Step 1 Macro Assessment
Our investment process involves multiple stages. It starts with an evaluation of the growth prospects of the domestic and international economies, along with current and expected inflation trends. The Federal Reserve and other global central banks’ policies are important factors influencing the outlook for interest rates.  Yield spreads, which are the difference in yield between shorter and longer maturities, are a critical consideration during different stages of the business cycle.  Duration decisions are then made to maximize risk-adjusted returns.  The object is to identify direction rather than magnitude of changes in interest rates.  The interest rate outlook is constantly refined as conditions in the marketplace change.

​

Step 2 Sector Selection
 

Sectors within the fixed income market and credit spreads are reviewed to determine which sectors have the best relative values.  The various sectors consist of the following:

 

• U.S. Treasury securities

• U.S. Agency securities

• Corporate bonds

• Certificates of deposit

• Preferred Stocks

• Municipal bonds (where applicable)

 

On average, our bond portfolio will include Treasury, CD and Agency securities within a range of 20 to 50% of the portfolio, while high quality corporate bonds will be in a range of  40 to 70%.  Broad index-based exchange traded fixed income funds provide liquidity and diversification.

 

​Step 3 Portfolio Construction
After the sector decisions are made, the next step is to evaluate the various securities in each sector to select the most attractive options.  Particular attention is paid to the credit risk component of each security.  We perform our own fundamental credit analysis on each security before purchase.  The analysis begins with a detailed appraisal of the issuer’s financial condition.  Emphasis is placed on cash flow analysis, ability to repay debt and quality of cash flow.  Once the security passes the first level of scrutiny, additional elements are evaluated including management, market position, industry outlook, and event risk.  All securities in the portfolio will be investment grade at the time of purchase with a targeted average portfolio rating of A. To maintain a well-diversified portfolio, no individual corporate issuer will exceed 5% of a client’s total bond portfolio and maturity is laddered to provide liquidity. Once the portfolio is constructed, it is monitored regularly to ensure compliance with the client’s investment objectives and is modified as objectives or market conditions change.