November 6, 2013
From the Oxford English Dictionary:
adjective: not restricted or limited.
Advisors have gotten used to investing in bonds in a fairly passive way over the past 30 years. Year after year, the decrease in rates has led to stellar returns for bond portfolios. Until recently, the concept of sustained volatility and capital losses in bonds were a fleeting or distant memory. Due to this new reality of bond volatility and potential rising rates, we launched the Redwood Unconstrained Bond Fund to protect fixed income portfolios and also deliver returns in difficult periods. Advisors have embraced the unconstrained approach of bond investing, and we are excited for our relationship with Reams/Scout Asset Management in the US.
We believe in finding the best investment managers, with unique investment approaches, and giving the flexibility to effectively institute their strategies.
In our Redwood Unconstrained Bond Fund, this flexibility manifests in a number of ways, including:
- Active Duration Management (-3 years to +8)
- Index Agnostic, best ideas across all areas of the Fixed Income market
- Active Risk Management, with broad allocation ranges
- $15 billion dollars in AUM allows the firm to be both substantial, but nimble
Fewer constraints are a good thing in our view, for those few investment managers who can effectively and judiciously manage a portfolio without a rigid set of investment guidelines.
While fund flows and product launches in unconstrained bond funds in the US have been significant, we believe that the approach is more than just a marketing spin and a new fund fad. In partnering with Reams/Scout, we have found the firm with the longest, most successful unconstrained track record.
My colleague Jeff Bennett, prepared a presentation for investment advisors, discussing the merits of Unconstrained Bond mandates, and specifically the one managed by Reams/Scout. It can be found here.
When one hires a firm to manage an unconstrained mandate, the level of due diligence is even more important than if it were a group with a defined mandate.
Since 1981, Reams has successfully run fixed income securities in a unique way that is more similar to an equity value investor that a traditional fixed income approach. They have a tenured team and potentially the longest track record running an unconstrained fixed income mandate, launching theirs in 1998.
Some of the highlights on Reams/Scout.
- Unique absolute return-focused investment philosophy (two negative return years in 15 in unconstrained)
- Firm has an exceptional track record in fixed income, since 1981
- Team approach to portfolio management, a tenured and robust team
- Track record of positive returns in each rising rate period
- Risk of bond yields moving higher globally
- Current risks in High Yield Debt, spreads are tight in historical terms
- Concerns in Emerging Markets Debt, sovereign risks
- High valuations and weaker covenants in floating rate loans
While the Reams institutional product has been around for 15 years, Scout launched a mutual fund version of the fund in 2011. In the link below, you can see both the US version on Morningstar.com and our version on Morningstar.ca
http://quotes.morningstar.com/fund/f?t=SUBFX (US Mutual Fund, launched in 2011)