio from the bottom-up, bond-by-bond; we do not compromise our strict underwriting standards to achieve an artificial yield level.
We employ a rigorous sell discipline for our Investment Grade Strategies with the objective of generating superior risk-adjusted returns over a market cycle.
Our investment grade sell discipline has two components:
Upside Spread Target:
- Analyst establishes upside spread target for all portfolio holdings at time of purchase
- Team monitors spread targets continuously, to reflect fundamental and market conditions
- Team sells bonds when spread targets achieved
Downside Tolerance Limit:
- Price decline of 10%, relative to peers, triggers automatic formal credit review
- Analyst must present findings to head of Corporate Credit & CIO from initial recommendation
- Buy / Hold / Sell recommendation established as result of credit review
- The first sale is often the best sale
The respective sector team constructs all Investment Grade portfolios in a bottom-up, security-by-security manner, so as to ensure adherence to our strict underwriting standards.
Senior Portfolio Managers direct all trades in our Investment Grade Strategies. Our seasoned group of credit traders have established valuable relationships with market makers and syndicate desks. These relationships often allow us to obtain best execution and enhance our access to the new issue market.
Below are descriptions of our Investment Grade Strategies.
Core Investment Grade
Seix has been managing Core Investment Grade portfolios against all major benchmarks across the entire duration spectrum.
More aggressive than the Core Investment Grade mandate, Core Plus portfolios may invest across all major sectors of the bond market, subject to client guidelines. The menu of Plus sectors available to clients includes High Yield Bonds, Leveraged Loans, Emerging Market Debt, and Non-U.S. Dollar securities.
Capitalizing on our deep credit research capabilities, our Corporate only portfolios provide focused exposure to investment grade credit. This strategy can be combined with our High Yield capability to create a full market credit portfolio.
Portfolios are managed against a range of Intermediate duration benchmarks and can include or exclude Plus sectors.
Our short duration management style is designed first and foremost to maximize income and preserve principal. This strategy effectively combines the high quality nature of Mortgages, Agencies, and Treasuries with short maturity Corporates.
Our broad expertise across all major sectors of the bond market allows Seix to manage specialized portfolios in order to meet specific and often unique client needs. Examples include: Long Duration, TIPS, MBS, ABS and Absolute Return strategies.
Interested in High Yield Bond Strategies? Learn More.