It is imperative to build a bond strategy that takes into account the expected interest rate and inflation volatility. These movements can have a dramatic effect on bond prices and yield curve steepness. Based on our macroeconomic analysis we will build customized strategies such as bond ladders, barbells, or weighting heavier on long/short-term maturities, which most advisors are incapable of doing since they rely heavily on inflexible bond funds. These strategies will help us maintain liquidity in unfavorable bond market environments and allow us to have capital ready to deploy in better yielding times.
Credit risk is a big component that makes up the yield of corporate bonds. The higher the credit risk the higher the yield. We leverage our expertise in equity analysis to maximize our yield without taking undue credit risk. Although we are aware of the credit ratings published by agencies such as Moody’s, Standard and Poor’s, and Fitch, we do not make our decisions solely based on them, which is more common in the industry. We complete our own due diligence by monitoring interest-coverage ratios, capitalization ratios, debt maturity schedules, and other fundamental factors before making a purchase.
Within our fixed-income strategies, we allow ourselves to maximize the benefits of diversification. Not only do we have positions from multiple issuers in different sectors, but we also can diversify in various forms of debt. Government, agency, corporate, municipal, and mortgage-back securities are available at our discretion. Most of the time you will see corporate bonds in your portfolio due to the advantages of higher after-tax returns and an abundance of issuers. However, as the market evolves, so will the portfolios, taking full advantage of our investment options, which allows us to target much higher yields than our competitors.