Short Duration

Investment philosophy

We believe fixed income markets do not always efficiently price credit, prepayment and liquidity risks, creating opportunities for active managers to seek excess returns relative to benchmark indices. A key tenet of our philosophy is to build a yield advantage relative to short duration benchmarks, recognizing that income has historically been a primary driver of returns.

Investment process

Our investment process is designed around three objectives: principal preservation, liquidity and maximizing total return. We begin with a top-down assessment of the macroeconomic environment and monetary policy to identify themes that may influence portfolio strategy, including sector rotation, yield curve positioning and duration management.

Additionally, we incorporate a bottom-up security selection process that utilizes in-depth fundamental research, cash flow and bond structure analysis as well as sensitivity and break-even analysis. We seek to invest in securities that we believe offer attractive risk/reward characteristics and align with our broader macro themes.

Our sell discipline is driven by both top-down and bottom-up considerations, including changes in the macro outlook, potential deterioration in issuer fundamentals, achievement of target spread objectives, or the emergence of more attractive relative value opportunities. We construct portfolios around our “best ideas” and do not enter positions with a predetermined holding period; exit decisions are driven by changes in macro views, issuer fundamentals, or a security’s relative value profile.

Risk management

Portfolio risk is continuously monitored and controlled by utilizing risk budgets to set limits on sector, sub-sector, issuer concentration, duration, spread duration and yield curve exposures relative to a benchmark index.

Given the nature of the short duration business, we are often called upon to provide liquidity from our client portfolios on short notice. Based on our experience during periods of market stress, we are sensitive to the liquidity characteristics of the security types and individual securities in which we invest. Our experienced sector traders continuously monitor market liquidity conditions, while our investment teams evaluate security-level liquidity as part of the relative value analysis conducted before purchase. Factors considered include issue size, issuer history, secondary market depth, OAS, spread duration, age and total issuer debt outstanding. We also limit exposure to security types that lack time-tested liquidity histories across full market cycles.

We run daily performance attribution to provide a feedback loop to our process, which assists us in evaluating our risks at the strategy as well as individual security level. Performance attribution is evaluated daily to better understand not only how our securities are performing on an absolute basis but also how they are faring relative to market, sector and peer spreads as another means of monitoring risk and validation of our assumptions.

Opportunity set

Across the front end of the maturity spectrum—defined as seven years or less—portfolios are broadly diversified across investment grade fixed income sectors, including Treasuries, agencies, corporate credit, taxable municipals, asset-backed securities, mortgage-backed securities and money market instruments. Selective investments outside the benchmark have long been foundational to our strategies, helping diversify spread exposure and build a yield advantage while maintaining a focus on credit quality.

Performance

We believe the return history of all our short duration strategies in both up and down markets validates the conservative nature of the team’s investment philosophy and process. Over multiple market cycles, our time-tested investment process has consistently produced strong risk-adjusted returns relative to peers, as measured by information ratios.