Fixed Income

The bulk of our fixed income portfolios are generally invested in investment grade bonds. However, we may choose to supplement a client's bond portfolio with select bond mutual funds or ETFs for non-investment grade fixed income exposure to enhance return. As a rule, bond portfolio turnover is relatively low, and major structural changes to the portfolio are made over time. The structure of a portfolio is adjusted using primarily cash from interest payments, maturities and calls, and occasionally from the sale of bonds. The basic backbone of our fixed income process is a laddered approach. A ladder spreads the fixed income portfolio over a series of years and provides diversification of credit, coupon, and maturity. In addition, it provides a predictable income stream for distribution or reinvestment.

Beyond the basic ladder, we seek to enhance fixed income returns by:

• Duration shifts — Shorten or lengthen the portfolio's weighted average duration or maturity depending on our team's outlook for interest rates.
• Security selection — Exploit situations where individual bonds may be mispriced.
• Sector allocation shifts — Shift the relative weight of various types of fixed income securities in the portfolio depending on our team's assessment of relative value across sectors of the fixed income market.
• Yield curve positioning — Emphasis on one maturity over another based on our team's expectations for the future shape of the yield curve.
• Managing call option risk — Selectively purchase callable bonds to enhance return.