Strategic Multi-Sector Fixed Income
A flexible, unconstrained strategy that seeks attractive risk-adjusted results by investing across the entire bond market with a focus on exploiting mispriced sectors
- Attractive return potential is the result of investment insights and judgment applied to portfolios in a risk-controlled framework
- Multiple alpha sources include asset allocation, sector rotation, country positioning, security selection, currency management and interest rate/duration decisions
Market Risk: The risk of a change in the value of a position as a result of underlying market factors, including among other things, the overall performance of companies and the market perception of the global economy.
Liquidity Risk: The risk that the portfolio may be unable to sell an investment readily at its fair market value.
Credit Risk: The risk that bond issuers may fail to meet their interest repayments, or repay debt, resulting in temporary or permanent losses to the portfolio.
Interest Rate Risk: The risk of interest rate movements affecting the value of fixed-rate bonds.
Derivatives Risk: The strategy may use certain types of financial derivative instruments (including certain complex instruments). This may increase the portfolio’s leverage significantly which may cause large variations in the value of investments. Investors should note that the strategy may achieve its investment objective by investing principally in Financial Derivative Instruments (FDI). There are certain investment risks that apply in relation to the use of FDI.
Emerging Markets Risk: Emerging markets are likely to bear higher risk due to a possible lack of adequate financial, legal, social, political and economic structures, protection and stability as well as uncertain tax positions which may lead to lower liquidity. The value of a portfolio may experience medium to high volatility due to lower liquidity and the availability of reliable information, as well as due to the strategy's investment policies or portfolio management techniques.
Counterparty Risk: The risk that the portfolio may be unable to sell an investment readily at its fair market value.
Operational Risk: The risk of direct or indirect loss resulting from inadequate or failed processes, people and systems including those relating to the safekeeping of assets or from external events.
Currency Risk: Investments in a currency other than the base currency of the portfolio are exposed to currency risk. Fluctuations in exchange rates may affect the return on investment. If the currency of the portfolio is different from your local currency, then you should be aware that due to exchange rate fluctuations the performance may increase or decrease if converted into your local currency.
Three questions drive our investing framework, enabling us to exploit mispricing opportunities with conviction:
- What is the market's expectation? Market's risk/reward tradeoff as expressed in asset's price
- Where do we have investment insight? Our differentiated view and the implications for the asset's price
- How confident are we on our views? Our conviction level
Investments are primarily selected by measuring sensitivity and correlation to changes in long-term inflation expectations
1. Sector Research and Valuation
We use insights gained from internally generated proprietary fundamental and quantitative research to uncover, analyze and capitalize on market opportunities. Fixed income "state-space analysis" is an essential tool and part of our disciplined and repeatable approach that seeks to generate consistent risk-adjusted excess returns.
2. Portfolio Strategy and Risk Budgeting
Expected return forecasts lead directly to developing strategy and risk budgets.
3. Issue Selection
Proprietary analytical tools complement our ability to identify, select and monitor portfolio positions. Our broader fixed income team has direct participation in these investment decisions.
4. Risk Management
Risk control is fully integrated into every step of our investment process including strategy, research and trading. We use a proprietary risk exposure methodology to create a detailed framework for building and managing the risk budget of our portfolio.
5. Portfolio Construction
Through our portfolio, we seek to achieve maximum information ratio.
Dynamic Asset Allocation
We believe that ongoing market and economic challenges suggest the need for a flexible approach to bond management. Our strategy seeks to provide efficient, diversified and dynamic exposure to the broader fixed income spectrum.
Asset Allocation Historical Perspective
Source: Neuberger Berman, as of September 30, 2019. Sector information is as of the dates indicated and subject to change without notice. The Benchmark is the Bloomberg Barclays US Aggregate Index.
- High Yield: Potentially increase income and improved risk-adjusted returns, allocation driven by our investment views reflecting potential return and estimated volatility
- Bank Loans: Floating rate bonds that are higher up on the capital structure vs. High Yield with a higher historical recovery rate
- Emerging Markets: Global diversification with varying exposure between hard currency, local currency and credit
- U.S. Government: Duration and yield curve positioning primarily via cash bonds and exchange traded futures reflecting expected outlook from our fair value assessment of interest rates
- Non-Agency MBS: Proprietary analytical framework stress tests each security under varying outcomes for portfolio inclusion
- U.S. CMBS: Diversification through commercial real estate emphasizing senior secured obligations to achieve more consistent risk-adjusted returns
- U.S. MBS: Historically resulted in consistent attractive excess returns with minimal volatility
- Global Sovereign: Primarily focused on developed market sovereign debt with limited exposure to local currency
- Investment Grade Corporates: Fundamental credit view leads to sub-sector allocation adjustments and beta modification (effective tail risk management → consistent market cycle returns)
- U.S. TIPS: Selectively held when the sector offers attractive relative value versus nominal treasuries
- Cash: Held to manage duration, provide liquidity and reflect overall positioning MBS TBAs (forward exposure to Agency MBS)