Fixed Income Securities
Corporate Fixed Income
Philosophy
Ameritas Investment Partners’ corporate fixed income team believes the institutional credit markets 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 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 Ameritas Investment Partners, we attempt to make use of these pricing inefficiencies by selecting the optimal security for addition to our clients’ portfolio. We believe disciplined adherence to our credit and sector-focused and duration-neutral philosophy will consistently generate higher risk-adjusted returns potential 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 purchased in the portfolio. Ameritas Investment Partners’ objective is to outperform the client benchmark for a given level of risk while adhering to client guidelines and constraints.
Macroeconomic views: Ameritas Investment Partners begins its credit process at the macro level. Ameritas Investment Partners’ 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 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 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. Ameritas Investment Partner’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 Ameritas Investment Partner 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. Ameritas Investment Partner’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:
- Securities with attractive credit fundamentals
- Securities that, in our view, offer compelling relative value
- Securities, market sectors or themes as outlined by the Ameritas Investment Partners strategy committee
Our sell criteria include:
- 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
Mortgage-Backed Fixed Income
Philosophy
Ameritas Investment Partners mortgage and asset-backed team seeks to provide higher, risk-adjusted returns potential by identifying undervalued securities through a disciplined investment process coupled with prudent risk diversification.
Strategy
Process: The mortgage-backed securities team applies both top-down and bottom-up analysis on every security that is a candidate for investment. Top-down analysis is done on a quarterly and annual basis to establish the sector outlook, originator/servicer profile and relative value. Candidate securities are verified as eligible against investment compliance and investment policy guidelines. The mortgage-backed securities team uses bottom-up analysis to identify fundamentally sound credit.
Security Selection: The mortgage-backed securities team develops a thorough understanding of all aspects of a transaction, including rating methodology, collateral characteristics and deal structure before selecting specific securities.
The team develops an understanding of each rating agency’s overall method for the asset class. We procure all available transaction reports, including pre-sale reports, press releases and surveillance reports and we stay in contact with the rating agency analyst regarding trends.
Ameritas Investment Partners’ mortgage-backed securities team team examines the distributions of all collateral characteristics, not just the averages, to identify any outliers in distribution. We compare collateral characteristics to prior deals to identify any underwriting drift and we compare collateral characteristics to peer deals to determine if risk is adequately priced in the market.
In reviewing the deal structure of the securities, we ask questions, such as: What levels of loss results in reduced yield and lost principal? How do the levels above compare to historical experience of sector and originator? Does level of credit enhancement appear consistent with collateral risk? Does level of credit enhancement appear consistent with peer collateral? What combination of deal characteristics and scenarios impact rating?
Surveillance and Monitoring: The mortgage-backed securities team team applies both quantitative and qualitative methods to help maximize performance of the portfolio. Quantitatively, monthly performance data are imported into the database as efficiently as possible. The team uses the database on an individual security basis for trend analysis and across the universe of transactions to spot outliers. Qualitatively, we continuously monitor Wall Street and rating agency commentary. We make phone calls to securities’ trustees to discuss discrepancies in remittance reports versus Prepayment Speed Assumption (i.e. estimated prepayment rate of a loan portfolio) and we monitor collateral characteristics throughout the transaction to aid in spotting anti-selection.