Investment Strategy and Portfolio Objectives

Investment Strategy

  • Income – Peritus seeks a portfolio generating high current income provided by bond and loan coupon obligations.
  • 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 are backward looking, reactive, and lag the market perception of risk (e.g., Worldcom, Enron, Lehman, AIG).  Peritus exploits that fact that most fixed income investors continue to use ratings as one of their primary investment tools.
  • Disciplined Investment Process – Peritus’ investment ideas, themes and process are generated internally. They don’t rely on Wall Street sell-side propaganda, which drives 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, applying a value investing philosophy to the bond market.  The entire capital structure is analyzed to determine where the best risk/return is, while maintaining a margin of safety.

Portfolio Objectives

  • Yield – Peritus largely focuses on the non-investment grade market, which generally offers higher yields, reflecting the relative/perceived risk of the credits.  Individual coupon cash flows typically range from 7% – 12% and these are tangible, contractual obligations.
  • 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 40-60 names—a truly active strategy.
  • Short Duration/Maturity Profile – Because they largely focus on seasoned credits, their stated duration and maturity tends to be shorter than that of the market indexes, while their actual maturity is generally even shorter due to early refinancings and take-outs via calls, puts and tenders.
  • Performance – Peritus’ goal is to generate superior long-term performance, focusing on absolute returns for their clients.

  • Risk Management – Peritus may utilize U.S. Treasuries, long or inverse ETFs, or other tools in an effort to hedge against adverse market declines, in essence producing a “hedged high yield” strategy.  These tools can be used to help reduce risk and/or maximize the income stream regardless of the market environment.

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