Fixed income is one of those corners of investing where process matters a lot more than people realize.
On the surface, many strategies appear similar. Same benchmarks. Same sectors. Same language around risk management and discipline. But when you zoom out (and especially when you look at how decisions actually get made) the differences start to matter.
A lot of those differences come down to structure:
That’s what this conversation is about.
Not why boutique firms sound different, but rather why we behave differently, and when/where it counts.
This conversation digs into how we, as boutique fixed income managers, actually operate day to day, covering decision-making speed, portfolio construction, incentives, and client access.
If you want the full context, examples, and nuance (including how we think about ladders, generalist decision-making, and client alignment), the video is worth your time.
For those of you who prefer your insights textually, carry on!
Markets move quickly, especially when uncertainty creates dislocations.
In fixed income, those dislocations are often short-lived. They show up when fear, headlines, or forced selling temporarily overwhelm fundamentals. Opportunities might exist, but often only briefly.
In large, highly segmented organizations, decisions often move through layers:
By the time a consensus forms, the moment might have passed.
At a boutique, decision-making tends to look different. Fewer layers. Broader mandates. Direct accountability for the entire portfolio. That doesn’t mean reckless speed; it means informed speed, where the people making the call understand both the credit and the portfolio-level implications.
At CDI, when we want to move quickly on a short-windowed opportunity, we make a decision between the two of us. It’s one conversation (backed by fundamental research and sound processes, obviously), one decision, one action. This type of speed to decision led to CDI buying LA DWP bonds after the LA fires and banking sector bonds after the collapse of Silicon Valley Bank. Yes, risk was involved; but we felt there were idiosyncratic reasons those credits were undervalued (and in both cases were proven correct).
In our experience from working at larger shops, those types of plays would have taken days or weeks to move through the various layers required to act on them… which would have hurt client earning potential given what transpired.
We’ll be the first to tell you that sector expertise matters. Deep credit work matters. We both came up as credit analysts before jumping to PM roles. But that vantage point leads us to our belief that portfolios don’t live in silos.
When every analyst is responsible only for their slice of the market, the “best idea” often becomes the best idea within that silo, not necessarily the best idea for the portfolio as a whole.
A generalist mindset forces a different question: For a given amount of risk, where does that risk work hardest right now?
That requires looking across sectors, across maturities, across relative value (and being willing to say no when an idea doesn’t improve the portfolio’s total outcome, even if it looks attractive in isolation).
We believe this is one of the quieter advantages of boutique structures: fewer handoffs, clearer accountability, and a constant focus on the portfolio as a cohesive whole, not a collection of parts.
One of the least discussed drivers of investment outcomes is incentives.
In very large firms, success is often measured relative to a benchmark. Asset gathering matters. Scale matters. Performance still counts, obviously, but it isn’t the only thing that counts.
At a boutique, incentives tend to be simpler and more direct. At least at our boutique, we as portfolio managers are judged on outcomes that flow straight through to clients. That alignment changes how decisions feel internally.
It’s easier to prioritize client outcomes when there’s no abstraction layer between the decision and the person affected by it.
Over the years, we’ve been pitched plenty of alternatives to the actively laddered portfolios we favor. And while those alternatives might look compelling in isolation, we stand by our original research.
By overweighting and underweighting specific rungs, we believe we can express views without overconcentrating risk. Ladders aren’t locked into a single rate bet, and we’re not constantly rebuilding the portfolio when conditions change.
We believe that structure matters just as much as security selection.
Benchmarks are useful: They provide context and can help frame conversations. But clients don’t experience their financial lives through an index… they experience them through after-tax outcomes, communication, transparency, warmth, and whether they understand why decisions are being made (especially during volatile periods).
We often talk about being “benchmark aware but benchmark agnostic,” and for good reason. In our minds, the prime mandate is total return on behalf of individual clients. Not a large grouping of “clients”, but rather Mr. and Mrs. Smith, specifically. Yes, we know what the benchmarks are doing. But far more important is whether our customized portfolio constructions align with Mr. and Mrs. Smith’s tax bracket, or upcoming retirement, or a pending home purchase, or whatever else we know is happening in their financial lives.
If you’re a massive fund running billions upon billions of dollars across thousands upon thousands of clients, you’re almost certainly wrappered into a pooled vehicle. That’s when benchmarks and indexes become the name of the game… you simply can’t keep track of that many individual clients at a “white-gloves” level.
Servicing clients at that kind of depth is a huge reason why we wanted to run the fixed income desk at a boutique instead of continuing on at a large shop as we have in our collective pasts.
One of the most tangible differences clients often notice when working with a boutique firm is access.
And we don’t mean access to reports or quarterly letters, but rather access to us. The ability to call us, get us on the phone, and to ask questions. Not a “phone PM” but the actual decision makers with buy/sell power.
Transparency shouldn’t be performative. For us, it’s about accountability. We own our wins and cop to our mistakes. We publish weekly commentaries directly to our clients letting them know what we’re watching, why we’re making the decisions we’re making, and what we think might be on the horizon.
That level of accountability shapes behavior on both sides of the relationship. And over time, it becomes a meaningful part of the investment experience itself.
The point isn’t that “boutiques are better” by default. It’s all about what you want, how you want it, and what you value.
We believe structure matters. Incentives matter. Speed matters. And most importantly, we believe total return outcomes for Mr. and Mrs. Smith matters most of all. But perhaps closely behind that comes how it feels working with us. We’ve built decades-long relationships with RIAs based on the trust, warmth, access, and accountability we strive for every day. That’s what we think fixed income should look like.
IMPORTANT DISCLOSURES
The information contained in this communication has been designed for general informational, illustrative, and educational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Moreover, the information provided is not intended to provide any investment advice whatsoever. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product, or any non-investment related content, made reference to directly or indirectly in this communication will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. No discussion or information contained herein serves as the provision of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing. City Different Investments is neither a law firm nor a certified public accounting firm and no portion of this content should be construed as legal, tax, or accounting advice.