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| Wednesday, May 14, 2008 |
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Our Fixed Income Principles
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We are relatively unique in that we manage our fixed income portfolios with a three- to five-year time horizon. A long time horizon will afford us the opportunity to seek equity-like returns in the fixed income markets with lower year-to-year volatility and, more importantly, a much lower risk of a permanent loss of capital over the three- to five-year horizon.
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Our primary objective is to generate an attractive real yield of 3-5 percentage points per year above the current inflation rate.
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We balance our income objective with a focus on total return. When the market offers an attractive opportunity for capital appreciation, we will invest for capital appreciation in addition to income. When the market is overvalued, we will invest for a fair income return and preservation of capital.
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A flexible approach allows us to search for value in income-generating securities issued by investment grade and non-investment grade corporations as well as the U.S. government and its agencies. In particular, we seek to identify selected corporate issuers that are more creditworthy than is generally understood in the market.
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We invest in that portion of the capital structure that offers the most value including secured, senior unsecured, and subordinated securities as well as preferred and equity securities.
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We focus on credit risk, interest rate risk, liquidity risk, call and prepayment risk, and other risks when analyzing income-generating securities. Our objective is to avoid a permanent loss of the capital that we invest (i.e., return of capital) and to earn a sufficient return to maintain and grow our purchasing power (i.e., return on capital).
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