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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, with intermediate maturities not exceeding 10 years under normal conditions. We employ a combination of U.S. Government, Government Agency and high quality 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 three essential valuation parameters: yield spread analysis, yield curve analysis, and credit quality analysis.

Yield Spread Analysis: Our portfolio weighting of U.S. Government versus corporate or municipal issues is largely dependent of our analysis of a fixed income concept called "yield spread," which is the difference in the interest rate paid on government bonds and corporate debt. When the difference in yield between these two broad sectors 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 in yield spreads, often driven by short-term fear, helps increase overall investment returns and maximize current income.

Yield Curve Analysis: 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 bond maturities increase. Yield curve analysis seeks to identify the range of maturities of a given bond type that offers the optimal yield considering our interest rate outlook. Portfolio construction based on this analysis seeks to increase overall investment return while managing risk.

Credit Analysis: Credit analysis addresses the likelihood that corporate and municipal bonds issuers will be able to repay their debt. Credit analysis 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. Our credit analysis seeks to minimize risk.

 

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