Our Approach

Investment Philosophy

As conservative investors, our choice to manage corporate bonds, exclusively, is the result of capitalizing on the structural inefficiencies of the corporate bond market as well as maximizing favorable risk/reward scenarios that exist within domestic fixed income markets. The structural inefficiencies of the corporate bond market are predicated upon two distinct factors:

  1. The fragmentation of the market (there is not a central pricing source)
  2. Investors’ tendency to overreact to events thus providing a mispricing of securities.

CAM follows a conservative “bottom-up value” investment discipline that seeks out companies that are currently out of favor with investors, but poised to improve. The primary focus is preservation of capital with a secondary, but extremely important, emphasis on total return. Our portfolios are not managed to a benchmark in setting overall portfolio characteristics via tracking error. We believe there are some inherent problems with this process. We do look to outperform respective benchmarks over a full market cycle, but the prime objective is an absolute return. We do not utilize interest rate anticipation tactics. We look to minimize the impact of macro-economic factors, such as interest rate risk, from the investment process by employing defensive maturity structure within the portfolio.

Investment Process

The process is similar to that of conservative equity value managers. It is driven by the search for inexpensive assets.

First, we identify those industry groups and corporations that are trading cheap relative to the market and their historical relationship to the market.

Second, through fundamental credit research, we select those issuers who exhibit asset strength and an appropriate capital structure.

Third, we narrow the candidates by selecting those with the stronger potential to increase revenues and cash flow.

Fourth, we further narrow the list through a preference for those remaining candidates that have a better competitive position in their industry group.

These remaining companies form our “focus list.” The portfolios are constructed and managed through our proprietary analytical discipline that measures the yield of a security to our assessment of that security’s quality. Selections to buy and sell are made on the basis of the constant comparison of the bond issues of companies on our “focus list.” In this discipline, we are looking for a higher yield relative to our quality assessment. The constant objective is to improve the quality, increase the yield and shorten the maturity.

Credit Research & Portfolio Management Process

Risk Management

Our investment strategy utilizes a bottom-up value discipline. Risk management is an integral part of the investment process. This is important given our primary objective of preservation of capital. In addition to security selection, risk management is employed through portfolio diversification, liquidity and constant monitoring of individual credits. Liquidity and safety are enhanced by investing only in bonds with an initial issue size generally in excess of $100,000,000. In efforts to mitigate risk, our targeted maximum industry group exposure is approximately 15%. Targeted sector exposure is capped at approximately 20%, with an exception of up to 30% in Financial Institutions due to sector size within the Investment Grade Corporate Universe.Individual credits are monitored continuously; a deterioration of 10%, relative to the index, from initial purchase triggers a mandatory credit review in which appropriate action is promptly determined.

Within High Yield and the High Yield portion of Broad Market

Portfolios are constructed with a maximum exposure of approximately 12% per industry. Additionally, any sector may represent approximately 5% of the HY portion of the portfolio value or approximately 125% of the Barclays High Yield Index industry sector weighting (whichever is greater), except the consumer cyclicals and non-cyclicals which can be weighted up to approximately 150% of the Barclays industry sector weighting.

For High Yield securities across all programs

Individual credits are monitored continuously; a security price decline of approximately 15% relative to broader benchmarks triggers a mandatory Credit Committee review. This action will result in a hold or sell decision. Should a price decline by approximately 25% or more, relative to broader benchmarks, that position will be sold.

  1. “Sector is defined as Bloomberg Barclays Level 3 classification and industry group is defined as Bloomberg Barclays Level 4 classification.”