DEFENSIVE FIXED INCOME

The Defensive Fixed Income Portfolio is intended to be used in asset allocation for purposes of managing risk and playing defense over a period of years. The primary focus here is on the return of principal first, and the return on principal second. Our intent is to hold portfolio positions to maturity. While there may be market fluctuations in bond values prior to maturity, these fluctuations are of little concern. The average duration of maturity in this portfolio is designed to be shorter than most fixed income strategies. The portfolio is not an appropriate alternative for short-term liquid investments such as a money market fund.

The Defensive Fixed Income Strategy

1. Quality: Standards for credit quality measured by cash flow coverage of debt service and by net debt to capital on the balance sheet.

2. Maturity: Average maturity of 2-4 years; no maturity longer than 5 years.

3. Return: Seeks a competitive yield to maturity.

Portfolio manager: Charlie Mahar

The Investment Process:

  1. Valuation: Discounted valuations have demonstrated superior long term results.
  2. Profitability: Return on Equity and Free Cash Flow margins provide for intrinsic value.
  3. Strategic Analysis: A sustainable, competitive advantage provides on-going opportunities for growth.
  4. Qualitative Judgement: Quality of management coupled with industry bias can also provide growth opportunities.
  5. Portfolio Management: Regular monitoring of each portfolio position as to expectations, catalysts, and results.