Strategy Description

Our short duration tax-exempt municipal strategy is designed to provide a sustainable risk-adjusted after tax alternative to traditional money market funds. Our efforts are focused on maximizing liquidity and preserving capital while enhancing income generation. The portfolio reflects our conservative approach to portfolio construction and utilizes only high quality non-callable investment grade tax-exempt securities.

Highlights

  • Experienced Team
  • Income & capital preservation emphasis
  • Bottom-up credit analysis
  • Top-down macro economic analysis
  • Relative value focus
  • Significant execution capabilities

Management Process

With more than three decades of experience and municipal industry leadership we make every attempt to balance risk and return but with a conservative bias. Bottom-up credit research, top down macroeconomic analysis and liquidity management form the core of our process. We closely monitor term structure dynamics as they react to economic, political, monetary policy and other forces to determine the portfolio’s appropriate duration target. We utilize our extensive trading and execution experience to take advantages of pricing anomalies that enhance our return objectives.

Eligible Securities

  • Investment grade securities – (Baa – AAA)
  • Non-callable
  • Par & premium bonds and notes
  • Limited exposure to state general obligation bonds

Parameters

  • Maximum maturity:            2 years
  • Turnover:                               < 50%
  • Benchmark:  Barclay’s 1 year municipal index

Our portfolio construction process involves the implementation of a constrained optimization routine. Our framework enables us to properly manage the risk of the portfolio in a disciplined manner. Our collective experience has taught us that employing a well-structured risk management discipline together with security selection process will lead us to being able to seek to deliver desirable long-term investment performance to our clients.

Portfolio construction is conceptually similar across all of our fixed income strategies. We start with a universe of bonds that meet our security selection criteria. Each bond will possess various attributes that enable us to measure its contribution to the portfolio in terms of risk adjusted expected return. The attributes will also be used to measure investment characteristics relative to our benchmark thus establishing risk constraints. The optimization will then establish a portfolio that simultaneously maximizes risk adjusted expected return and meets our risk constraints.

 

The framework allows our portfolio managers and our investment committee to perform risk analysis on candidate bonds or to evaluate different interest rate scenarios. This ability is extraordinarily important in active management. It enables our team to measure the effects of active management decisions on portfolio risk prior to implementation and to subsequently monitor risk in a concise manner.

Successful execution is a critical component of our active management process. While we employ various strategies from credit and yield curve analysis to duration management, and a host of other valuation metrics to help drive returns for our clients, what is not fully understood by many investors is the value-added derived from expert securities execution. We believe that every incremental basis point of return is critical, particularly in the current low interest rate environment. It is important to remember that unlike the equity markets, most bonds are not traded on a consolidated exchange with a best bid and offer system. Bond markets function in an over-the-counter, dealer to dealer marketplace. Inexperienced bond investors are often at a disadvantage by not having access to multiple bid and ask prices at the same time. Simply stated, investors are often unaware of the actual spread and mark-ups they are paying.

Our execution capabilities rely upon decades of extensive professional trading experience. Methodologies we employ in an attempt to enhance returns through better execution:

  • We rely on a relative value approach within and across product sectors.
  • We exhibit patience in an attempt to purchase securities on the bid-side of the market
  • We monitor dealer inventories and product flows in order to assess the impact of supply/demand upon spreads and prices.
  • Experience allows us to identify and take advantage of short-term pricing dislocations
  • We will aggregate as feasible odd lot holdings (bought cheaper) into larger positions, in order to exploit the pricing differential between the odd-lot and round-lot markets.
  • We leverage our years of experience and extensive network of dealer relationships to seek to negotiate better prices for our clients.