Investment Strategy and Portfolio Objectives

Investment Strategy

  • Income – Peritus seeks to create a portfolio that generates high current income provided by bond and loan coupon obligations and, to a lesser extent, dividends from equity investments.
  • Capital Gains Potential – Peritus primarily focuses on the “secondary” market, where they believe there is less competition and more opportunities for capital gains.
  • Less Focus on Credit Ratings – Peritus views credit as either “AAA” or “D” and places limited value on the rating agencies and their methodologies, which they see as backward looking, reactive, and lag the market perception of risk (e.g., Worldcom, Enron, Lehman, AIG).  Peritus believes that many fixed income investors continue to use ratings as one of their primary investment tools, which they believe ultimately creates inefficiencies and opportunities in the high yield market.
  • Disciplined Investment Process – Peritus’ investment ideas, themes and research are generated internally. These ideas don’t rely on Wall Street sell-side propaganda, which they believe drive market participants to invest in the same large, well-covered names and trends.  Peritus undertakes a rigorous credit and valuation analysis, paying particular attention to businesses that provide a product or service they view as “essential,” generate free cash flow, have a manageable capital structure, and/or have hard asset values that are not reflected in the bond pricing.
  • Value Investing – Peritus does not stop with traditional credit analysis, but looks at a complete appraisal of the intrinsic value of each business in which they invest. By applying a value-based investing philosophy to the entire capital structure we determine where the best risk/return is, while maintaining a margin of safety.

Portfolio Objectives

  • Yield – Peritus focuses on the non-investment grade market, which offers higher yields, reflecting the relative/perceived risk of the market.  In certain circumstances, Peritus will choose to generate yield through dividends of undervalued equities.
  • Focused Diversification – Peritus lets the value they see in the market dictate portfolio diversification in order to avoid forcing “de-worsification,” (investing in less attractive names just to increase the total number of holdings or mirror an index).  A typical portfolio consists of 50-80 names—which we believe is an active strategy.
  • Short Duration/Maturity Profile – Because of a focus on seasoned credits, our portfolio duration and maturity tends to be shorter than that of the market indexes.
  • Capital Structure Agnostic Peritus is capital structure agnostic, looking for the most attractive return/risk value within the company’s entire capital structure, be in loans, bonds, or dividend paying equities, depending on the portfolio.
  • Performance – Peritus’ goal is to generate superior long-term performance, focusing on absolute returns for clients.

Comments are closed.