Our portfolios reflect our “bottom up” research emphasis. Rather than identifying likely sectors for investment, we select individual securities with regard to their intrinsic risk and return tradeoff. Our portfolios are constructed with little regard for the industry and geographic breakdowns of market indices but our credit limits for individual holdings and ratings categories are always maintained.
Our “buy” or selection process focuses primarily on the absolute price of the issue given the fundamental credit quality of the issuer and the terms and conditions of the specific security. Then we determine the relative value of the prospective issue. If the yield spread is attractive both absolutely and relatively, we will establish a position. When a security becomes overvalued on a peer or absolute basis, we look to sell it and will put the proceeds into Canada bonds if no other attractive investment can be found at that time. If a security deteriorates from an operational or credit point of view, we will sell it on opportunity.
Features such as extension and retraction are valued using proprietary models. We look at these features as changing the duration profile of our overall portfolios and use them to take a credit or term posture. We look to take advantage of these features to add value to the portfolios to take a credit or term posture and by changing the duration profile of our overall portfolios . We pay careful attention to the exact terms and conditions of callable bonds, as we desire to have optionality in our favour.