Philosophy
Summit’s Corporate Fixed Income team believes that the institutional credit markets in which they participate are generally efficient, and the interest rate markets are extremely efficient. As a result, we will generally position a client’s portfolio to be duration-neutral relative to the client's chosen benchmark. However, we believe that the market often incorrectly prices the fixed income securities of a specific credit, group of credits, or entire sectors relative to credit or industry fundamentals, ranking within the capital structure, or yield curve position. At Summit, we attempt to exploit these pricing inefficiencies by selecting the optimal security for addition to our clients’ portfolio. We believe that disciplined adherence to our credit-focused and duration-neutral philosophy will consistently generate superior risk-adjusted returns relative to our benchmark.
Strategy
Understanding the client: Portfolio construction begins with the client. What are the client’s objectives? What is the client’s tolerance for risk? Are there any portfolio constraints that preclude the purchase of certain securities? What are the client’s investment guidelines? This information will not only determine the benchmark used to gauge portfolio performance, but will directly affect the types of securities ultimately purchased in the portfolio. Summit's objective is to outperform the client benchmark for a given level of risk while adhering to client guidelines and constraints.
Macroeconomic views: Summit begins its credit process at the macro level. Summit's Strategy Committee meets quarterly and is comprised of Managing Directors and Portfolio Managers from each investment discipline. The results of these meetings include our views on the economy, the absolute level and direction of interest rates, and the shape of the yield and credit curves and how we believe they will change. These views are assimilated during weekly credit meetings which the portfolio manager conducts with the team of credit analysts.
Sector Allocation: The Strategy Committee's macro view on the economy is partially expressed through the allocation of the client’s assets relative to the client's benchmark. Views on individual sectors are based on proprietary fundamental research of every major sector with benchmark exposure. Initially, the weighting assigned to a sector is equivalent to the sector's weighting in the benchmark. The next step is to overweight those sectors which we believe will outperform the market and underweight those sectors which we believe will underperform the market.
Security Selection: The individual security selection process takes into account the client’s objective, our sector weightings, our proprietary credit analysis, and our preferred placement on the yield curve while maintaining duration neutrality. Summit's credit team conducts a thorough credit review on every security prior to purchase. The goal of our credit analysis is to identify bonds that offer "relative value," or those that offer the best risk/reward characteristics in a given sector.
Ongoing Portfolio Management: The portfolio management process at Summit is dynamic and continuous. Credit spreads are monitored on a daily basis. In addition, the portfolio manager performs a monthly analysis of the portfolio’s return versus that of the benchmark to better understand our portfolio’s performance. Summit's team of credit analysts conducts a thorough quarterly credit review for each of the companies in the portfolio. Buy and sell decisions are disciplined as outlined below.
Our purchase criteria include the following:
- Securities with attractive credit fundamentals,
- Securities that, in our view, offer compelling relative value,
- Securities, market sectors or themes as outlined by the Summit Strategy Committee.
Our sell criteria include the following:
- Securities whose credit fundamentals have deteriorated
- Securities have become fully-valued as other buyers recognized the relative value,
- Changes in our view or outlook of a sector or the overall economy.
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