Breckinridge invests in five primary fixed-income sectors in our high-quality taxable bond portfolios: taxable municipals, corporates, supranationals, agencies and treasuries. It is our belief that a primary allocation to taxable munis and corporate bonds, with a secondary allocation to U.S. government and supranational bonds, results in a high quality bond portfolio with a competitive risk-adjusted return and favorable liquidity characteristics. We believe diversification is improved as municipal, corporate, and government credit cycles are not necessarily highly correlated.

Sector allocation decisions are dynamic and driven by the firms Investment Committee, which includes representatives from credit research and portfolio management. As market conditions and relative values change, we actively manage portfolios to optimize sector weightings within the context of client parameters and the Investment Committee recommendations. Below is our general investment rationale by sector.

High-Grade Corporate Bonds

Supranational Bonds

• High Quality: Credit strength is based on preferred creditor status and capital commitments from government shareholders
• Enhanced Liquidity: With larger average issue size, supranational bonds improve taxable portfolio liquidity
• Incremental Spread Pickup: Supranationals typically offer incremental spread relative to US Treasury notes

US Agency Notes

• Superior Liquidity: Agency bonds are more liquid than taxable municipals and corporates
• Incremental Spread Pickup: Agencies offer incremental spread relative to US Treasury notes

US Treasury Notes

• Superior Liquidity: Lowest bid-ask spread and deepest market

Customization abilities are also available for clients who wish to have a more targeted sector allocation.

Sector Allocation Process

Breckinridge utilizes a top-down and bottom-up investment process to actively manage sector allocations.

Our Investment Committee meets regularly and is responsible for establishing our top down, macro, sector and yield curve outlooks. The committees recommendations are manifested in the management of portfolio maturity, duration and sector targets. Sector asset rotation changes are driven by relative valuation, supply/demand trends, portfolio liquidity needs and overall sector outlooks. Through working closely with the firms analysts and traders, the manager is well positioned to assess sector relative values.

As a research-driven firm, our independent fundamental credit research framework is the bedrock of our investment process. Our rigorous credit research process includes a comprehensive assessment of issuer fundamentals. Through our analysis, we identify and internally rate high-quality municipal, corporate and government-related issuers. Breckinridge corporate credit research aims to achieve the same high level of credit quality as with municipals.

To learn more about our taxable sector allocation process, please contact our Consultant Relations team at cr@breckinridge.com