The Intermediate Core Plus MACS strategy is a true intermediate strategy typically investing in securities with maturities of 10 years or less and is benchmarked to the Bloomberg Intermediate Government/Credit Index. The portfolio primarily invests in Treasuries, Agencies Investment Grade Corporate and High Yield Bonds. The portfolios may also opportunistically invest a small portion of the portfolio in Mortgage-Backed Securities (MBS), Commercial Mortgage-Backed Securities (CMBS), Asset-Backed Securities (ABS) and Sovereign Debt. The portfolio duration will typically range from 2-6 years.
We know that yield curves for various sectors within the bond market are periodically torqued by cyclical, monetary or market pressures, which can lead to inefficient pricing and create opportunities to produce excess returns. We intend to exploit these periodic opportunities by risk-adjusting various bond market sectors, utilizing yield curve and sector analysis, and combining that with fundamental research to produce a portfolio that provides attractive yield while emphasizing risk measurement at both a sector and security level. We seek to capitalize on these opportunities to earn above-average risk- adjusted yields, while creating the potential for capital gains as these sectors revert toward their fair value.
PIA’s intermediate term investment process balances the quantitative nature of our yield curve analysis with fundamental research to produce a portfolio that emphasizes sector selection, yield curve positioning, duration management and security selection in an attempt to produce above average risk-adjusted yields in undervalued sectors, while providing an opportunity for capital appreciation.
- PIA deconstructs the bond market into yield curve, quality and industry sectors with an emphasis on securities 10 years or less and utilizes quantitative tools to identify sectors that are undervalued on a risk- adjusted basis. The concept of mean reversion is integral to our yield curve analysis of investment grade sectors, as we expect those sectors to revert to their fair value after being torqued by market inefficiencies. For non-investment grade sectors, we are willing to underweight or completely avoid industries that we believe do not warrant leveraged finance throughout a full business cycle.
- Given the asymmetric return potential in credit, we take a defensive approach in selecting securities that we believe are undervalued and provide attractive yield per unit of risk. Portfolios are highly diversified via the PIA Completion Funds for exposures to BBB Credit, High Yield Credit and Mortgage- Backed Securities (MBS). Investment Grade Corporate security analysis is focused on securities with sound fundamentals and liquidity. High Yield Corporate security selection is very granular in the less followed smaller issues, where we believe we have an information advantage. In the securitized debt space, PIA employs option-cost analysis that utilizes multi-factor interest and prepayment rate models.
- Portfolio managers construct portfolios consistent with the investment strategy set forth by the firm’s Investment Strategy Group, which utilizes quantitative and fundamental inputs to develop portfolio strategy for sector selection, yield curve positioning and duration management.