Much as truly active equity investing can result in greater returns for investors (even net of fees), so too can active management of fixed income securities. We’re big believers in the power of active management (we wrote a whole article about what it is and why it can be beneficial). That said, how do you actually achieve better returns using active management in a less liquid environment like bonds? Here’s how we approach it at CDI:
Our fixed income philosophy at CDI is anchored in total return. Simply put, we take risks only when we are compensated to take them, and we measure outcomes on an after-tax total return basis. This philosophy is pivotal in building long-term, durable income streams for our clients. By actively managing our portfolios, we can adapt to changing market conditions and identify opportunities passive strategies might miss.
We utilize a laddered portfolio strategy, which involves overweighting and underweighting various risk factors based on their relative value — whether it's maturities, sectors, or credit quality. This strategy is supported by empirical data and comprehensive analysis (which we’ve written about before), offering what we believe is the best opportunity to maximize after-tax, risk-adjusted total returns.
At CDI, our in-house research capabilities are at the heart of our active management strategy. We break our research into two main segments: top-down and bottom-up.
Top-Down Research: This involves developing time series data to gauge the overall strength of the economy and inflation. Key indicators include:
Bottom-Up Research: This focuses on interest rates (both nominal and real) and other market internal measures. Key components include:
Our research identifies ideal bonds to execute our strategies, thoroughly reviewing business fundamentals, balance sheets, and income statements.
CDI's trading capabilities are enhanced by our data-driven approach, translating market insights into what we consider a tangible investment edge. We seek to maximize relative value in sourcing bonds for our portfolios, leveraging technology and market insights within our robust risk management framework. Our proprietary risk management system ensures timely understanding and assessment of risks, allowing us to navigate market volatility effectively.
We believe in the power of active management and the value it brings to our clients. Our data-driven, research-intensive approach ensures that we deliver consistent, superior returns while managing risks effectively. By combining top-down and bottom-up research, leveraging technology, and maintaining a disciplined risk management framework, we provide a robust strategy that stands out in the fixed income landscape. We never completely abandon a risk factor but instead continuously assess and adjust based on real-time data.
If you're interested in learning more about how CDI's active management strategies can benefit your fixed income investments, feel free to reach out to our Portfolio Managers — they’re always happy (truly) to speak directly to clients or partners!
IMPORTANT DISCLOSURES
The information and statistics contained in this communication have been obtained from sources we believe to be reliable but cannot be guaranteed. Opinions and statements of financial market trends that are based on market conditions constitute our judgment and are subject to change without notice. Any projections, market outlooks or forecasts discussed herein are forward-looking statements and are based upon certain assumptions. Other events that were not taken into account may occur and may significantly affect the returns or performance of these investments. Any projections, outlooks or assumptions should not be construed to be indicative of the actual events which will occur. Please remember that past performance may not be indicative of future results.
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