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The Beauty of Simplicity — Taking the Guesswork Out of Fixed Income Investing

Mark Jackson, CFA and Henry Song, CFA

The last five years have been incredibly dynamic for investors. Portfolio manager Henry Song, CFA, discusses how he has navigated various market environments.

(Expand Transcript)

The following text is a transcript of portions of the speakers’ podcast originally recorded in July 2021. This transcript solely represents the views of the individuals who spoke, which are subject to change.

The Beauty of Simplicity — Taking the Guesswork Out of Fixed Income Investing

Douglas Gimple, Senior Portfolio Specialist:

Our strategies launched on July 5th, 2016, and it was on the heels of the original Brexit vote announcement. And at a time when the 10-year Treasury was yielding, what was at that point, a historic low of 1.37%. Little did we know what was to come in the future and that the 10-year yield would reach a new all-time low of 0.508% in early August of last year. We have never attempted to predict where rates are headed and opt to focus instead, as we've mentioned, on security and sector selection, rather than to put our client's money at risk predicting where rates may go. So Henry, I'll ask you, how has the past five years just served as a reinforcement of that aspect of the philosophy?

Henry Song, CFA, Portfolio Manager:

I think the last five years is a great reminder that you have to be extremely, extremely smart to be able to predict rates and the movement and the way it moves and the pace it moves. To us, it seems like an impossible exercise. Rather than spending so much time trying to predict future rate movement, to Mark's point, we're looking for cash flows that make a lot of sense. There are a lot of data points out there people can point to, especially in today's environment, everyone's talking about big data, there's all sorts of new data providers there. To Mark's point, there are better and more efficient ways to analyze prepayments, cash flows, but there's also just way too much data overload. So, I think what we are trying to do is, almost call it beauty of simplicity. There are things we know that works, and we're just going to stick to that.

We're not going to use the latest technology necessarily but seeing how things perform and stick to what we think has always worked, rather than a focus on hundred data points, focus on the five that really matter. That has proven that it really works in the different environment in the last five years we have seen. Again, this philosophy goes back 30 plus years. I think as long as we can continue to identify the key elements that dictate a cashflow and what makes it cheap, I think that's going to be, essentially our secret sauce, right?

Douglas Gimple, Senior Portfolio Specialist:

The beauty of simplicity—I really like that one. I’m going to use that on my own many times.

The views expressed are those of the portfolio manager as of July 2021, are subject to change, and may differ from the views of other portfolio managers, research analysts or the firm as a whole. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. Investing involves risk, including the possible loss of principal. Past performance is not a guarantee of future results.

The Bloomberg U.S. Aggregate Index is an unmanaged index representing the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through, and asset-backed securities.

Click here for Short Duration Securitized Bond strategy performance.

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