Investment Grade - Broad Market
Our Investment Grade investment philosophy relies on three key pillars:
- 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
We have long-standing processes for investing in investment grade sectors that have served our clients over many business and credit cycles.
Corporate Credit Process
Our 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
- 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 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 strict portfolio construction methodology, sell discipline, and trading strategy to mitigate risk.
We actively manage our Investment Grade Strategies, 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 strict 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/ Downside Threshold:
- Analyst establishes upside spread target and downside spread threshold
- Spread targets and downside thresholds are continuously monitored to verify they reflect fundamental and market conditions
- Bonds are typically sold when spread targets are achieved or downside thresholds are breached
Our strict sell discipline enables us to harvest gains and proactively avoid credit problems.
Below are descriptions of our Investment Grade Strategies.
Core Investment Grade
Seix manages 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 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 to maximize income and preserve principal. This strategy combines the high quality nature of Mortgages, Agencies, and Treasuries with short maturity Corporates.
Our experience across all major sectors of the bond market allows Seix to manage specialized portfolios in order to meet specific client needs. Examples include: Long Duration, TIPS, MBS, ABS and Absolute Return strategies.
Interested in Short Duration Investment Grade Strategies? Learn More.