Investment What is Fixed Income
VA L U E
WHAT IS VALUE INVESTING? Our internal security and credit analysis includes
Value investors in the fixed income markets seek to examining a company’s balance sheet, income state-
purchase securities that are trading at a discount to their ment, capital structure, liquidity, bank lines, and cash
intrinsic value. At Brandes Investment Partners®, flow. Other factors, such as industry trends, corporate
we believe that, in the long term, the prices of these profitability, and the stock price are included in
securities will rise as the fixed income markets recognize our analysis.
their true worth. By holding these securities for as long
as two to five years, we believe they will help us deliver The analysts present their views of the risks inherent in the
favorable long-term results. security and its long-term fair value to the Brandes Fixed
Income Investment Committee. The Committee reviews
Our goal is to enhance investment returns and evaluates the work of the fixed income analysts
relative to the client’s performance benchmark and is responsible for approving securities based on
without assuming disproportionate risk. determinations of the intrinsic value, margin of safety,
and buy target.
WHAT IS THE PRIMARY GOAL OF THE
INVESTMENT COMMITTEE? IS IT REALLY POSSIBLE TO ACQUIRE FIXED INCOME
Our goal is to enhance investment returns relative to the SECURITIES AT BARGAIN PRICES?
client’s performance benchmark without assuming dis- Yes. The bonds of many companies are victims of
proportionate risk. We strive to achieve this goal through the overreactions, misplaced fears, and the exaggerated
a duration-controlled, disciplined approach built upon focus on short-term performance of market
value investing principles. participants. When companies experience temporary
difficulties, we often are able to purchase their bonds at
HOW DO YOU IDENTIFY INVESTMENT IDEAS? what we believe to be discount prices to their longer-
We find ideas in many ways, including database screen- term intrinsic values. Our investment approach favors
ing, reviewing industry and business publications, and bonds with an identifiable margin of safety that may
monitoring activity in the fixed income markets. Securities result from:
that are identified for careful evaluation can include: ■ Poor market sentiment toward the issuer or its industry
■ Securities trading at prices and/or spreads that are ■ Lack of information or misjudgment by the market
inconsistent with historical levels and/or our assessment ■ Overly pessimistic outlook of the issuer’s
of current and anticipated values financial condition
■ Securities trading at prices and/or spreads that are ■
Adverse changes to credit quality ratings
inconsistent with securities having similar credit and
cash flow characteristics We view unexpected, short-term market events as poten-
tial opportunities rather than immediate exit points. We
■ Securities that have recently had their spread or price
focus on our security-specific analysis, and we do not
attempt to time market tops or bottoms.
Securities reviewed by Brandes equity analysts are also
evaluated as potential investment candidates. DO YOU USE INDICES AS A GUIDE IN
HOW DO YOU DETERMINE WHETHER A BOND IS No. We select holdings without reference to an index.
A GOOD VALUE? Each security is selected purely on its own merits. Industry
Brandes fixed income analysts conduct wide-ranging and sector weightings are residuals of our bottom-up
analysis, which may include security and credit analysis, selection process. The Fixed Income Investment Commit-
reviewing third-party fixed income and equity research, tee establishes target position sizes for each strategy.
valuation of publicly available financial information, and
integrating cash flow models and valuations of issuers, as We do not exclude opportunities based on preconceived
evaluated by one of over 30 Brandes equity analysts, industry perceptions. As a result, our portfolios may
if available. differ noticeably in composition from relevant indices.
What is Fixed Income Value Investing?
HOW IMPORTANT IS COMPANY MANAGEMENT IN Portfolio management for both fixed income and equity
ARRIVING AT AN INVESTMENT DECISION? products at Brandes Investment Partners is driven by our
We prefer companies with management teams dedicated focus on long-term fundamental analysis.
to the interest of bondholders, not to building empires
and their own net worth independent of the bondholders. WHO MONITORS A BOND ONCE IT’S APPROVED?
