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Strategies & Solutions

Risk-Controlled Fixed Income

While our underlying investment philosophy is based on the foundational financial principle that markets tend to be efficient, we believe fixed income offers opportunities to capitalize on moderate inefficiencies to achieve predictable gains.

Our risk-controlled approach targets low tracking error and a high information ratio, relative to client benchmarks. Our active management approach includes the following:

  • Portfolios are broadly representative of benchmark risk characteristics such as duration, sector and credit quality.
  • Individual holdings are diversified across issuers.
  • We seek enhancement through a combination of top-down and bottom-up strategies.
  • Credit research is generally used defensively, and encompasses fundamental financial information, ESG factors that carry financial relevance and analysis of individual bond covenants, etc., in seeking to identify unique considerations.

NISA’s fixed income strategies are benchmarked against a variety of published indices, customized indices or liability-based benchmarks, for the following:

  • Core Broad Market
  • Full Credit
  • Intermediate Credit
  • Intermediate Government/Credit
  • Long Credit
  • Long Government/Credit
  • TIPS
  • Long Treasury

NISA’s portfolios are predominantly comprised of securities included in the strategy’s stated benchmark, though our approach does include limited use of out-of-index securities. For actively-managed fixed income strategies, that may include investment-grade fixed income securities, such as: U.S. Treasury, U.S. Agency, credit and securitized assets and/or Treasury futures contracts.

Our risk-controlled, active management approach also applies to our taxable fixed income strategies. Customized for the tax considerations unique to each client, we look for opportunities to enhance after-tax performance while remaining sensitive to wash sale, accounting and portfolio structure considerations. 

Portfolio losses are realized with the assumption that the client will use these losses to offset gains. To the extent the client does not have gains available to offset in the current period, the value of the tax benefit of such losses will be less than reported.

Interest rate risk includes duration differences between the portfolio and liability-based benchmark. Spread or yield curve risk is the difference between performance of the portfolio and the liability-based benchmark associated with changes in credit spreads or the shape of the yield curve. Operational risk includes the calculation and execution of trades required to maintain an LDI hedging objective and requires the coordination of various groups within NISA, as well as external parties including brokers, custodians and potentially other asset managers. There could be a risk associated with incorporating data from various external sources.

Misestimation of the liability’s sensitivity to interest rates, changes to liability valuation assumptions, or differences between assumptions and experience represents potential actuarial risk.

Disclaimer: By accepting this material, you acknowledge, understand and accept the following:

This material has been prepared by NISA Investment Advisors, LLC (“NISA”). This material is subject to change without notice. This document is for information and illustrative purposes only. It is not, and should not be regarded as “investment advice” or as a “recommendation” regarding a course of action, including without limitation as those terms are used in any applicable law or regulation. This information is provided with the understanding that with respect to the material provided herein (i) NISA is not acting in a fiduciary or advisory capacity under any contract with you, or any applicable law or regulation, (ii) that you will make your own independent decision with respect to any course of action in connection herewith, as to whether such course of action is appropriate or proper based on your own judgment and your specific circumstances and objectives, (iii) that you are capable of understanding and assessing the merits of a course of action and evaluating investment risks independently, and (iv) to the extent you are acting with respect to an ERISA plan, you are deemed to represent to NISA that you qualify and shall be treated as an independent fiduciary for purposes of applicable regulation. NISA does not purport to and does not, in any fashion, provide tax, accounting, actuarial, recordkeeping, legal, broker/dealer or any related services. You should consult your advisors with respect to these areas and the material presented herein. You may not rely on the material contained herein. NISA shall not have any liability for any damages of any kind whatsoever relating to this material. No part of this document may be reproduced in any manner, in whole or in part, without the written permission of NISA except for your internal use. This material is being provided to you at no cost and any fees paid by you to NISA are solely for the provision of investment management services pursuant to a written agreement. All of the foregoing statements apply regardless of (i) whether you now currently or may in the future become a client of NISA and (ii) the terms contained in any applicable investment management agreement or similar contract between you and NISA.