Investment Objective
The Strategic Bond strategy seeks to maximize excess returns versus the Bloomberg Intermediate U.S. Aggregate Index over the long term.1
Investment Philosophy
The Strategic Bond Strategy is an actively managed strategy that seeks to achieve positive returns by investing across a broad range of fixed income sectors, securities and derivatives.
The Strategy combines "best ideas" from macro top-down and credit bottom-up teams across PGIM opportunistically using asset class and sector ideas to find alpha generating trades.
Portfolio positioning at any given time is based on where we believe the most attractive risk-adjusted values lie across the investable universe.
The Strategy is designed to provide flexibility to respond to changing market opportunities to both generate alpha and to mitigate downside risk, diversifying across individual issuers, industries and country positions.
As for security selection, the Strategy takes take an actively-managed, relative-value driven approach. Within our corporate bond allocation, for example, we continually analyze various security relationships in order to exploit temporary market inefficiencies. Each trade is intended to capture relative value, with the sum of all security selection expected to contribute a meaningful portion of expected excess return over time.
As such, the Strategy is expected to perform best in markets with excess spread dislocations that it can capitalize on through relative value trading. In contrast, a low volatility interest rate environment with little spread or interest rate movements would most likely lead to more stable security-to-security relationships and, in turn, make it more difficult to outperform.
We believe our philosophy for managing Strategic Bond portfolios will be successful in the future because it is diversified—relying on several proven strategies rather than a single interest rate, term structure, or credit decision.
- Two of these strategies—subsector rotation and fundamental security selection—are strategies that we believe are equally appropriate in strong and weak markets, although naturally the subsectors and securities chosen will vary given the economic and market environment.
Investment Process
1. Senior investment team assesses global market environment
- Economic Research
- Sector Analysis
2. Senior portfolio managers construct portfolio with sector specialist and analysts
Risk Budget
- Establish risk targets within client's risk budget
- Capture thresholds for systematic and idiosyncratic risks
Asset Allocation
- Determine risk, sector, and term structure positioning
- Incorporate themes given current market dynamics
Security Selection
- Sector specialists and research analysts aligned by industry determine individual securities
- Research-based approach
3. Senior portfolio managers and risk manager oversee risk positions
