The Corporate strategy seeks to provide higher levels of income from a well-diversified portfolio of primarily Investment Grade Corporate bonds and is benchmarked to the Bloomberg Corporate Bond Index. The strategy may also opportunistically invest a small portion of the portfolio in Convertible Bonds and High Yield securities, where permissible, to take advantage of opportunities in those asset classes.
We intend to exploit periodic inefficiencies in the corporate bond market by risk-adjusting various sectors, utilizing yield curve and sector analysis, and combining that with fundamental research to produce a well-diversified portfolio of corporate securities that provides attractive risk-adjusted yield while emphasizing risk management at both a sector and security level, given the asymmetric return potential in corporate bonds.
PIA’s corporate bond investment process seeks to identify attractive corporate securities that exhibit strong balance sheets and cash flows in order to minimize the downside potential in an adverse market while offering above average risk-adjusted yields in undervalued sectors.
- PIA deconstructs the investment grade corporate bond market into yield curve, quality and industry sectors and utilizes quantitative tools to identify sectors that are undervalued on a risk-adjusted basis.
- We combine fundamental top-down industry analysis with bottom-up fundamental security and ratio analysis to select investment grade credit securities that offer attractive yields given the security’s risk profile.
- If permitted, PIA can opportunistically allocate a small portion of the portfolio to High Yield corporate bonds. Given our willingness to zero-weight certain industries in the high yield universe and our industry-specialization model, which focuses on small to mid-sized issues, we believe we have a greater opportunity to develop comparative advantages in both information and analytical judgment to provide incremental yield while emphasizing risk management, which we deem crucial in high yield bonds.
- Portfolio managers construct portfolios consistent with the investment strategy set forth by the firm’s Investment Strategy Group, which utilizes macroeconomic inputs (both quantitative and fundamental) to develop sector weightings, yield curve positioning, duration management and the asset allocation between investment grade and high yield credit.
- Position sizes are limited to 1-2% of the portfolio at purchase to diversify away security specific risks, and we have the ability to use the PIA BBB completion strategy to further provide diversification and liquidity within the portfolio.
- Risk measurement is an integral component to evaluating corporate securities so that the portfolio is not biased towards lower quality credit sectors.