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Managing Change with a Consistent Approach

Mark Jackson, CFA

Even as markets evolve and change, the one constant has been our commitment to focus on bottom-up security selection in an effort to deliver consistent returns.

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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.

Managing Change with a Consistent Approach

Douglas Gimple, Senior Portfolio Specialist:

Even as markets evolve and change, the one constant in our philosophy and process has been the commitment to a focus on bottom-up security selection in an effort to deliver consistent returns. So Mark, I'd like to get your thoughts as to why you believe this philosophy and process has been able to endure through a variety of market cycles with so little change.

Mark Jackson, CFA, Portfolio Manager:

I think the answer to that is, the one fundamental element of the process is we're constantly searching for bonds that provide cheap, risk adjusted cash flows. And do you think about this process when it was developed back in the mid-eighties, markets were evolving, interest rates were very high. The mortgage-backed securities market was in its relative infancy, but it was growing very rapidly, and it was developing very rapidly in the sense that, instead of just pass-through mortgages, the CMO market was rapidly developing and the tools to be able to analyze cash flows and pre-payments, and the optionality of mortgage-backed securities, the ability to analyze those cash flows was improving rapidly.

When you look at the fixed income markets in there, they're just not efficient. There's a lot of inefficiencies that you can take advantage of. And I think that search for cheap risk adjusted cash flows and barring them in a way that when you do get something wrong, it's not going to ruin your performance. It will have a small negative impact, but if we can get seven out of 10 decisions right, we're going to have some good success from a performance standpoint. And I think that's true in really any market environment, if we're buying bonds that are relatively cheap, relative to what's available, over time, we can realize that cheapness as securities revert back to fair value.

The views expressed are those of the speaker as of July 2021 and are subject to change without notice. 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.

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