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PHILOSOPHY
The primary objective of Berkeley Capital Management’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 
Interest Rate Position
Coupon Weighting
Specific Issue Selection
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.
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