Capital preservation remains a constant in our thinking, pervasive in all decision-making. For every dollar that our clients entrust to us to manage a pivotal decision we constantly re-evaluate is how much of that dollar we are comfortable to invest at any given point, and at what risk.
Once we are comfortable with that high-level determination the unconstrained nature of our strategy allows us to seek out the best investments wherever in the world they are.
Investing even in a diverse portfolio of predominantly investment-grade bonds – the active ‘core’ of the portfolio – is not without risk, the most significant of these being their sensitivity to a change in interest rates (duration), and the chance of failure to pay investors their due interest (credit default).
We constantly monitor and adjust the portfolio’s exposure to these and other risks, typically using derivatives to do so given their greater liquidity, and the ability to ‘fine-tune’ more closely than is possible by buying and selling the bonds in the portfolio.
We also use derivative instruments to add a small amount of additional return through a series of ‘relative value’ alpha trades, when we have specific conviction.