Opportunistic Fixed Income
A flexible 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
- Portfolio managers average 25+ years of experience, backed by a team of over 170 members in eight global locations, overseeing more than $150 billion in fixed income assets
Overview
Investment Philosophy
We believe market mispricings provide opportunities to add value for managers with unique insights and conviction. We are a relative value manager that seeks to avoid persistent exposure to macro-thematic biases in our multi-sector fixed income portfolios. We believe it is possible to extract relative value from fixed income markets throughout market cycles and to achieve this we use a sensible, rigorous and repeatable framework to answer these three questions:
- 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
Investment Process
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 August 31, 2017.
- 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)
Management
Jon Jonsson
Ashok Bhatia, CFA
Brad Tank
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