The Core Plus Bond Strategy (“Strategy”) continues to deliver strong, risk-adjusted results through a variety of market conditions. We sat down with the portfolio management team to discuss the contributing factors of this success as well as Strategy positioning moving forward.
What are the potential benefits of utilizing Penn Mutual Asset Management’s (“PMAM”) Core Plus Bond Strategy in a diversified portfolio?
Our disciplined investment process and value-based approach to managing fixed-income assets continues to deliver consistent, value-added results for our investors. The Strategy information ratio of 1.0 since inception reflects strong performance relative to benchmark on both an outright and risk-adjusted basis. We believe our seasoned team’s repeatable process and ability to be more nimble and opportunistic than larger fixed-income peers will enable us to build on our long-term track record of success.
Asset prices are currently being distorted due to the Federal Reserve’s (Fed) purchase activity. Where do you see the best relative-value opportunities?
Success among core plus strategies is often determined by a manager’s ability to avoid the most overvalued segments of the fixed-income markets. We believe that is especially true today in an environment where Fed purchase activity has extended valuations across most credit spread sectors. We see short duration or floating rate securitized assets as offering the best relative value while remaining underweight fully valued government agency residential mortgage–backed securities, which are vulnerable to a reduction in Fed purchases.
Why fixed income in the current inflationary environment?
High quality fixed-income assets continue to offer valuable diversification for portfolios, especially during periods of extreme market stress. We believe that fixed-income assets still provide a ballast to your overall portfolio. During periods of rising interest rates, active fixed-income managers have the ability to adjust portfolio duration (interest rate risk) and outperform passive benchmarks. The Strategy remains positioned short duration relative to benchmark as record Treasury bond issuance to fund new fiscal spending programs coupled with mounting inflation risks are likely to keep upward pressure on interest rates.
For more information on the Strategy, contact Chris Fanelli, managing director, business development, at fanelli.chris@pennmutualam.com or (609) 306-7034.
To download a copy of the Q&A, please see the attachment below.
To view the Core Plus Bond Strategy GIPS Composite Report, please click here.
About PMAM
With over $32 billion in assets under management as of April 30, 2021, Penn Mutual Asset Management is an institutional asset management firm located just outside of Philadelphia, PA that has been offering investment solutions and client-focused services since 1989.
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Disclosures
Past performance is not indicative of future results. Investors should be aware of the additional risks associated with investments in non-diversification, undervalued or overlooked companies and investments in specific industries. In addition, investors should be aware of the additional risks associated with investments in non-investment grade (high yield) debt securities and structured securities, which are subject to greater fluctuations in value and risk of loss of income and principal as a result of interest rate risk and economic risk. Additional risks may include those associated with investing in foreign securities, emerging markets, currencies and derivatives.
Risks associated with derivatives include the risks of the underlying instruments, substantially greater gains and losses than the derivatives’ costs due to the leverage. Short sales are speculative transactions with potentially unlimited losses, and the use of leverage can magnify the effect of losses. Diversification neither assures a profit nor eliminates the risk of loss.
The information herein does not constitute investment advice and the strategy described may not be available to, or suitable for, all investors.
Risk Statistics and Benchmark Definitions
Alpha – A measure of the performance of an investment against a market index or benchmark which is considered to represent the market’s movement as a whole.
Beta – A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.
Information Ratio – A ratio of portfolio returns above the returns of a benchmark to the volatility of those returns.
Sharpe Ratio – A measure for calculating risk-adjusted return. The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
Standard Deviation – A measure of the dispersion of a set of data from its mean. It is calculated as the square root of variance by determining the variation between each data point relative to the mean.
Tracking Error – A measure of the divergence between the price behavior of a portfolio and the price behavior of a benchmark. Tracking error is reported as a standard deviation percentage difference.
Bloomberg Barclays U.S. Aggregate Bond Index – An index that is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS and CMBS (agency and non-agency).
Bloomberg Barclays U.S. Corp High Yield – an index measures the USD-denominated, high-yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s Fitch and S&P is Ba1/BB+/BB+ or below. Bonds from issuers with an emerging markets country of risk, based on Barclays EM country definition, are excluded.
S&P 500 Index – An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
