“CORE TOTAL RETURN ”
The “Core Total Return” management product is a strategy that seeks to maximize investment performance on a total return basis by using domestic investment grade securities with maturities that generally range from zero to thirty years and that maintain over time a portfolio duration between four and one half and five years, which is similar to that of most fully discretionary investment grade fixed income indices. Since our fixed income management team is always looking for opportunities to lock-in attractive yields for the longer term and take advantage of opportunities and inefficiencies in the market, they are seeking to outperform the benchmark over a three to five year period.
At WCB, this and other fixed income products are managed based on the philosophy that, over the long-term, fixed income returns are primarily a function of income and interest on income because 95% of the cumulative total return for the U.S. domestic fixed income indices generally comes from interest and compounding. Hence, the execution of our strategy involves an ongoing effort to maximize income within the respective credit and maturity guidelines of each client. This is accomplished by continuously assessing the relative value of the major sectors of the bond market. The firm employs a three-step, decision-making process to tactically position portfolios relative to the yield curve and to over-weight or under-weight selected market sectors such as corporate bonds, mortgage backed securities, assets backed notes; and if pre-approved by clients in their written guidelines, to include in portfolios a small allocation of other fixed income instruments such as private placements (144-A’s), high yield debt, and Treasury Inflation-Protected Securities (“TIPS”).
WCB’s approach calls for making many small divergences relative to the benchmark in order to enhance performance. Step one is yield enhancement through sector allocation, adding value by opportunistically overweighting corporates and/or mortgages. Step two, Valuation Analysis focuses on individual security selection through the use of quantitative and qualitative security analysis of corporate and mortgage backed instruments, and the structure of the yield curve. The third step, Maturity and Risk Level Management incorporates duration/maturity risk management accomplished through minor duration adjustments relative to the selected benchmark, generally +/-20% or less, while adhering to the client’s specific security, sector, quality and duration requirements.