Investment Objective
The Absolute Return Fixed Income Strategy seeks to maximize excess returns versus the ICE BofA U.S. 3-Month Treasury Bill Index over the long term.1
Investment Philosophy
Unconstrained by a traditional benchmark, the Strategy seeks to capitalize on the Firm’s ‘best ideas’ by allocating assets across the full spectrum of global fixed income securities and currencies, while maintaining a duration profile similar to that of the cash-like benchmark.
The Strategy’s philosophy is that diversified portfolios, built through the integration of macroeconomic research, credit research, quantitative research, and risk management can achieve consistent excess returns for clients with a high information ratio. Risk budgeting is central to our approach. This same research-based and relative-value oriented process is implemented across all multi-sector fixed income strategies managed by PGIM.
The Strategy seeks to extract alpha from multiple sources through active allocation with a bias toward the global ‘spread’ fixed income sectors. Allocations are made within risk thresholds established by a ‘risk budget’ created specifically for each portfolio. The Strategy utilizes both top-down and bottom-up investment approaches:
- Country, sector, and currency allocations are determined using both top-down and bottom-up approaches.
- Subsector and security selections are based on bottom-up, fundamental research and relative value analysis
- Duration and yield curve decisions are primarily driven by top-down research.
We seek to capture several market inefficiencies when investing across the global fixed income markets. Through our large internal research staff, we seek to anticipate both positive and negative economic and credit-related events before others. Using proprietary modeling, we also seek to capture aberrations in global yield curves. Finally, we seek to capture inefficiencies driven by supply/demand and other technical factors, such as a dislocation in spreads across different countries, sectors, industries, and even different maturity bonds or different parts of the capital structure of the same issuer.
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