We look at a variety of factors, including compensation Analysts monitor ongoing developments and notify
arrangements, stock holdings, management goals the Fixed Income Investment Committee of any material
and statements, and actions that typically indicate changes that may affect valuations. The Investment
management attitude toward bond owners. Committee reviews the portfolios at least once
HOW LONG DO YOU HOLD POSITIONS AND Portfolio management for both fixed income
WHAT IS YOUR SELL DISCIPLINE?
and equity products at Brandes Investment
We have no fixed holding period. We may hold an invest-
Partners is driven by our focus on long-term
ment as long as the security is priced by the market at what
we believe to be a significant discount to our assessment of fundamental analysis.
the bond’s fair value. A security is typically sold when its
price reaches our estimation of its intrinsic value, if HOW DIVERSIFIED ARE YOUR PORTFOLIOS?
we identify a more compelling opportunity, or if our Holdings in fixed income portfolios are diversified
assessment of the intrinsic value declines. Our fixed income among fixed income sectors and economic industries.
holding periods typically average two to five years. Sector exposure for each of the four fixed income prod-
Annual turnover typically ranges between 25-50%. ucts is subject to the product’s investment objective.
■ The Brandes Core Fixed Income Portfolio typically
WHAT ARE THE SIMILARITIES AND DIFFERENCES
consists of 60-100 issues, spread across U.S. Treasury,
BETWEEN BRANDES’ FIXED INCOME AND EQUITY
agency, mortgage, and investment grade corporate
Both fixed income and equity analysts at the firm are ■ The Brandes Core Plus Fixed Income Portfolio typically
“bottom-up” analysts employing a Graham & Dodd, consists of 60-100 issues, spread across U.S. Treasury,
value-oriented approach. Research in both areas agency, mortgage, and investment and non-invest-
involves in-depth fundamental analysis, assessment of ment grade corporate debt securities, and may invest
industry and country dynamics, and team-oriented up to 25% of its assets (at time of purchase) in non-
decision-making. investment grade and non-U.S. dollar denominated
Elements of fundamental analysis common to both ■ The Brandes Intermediate Fixed Income Portfolio typi-
bond and equity analysis include reviewing company
cally consists of 60-100 issues, spread across U.S.
background, industry factors, key issuer risks, and
Treasury, agency, and investment and non-investment
balance sheets. In addition, Brandes’ fixed income ana-
grade corporate debt securities, and may invest up to
lysts may leverage research conducted by the firm’s
25% of its assets (at time of purchase) in non-investment
equity research team.
grade and non-U.S. dollar denominated instruments.
Unlike the Core and Core Plus portfolios, matu-
However, fixed income and equity analysis at Brandes
rities typically do not extend beyond intermediate
Investment Partners may focus on different elements of
company financial information. For example, fixed in- periods.
come research typically may place more emphasis on ■ The Brandes Corporate Focus Fixed Income Portfolio
analysis of firm income statements, cash flow typically consists of 40-80 issues, spread across invest-
and liquidity, and debt maturity schedule, as well as ment and non-investment grade corporate debt
financial ratios. Equity research tends to involve more securities, and it may invest up to 30% of its assets
attention to business segment valuation, factors driving (at time of purchase) in non-investment grade and
valuation, and capital structure. non-U.S. dollar denominated instruments.
The information provided in this material is for informational purposes only and should not be considered a recommendation to purchase or sell any particular security outside of a
managed account. It should not be assumed that any security transactions, holdings, or sectors discussed were or will be profitable, or that the investment recommendations or
decisions we make in the future will be profitable or will equal the investment performance discussed herein. Strategies discussed are subject to change at any time by the invest-
ment manager in its discretion due to market conditions or opportunities. Investing outside of the United States is subject to certain risks such as currency fluctuation and social and
political changes; such risks may result in greater share price volatility. Please note that all indices are unmanaged and are not available for direct investment. Unlike Treasury bonds
and bills, stocks are not backed by the full faith and credit of the United States stock and bond prices will experience market fluctuations. Please note that the value of government
securities and bonds in general have an inverse relationship to interest rates. Bonds carry the risk of default, or the risk that an issuer will be unable to make income or principal
payment. There is no assurance that private guarantors or insurers will meet their obligations. The credit quality of the investments in the portfolio is no guarantee of the safety or
stability of the portfolio.
The foregoing reflects the thoughts and opinions of Brandes Investment Partners® exclusively and is subject to change without notice.
Brandes Investment Partners® is a registered trademark of Brandes Investment Partners, L.P. in the United States and Canada.
FOR INQUIRIES, PLEASE CONTACT:
Clifford Schireson Charles S. Gramling, CFA
11988 El Camino Real, Suite 500 15400 West Capitol Drive, Suite 102
P.O. Box 919048 Brookfield, WI 53005
San Diego, CA 92191-9048