In 1913, the 16th Amendment to the Constitution made income tax a permanent fixture in the US tax system. Since then, Uncle Sam has been a silent partner in every investment made by US investors, and has felt like a majority shareholder for high net worth investors. Our active tax-exempt fixed income strategies begin with an analysis of each client's tax rate and then are monitored on a continual basis. We also employ a crossover strategy that actively measures the tax-adjusted yield value of municipals versus comparable US Treasuries and other taxable instruments. We will invest in taxable issues when they offer superior returns over municipals. We customize each portfolio to match our clients' goals and expectations with quality fixed income. High quality fixed income gives our clients liquidity, stable income, and principal protection. Essentially, we construct a "sleep-well-at-night" portfolio tailored to each client's needs. These actively managed accounts are designed either as stand-alone portfolios or as overlays to an existing equity portfolio managed at SAC. For further information, please read our Disclosure Statements.
- The strategy provides after-tax stable income and principal protection.
- Provides a high degree of liquidity with an asset allocation weighted in high quality securities.
- Asset allocation is driven by a two-tier approach: a "top-down" view of global markets followed by SAC's qualitative and quantitative "bottom-up" approach.
- Top-down duration management is maintained within a band relative to the benchmark. Decision-making points that determine band optimization are based on key macroeconomic data/sociopolitical issues, fundamental research reviewing credit rating sector reports, supply and demand analysis combined with the client's guidelines, diversification requirements, and portfolio benchmarks.
- Bottom-up yield curve exposure is actively managed by senior portfolio managers utilizing quantitative swap models based on historical yield spread relations, relative value, credit worthiness, and potential price and income appreciation of a particular sector and index in the context of our top-down view.
RISK MANAGEMENT STRATEGY
- Utilize a forward-looking approach. Identify, analyze, quantify, and prioritize the types of risk affecting portfolio investments across four dimensions: bottom-up, core, tail and liquidity risk.
- Diversify across multiple risk factors. Identify the acceptable level of risk the investor is willing to undertake to achieve a certain level of return. Target return contribution.
- Focus on risk factors, not just asset classes. Identify where we are within the risk cycle, seek asset classes that provide more upside or help to avoid or control downside volatility within the cycle.
- Analyze correlations and active risk for impact of market movements on portfolio risk targets.
- Utilize tactical indicators to capture sentiment and turning points.
- Add uncorrelated or negatively correlated assets as diversifiers during downturns, i.e., TIPS, cash, gold, and other commodities.