Fixed Income Investing is more than a pastime for Alpine Hill Advisors. Our President, Brandon Pacilio explains our process in an interview with Asher Rogovy on the NAAIM Confidential Podcast.
Click here to read more about Alpine Hill Advisors’ take on Fixed Income Investment.
Transcript:
So it’s funny with the equity component, it’s an extremely liquid market. Everyone had this conception that bonds, over the counter product, it’s a little bit esoteric, maybe there’s not as much liquidity, but in actuality today’s bond markets are pretty efficient.
I say pretty efficient because they’re not perfectly efficient. And that’s when you can provide alpha for your clients. So corporate bonds across the board, you have different ECNs, meaning market makers, where you’re able to source liquidity for your bonds.
If you go on to the different custodians, you could see their bond offerings. You have relationships with bond dealers. So there’s really a robust market for firms like ours to find and execute bond strategies for different clients.
So the way we think about fixed income, there’s really two main components. So for some of our clients, we use fixed income to give them a synthetic paycheck when they’re maybe reaching retirement or in retirement. And that’s unique with bonds because were able to build out customized laddered portfolios. So we know exactly when bonds are maturing, when the coupon payments are coming due. And we can give our clients that income projection, which is unique compared to where you’re buying a bond fund, but it doesn’t have the same characteristics as what a bond is.
Bonds have permanence in definition, meaning that, you know clearly when the money’s coming versus a bond fund is, yes, you get that monthly income stream for it, but if there’s a forced selling like we saw in March 2020, the value of that fund is going to drop precipitously and you might not recoup that value where when you own the individual bond, you might have paper losses, but you still know at maturity you’re going to get your money. So that’s one component.
So it’s the fixed income stream, synthetic paycheck, bond ladders for retirement. But then also we look at bonds from a total return perspective too, because we believe in the bond markets, there’s really good opportunities for risk adjusted returns. If you do your homework and you understand the credit, meaning the individual corporation or municipality, you’re making that bet of, is this going to pay me back? And if it does, you could take advantage of that. So that’s the second component of bonds and that’s where maybe someone who’s not reaching retirement, but sees really good value in the total return play from bonds because from a risk adjusted basis it’s a little bit higher than equities. But you can get similar type of returns, specifically in the high yield markets, meaning double B or below from a credit rating. We also like to take advantage of that space as well.
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No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Alpine Hill strategies are disclosed in the publicly available Form ADV Part 2A. Although fixed income generally present less short-term risk and volatility risk than stocks, fixed income does contain interest rate risks, the risk of issuer default, issuer credit risk, liquidity risk, and inflation risk.
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