Taxable Fixed Income –
Intermediate and Core
Philosophy | Process | Performance
Philosophy
Quality, stability, and predictability are the hallmarks of Reinhart Partners’ fixed income management philosophy. We believe that successful fixed income management is a product of maintaining a conservative discipline that does not take undue risks in pursuit of yield, but rather selectively takes on moderate risk exposures when the risk/reward tradeoff for that exposure is favorable. Click on the bars below for further explanation of our conservative risk management discipline and how we adjust risk exposures based on risk/reward favorability.
Risk Spectrum
(Click graphs to view risk details)
Experienced Portfolio Management Team
Portfolio managers average 17 years of investment management experience
Performance Incentive Plan
Aligns managers’ and clients’ interests to reward long-term performance
Interest Rate Risk – Low Exposure
Conservative, long term focus
It is difficult, if not impossible, to predict short-term movements in interest rates. Therefore, Reinhart Partners portfolios’ durations will not substantially deviate from the duration of the underlying benchmark, and we will not adjust portfolio durations based on cyclical factors affecting interest rates.
We will allow portfolios’ durations and exposures to different parts of the Treasury yield curve to differ slightly from their benchmarks based on longer-term secular factors and interest rate trends.
Credit Risk – High Quality Focus
High quality investment grade credits provide the best long term risk/reward profile
Lower quality investment grade credits have significantly higher default rates and significantly greater spread volatility than higher quality investment grade credits. As a result, the higher yields of lower quality credits do not result in sufficient excess return to compensate for their greater risk. In fact, they often underperform higher quality credits. Higher quality investment grade credits do offer sufficient excess returns versus Treasuries to significantly outperform with low additional risk.
Structure Risk – Selective Exposure
MBS provide a favorable long-term risk/reward profile
Reinhart Partners will take on structure risk in clients’ portfolios in cases where the additional yield offered adequately compensates for the structure risk. Over most longer-term periods, the additional yield offered by GSE-guaranteed MBS will result in superior returns to Treasuries, and so we include these MBS in our portfolios as a way to generate excess returns while diversifying our risk exposures. In most cases corporate and US government agency bonds with call features do not provide sufficient additional yield over longer time horizons and are not included.
