Investment Strategy
At AUIM, portfolios are managed under a uniform investment philosophy which, is driven by a seasoned group of investment and risk management professionals. Performing in a team oriented environment, AUIM focuses on fundamentals, technicals and valuation throughout each step of the investment process.
AUIM begins its investment process with fundamental independent bottom-up research of security and sector, which is communicated amongst AEGON global partners and between different asset classes in order to fully leverage all resources and provide the most optimal service to its clients. AUIM strives to exploit the inherent inefficiencies of the market and outperform the Barclays Capital Corporate Index throughout the credit cycle.
AUIM believes its most valuable attribute to be the results of its rigorous independent bottom-up credit research. Concentration is given to specific industries across the credit spectrum, looking for inefficiencies across the cap structure on which they are able to capitalize. A thorough understanding of the entire competitive landscape helps AUIM to evaluate the strategic positioning of a credit and effectively measure the impending upside and limit the downside performance risk. AUIM has also ingrained a strong culture of risk management into its investment framework. AUIM's risk management policy typically includes limits on lower rated credits, requiring AUIM to consistently look for strong stable performance. This collaboration with its client's objectives has led to successful investment grade returns.
Screening Process
AUIM has ingrained a strong culture of risk management within its investment framework. Adhering to this company culture, they have developed and maintain a rigorous credit review process designed to identify and assess individual investments both as an independent holding and as a credit that will complement its current portfolio and ultimately add value.
Portfolio managers and research analysts collectively contribute to idea generation derived from fundamentals, technicals and valuation. The Investment Grade Team then evaluates various outcomes in search of several strong credits which have excellent total return potential and minimal downside risk. Bottom-up credit analysis is applied to all credits using a proprietary financial model where analysts evaluate financial statements with particular focus on cash flow generation, debt levels and liquidity, monitor current events and project future credit statistics.
An overlay of top-down economic, business cycle and sector trend analysis is applied to investment candidates; this step will impact the reluctance to take credit risk in certain industry or rating categories.
Ultimately, the investment is considered within the parameters of the underlying benchmark. However, the benchmark is a baseline and not a blueprint; AUIM is willing and often does take risk away from the benchmark depending on its underlying fundamental view of a credit.
Portfolio Construction Methodology
AUIM's Investment Grade strategy is focused on fundamentals, technicals and valuation at each step of the investment process for owned and considered credits. The process begins with idea generation and preliminary screening, followed by decision-making based on credit analysis and evaluation and finally the continuous management and monitoring. In constructing each portfolio AUIM's goal is to maximize total return over a full market cycle time horizon.
Fundamental credit research is at the core of AUIM's Investment Grade portfolio construction. AUIM's analysts' broad understanding of industry trends and competitive landscape allow for prediction of a company's prospects over the intermediate term. Coupled with intense focus on cash flow generation, debt levels and liquidity, analysts are able to estimate how well a company's securities will trade relative to other credits.
This fundamental analysis is then collaboratively reviewed by the Investment Grade Team and its general view of the economic outlook, market conditions, position in current credit cycle and overall Investment Grade trading levels determine the final portfolio construction. The portfolio is actively monitored by both the Portfolio Manager and Analysts who actively communicate and conduct regular meetings, which include AEGON global counterparts.
Buy/Sell Discipline
AUIM's buy and sell discipline is a combination of relative value analysis with heavy emphasis on fundamental credit analysis. AUIM focuses on strong credits supported by high industry regard, strong corporate management, and easily predictable financials. The team looks for opportunities where credits are undervalued and misunderstood by the market. In the team based environment, AUIM collectively focuses on both sides of buy and sell decisions typically allowing for the most optimal level of consideration before making a decision.
At AUIM, they view trade decisions in one of two respects:
•Change in credit:
This situation would include any new information that would alter the risk or return profile for the company. Credits typically are constantly monitored by the research group for new information. As circumstances arise, decisions can be made and enacted quickly based on a review by Portfolio Managers, Analysts, and the Distressed Debt Team if necessary.
•Relative value trade:
This situation would include trades driven by movement in security values, general market conditions, or a shift in the overall portfolio strategy.
Trading Execution Strategy
AUIM Investment Grade trades are executed by Portfolio Managers as they believe this improves overall performance by keeping Portfolio Managers in constant communication with Wall Street trading desks and in the center of information flow. Particularly important in the Investment Grade asset class is the Portfolio Managers' knowledge of market technicals; AUIM's strategy allows for Portfolio Managers to be abreast of these technicals regularly. AUIM's Investment Grade Portfolio Managers receive quotes from Wall Street firms then typically establish the best plan of execution based on price and ability to execute trade in the necessary size with the smallest market impact.
Additional Comments
AUIM's history as manager of insurance assets ingrains a strong culture of risk management within their investment framework. They recognize the asymmetrical nature of fixed income and have expertise in managing portfolios with numerous constraints. The heart of this risk management culture within the Investment Grade portfolios is AUIM's rigorous credit review process. This includes the close interaction and involvement in credit underwriting between their research analysts, portfolio managers, and distressed debt team.