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Philosophy

The primary objective of Berkeley Capital Management LLC’s Fixed Income investment policy is to add value through security and sector valuation analysis without depending on the uncertainty of interest rate forecasting. We design portfolios aimed to provide superior investment returns at low levels of risk while allowing for maximum financial flexibility. We work closely with clients to identify strategic portfolio objectives based on their risk tolerances and constraints.


Investment Process

BCM’s Fixed Income investment process incorporates a disciplined, conservative approach to active management. It is active because we believe that periodically repositioning a portfolio’s emphasis toward those fixed income characteristics that will benefit most during certain phases of the business cycle can produce consistently superior performance. Part of this portfolio repositioning is an intensive look at earnings and revisions of earnings estimates by corporate bond issuers, with a view to invest in companies which will improve their ability to service their debt in the future. We overlay all of this analysis with a macro review of the current position in the business cycle.

• Business Cycle Analysis – Economic activities generally move in cycles, lasting three to six years. Since the late 1950s, the typical business cycle has lasted approximately 65 months, with the expansion phase forming the longest segment within the cycle. Factors which change over the course of a cycle include prices as well as output, markets for securities and commodities, spending and saving patterns, and the flow of goods to consumers and business enterprises. We utilize major economic indicators to develop an estimate of the current cycle phase which is then applied as a primary input to our Fixed Income investment management process.
  
  
• Interest Rate Position – BCM’s active Fixed Income investment process limits the duration exposure of its portfolios to plus or minus 10% of the benchmark or index against which it is managed. This allows the portfolio to maintain a risk profile near the targeted benchmark while adjusting the other portfolio characteristics (i.e., sector, quality, coupon) to add value. A decision to revise the duration characteristic of a portfolio incorporates our business cycle discipline and is at its most bullish position during a late contraction and its most bearish position during a peak and early contraction.
  
  
• Coupon Weighting – Recognizing that the price volatility of a bond increases as its coupon decreases, BCM’s process provides the framework to modify the coupon exposure of the portfolio. Portfolio weighted average coupon is adjusted to reflect our business cycle and interest rate outlook.
  
  
• Specific Issue Selection – Our security analysis focuses on earnings and balance sheet forecasts as a means of augmenting the historical perspective of credit analysis. By monitoring the trend in estimates, it is possible to identify and capitalize on candidates for credit rating changes before the action is announced by the rating agencies.