The Taxable Fixed Income Strategies of ABLS use our unique valuation framework and rigorous credit review criteria to develop portfolios of durable credits purchased at attractive rates. Credit valuations are frequently divorced from their underlying fundamentals and subject to unjustifiably high levels of volatility, an inefficiency that can be exploited through active management to boost fixed income returns. Our value-based, disciplined investing process aims to:
- Preserve capital through independent research
- Invest in credit only when a margin of safety* exists
- Drive portfolio construction with value opportunities
- Take a long-term approach
- Foster a culture of transparency, process discipline, and open debate
Criteria for Investment:
We develop our taxable fixed income portfolios bond by bond, employing fundamental analysis and a proprietary valuation framework to filter the market for potentially enticing values. We next buy credits with a margin of safety* that changes depending on the bond's kind and grade, and sets a price cushion that we feel will define an attractive price for the bond in the long run, taking into account credit markets' cyclicality. We repeat our investment procedure to create portfolios of high-yielding, long-term credits.
We want to buy long-term loans that match the following conditions for investment:
- Durability: Issuers in our portfolios must have a long-term revenue model and/or collateral. We also look at the company's ability to survive a variety of regulatory and economic circumstances.
- Transparency: The issuer's business model and financial structure must be identifiable and understandable to us. We are less likely to invest in an issuer whose business model is sophisticated or whose capital structure is esoteric.
- Management: Identifying a lasting credit requires strong management, and we look for management teams that take a balanced approach to all capital suppliers.
- Structure: The ability of the issuer to create sufficient internal funds to support its capital structure is crucial. We confirm that, given the underlying volatility of cash flows, the issuer does not have excessive debt or an unhealthy reliance on capital markets for funding.
*We feel we have a margin of safety when we can reduce both business and pricing risk (when we believe there is a big discount to intrinsic value at the time of acquisition – we want to purchase at 75 percent of our estimate to intrinsic value or less).
-Investing in the bond market carries risks such as market, interest-rate, issuer, credit, and inflation risk; when redeemed, investments may be worth more or less than the original cost.
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