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Fixed Income Philosophy

Overview

It is our belief that the fixed income portion of a well diversified portfolio provides a stable anchor to the overall plan. Over the long term, the equity portion rewards investors with greater return while bonds provide important diversification and stability. It follows from this belief that the fixed income portion should not be the riskier portion. For this reason, we mainly focus on investment grade bonds. When we believe the risk/ reward profile is favorable, however, we will opportunistically purchase high-yield securities or exchange-traded-funds (ETF’s) that participate in the high yield securities market.

Corporate Bond Strategy

We look to the areas of the bond market which provide incremental income – this leads us to corporate bonds, our main emphasis for fixed income. We have many years of experience in analyzing companies that issue corporate bonds.

Portfolio Construction

In developing bond portfolios, we favor spreading out maturities over a number of years to reduce the reinvestment risk. Our typical purchase is an intermediate bond with a maturity of 5 to 8 years. The major issuers in this maturity range tend to be financial institutions. We have extensive experience in analyzing financial entities, so our client’s bond portfolios will typically have representation in this sector. We diversify across industrial companies as well, and to a lesser extent utilities. For high tax bracket clients in taxable accounts we also utilize tax exempt bonds – we make these determinations based on the tax equivalent yield and relative credit quality.

For most portfolios, we favor investing in individual bonds instead of bond funds. The yield to maturity is known at the time of purchase and as long as the bond is held to maturity, the investor knows the return. For bond funds, however, there is no maturity and the net asset value of the fund can change daily.

Institutional Network

Since bonds, unlike stocks, are not traded on an exchange, it is important to have multiple dealer relationships. Over the course of many years of experience investing in bonds, we have built up relationships with a number of broker/dealers. We have the advantage of dealing with multiple firms in the bond business. Some have municipal bond expertise, some specialize in corporate bonds. A few of them offer economic or credit research, some specialize in transacting in small quantities. The advantage is that we are not confined to dealing with one or two firms when transacting bonds.

 

©2017 Graybill, Bartz, & Associates, Ltd.
135 S. Cottage Hill  |  Elmhurst, IL 60126  |  Phone: 630.941.9460  |  Fax: 630.832.3491  |  Email: info@graybillbartz.com