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Fixed-Income Investments

Our taxable fixed income strategy seeks to maximize current income and minimize principal risk by investing in higher quality bonds, generally A-rated or higher. We employ a combination of U.S. Government, Government Agency, and corporate bonds. Our tax-free strategies focus on investment grade, state-specific municipal bonds based on the individual needs of each client.

For both our taxable and tax-free fixed income portfolios, we base our investment decisions on analysis of three essential valuation parameters: yield spread, yield curve, and credit analysis.

Yield Spread: Our portfolio weighting of U.S. Government versus corporate or municipal issues is largely dependent on our analysis of “yield spread”, which is the difference in the interest rate paid on government bonds versus other corporate debt. When the difference in yield increases beyond its historical norm, we tend to increase our corporate bond holdings. Conversely, we tend to invest more heavily in government and agency issues when the yield spread narrows. Taking advantage of periodic spikes or compressions in spreads can increase investment returns and maximize current income potential.

Yield Curve: The “yield curve” refers to a linear graph that plots the relationship between a bond’s yield and its various maturities. This graph typically has an upward slope, showing yields increasing as maturities increase. Yield curve analysis seeks to identify the range of maturities of a given bond type that offers the optimal yield after consideration of our rate outlook. Portfolio construction based on this analysis seeks to increase overall return while managing risk.

Credit: Credit analysis addresses the likelihood that bond issuers will be able to repay their debt. It is a risk management tool, seeking to insure that any bond purchased collects its coupons and ultimately repays its principal. It is a critical analytical tool when making decisions about the individual bonds to purchase for a portfolio. Credit analysis seeks to minimize risk.