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We believe that our fixed income philosophy is distinctive in its
rigorous emphasis on maximizing total return can current income while
adhering to specific risk parameters. Our fixed income process
seeks to provide total returns consistently above a passive index through
active portfolio management while minimizing both credit and volatility
risk.
Fixed Income Management Investment Process
Style
Lowe, Brockenbrough's fixed income style incorporates
maturity and sector decisions to generate superior returns while managing
risk. Security selection emphasizes high quality instruments to minimize
credit risk, and portfolios are tailored to meet a client’s income
and liquidity needs. Low turnover is another important characteristic
because the transaction costs of a high turnover style can significantly
diminish fixed income return.
LB&C’s fixed income process comprises three major elements
– duration, yield curve and sector weightings.
Duration
Our view on the direction of interest rates is expressed
by a portfolio’s
duration relative to that of its benchmark. If we believe interest
rates are headed lower, we will construct a portfolio with duration
longer than that of our benchmark. Portfolios are monitored in current
market conditions and tested under various hypothetical interest rate
environments using proven analytical models.
Analysis
In addition to forecasting the trend of interest rates,
LB&C analyzes
the shape of the yield cure as part of risk/reward analysis used in
optimizing the portfolio structure. A variety of yield curve tools
are used to analyze the curve and to determine value. Most are based
on historical intra-curve spread relationships. We believe historical
relationships are important in determining not only relative value
along the curve, but also in predicting the most probable shape the
curve will take.
Once maturity structure is determined, we emphasize sector forecasting.
We use a systematic discipline in the valuation of sectors incorporating
historical yield spreads, credit risks, market volatility, call features
and supply-demand variables.
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