We believe innovation, diligence, and risk management are essential to superior investment performance, and we commit to delivering all three.

A broad focus reduces dependence on any one source of added value:

Our Investment Philosophy Put to Work
Our investment philosophy encompasses multiple sources for adding potential value, including:

Long-Term Emphasis
Our focus on long-term (three-to-five year) trends recognizes that secular considerations such as demographics, political factors, and structural changes in the domestic and international economy exert powerful, sustained influences on interest rates. Thus, our longer term secular outlook, updated annually, determines a general maturity/duration range for the portfolio in relation to the market. Short-term, cyclical economic considerations determine shifts within this range.

Volatility Analysis
While secondary to a forecast of interest rate direction, an interest rate volatility forecast is crucial to the management of a bond portfolio. Volatility impacts relative performance of bond market sectors. Increases in volatility benefit non-callable bonds such as Treasuries, whereas declining volatility will favor callable instruments such as corporates and mortgages. Volatility also impacts proper portfolio structure. Given a duration target, a portfolio consisting of a mixture of long and short bonds will perform differently than a pure intermediate portfolio, depending on volatility. Further, volatility influences choice of coupon, quality, the use of futures and options, and the pricing analysis of the more complex securities emerging daily in the fixed income markets.

Sector
Our universe includes all sectors of the bond market: governments, corporates, mortgages, asset backs, money market and hedged international. We make significant sector shifts depending upon changes in relative valuations and spreads. Sophisticated proprietary software assists in the evaluation of sector opportunities and in the pricing of specific securities.

Quality
Our typical portfolios have averaged Aa over the past several years, although average quality may vary from A to Aaa depending upon our outlook for rates and quality spreads. All holdings are subject to thorough internal credit analysis, enabling us to distinguish more accurately between levels of quality published by the outside rating services.

Futures and Options
For those clients who permit their use, futures and options can greatly enhance the investment process. Futures on various types of securities, such as Treasury bonds and notes, provide effective substitutes for their cash market counterparts and are used when under-valued.