|
|
 |
|
|
|
|
|
|
|
Why is it important that your firm remain independent? This is the era of the
fixed income management conglomerate: isn’t STW out of step?
Yes, we are out of step. This is to our clients’ benefit. STW’s principals have not
“cashed out”, so their best interests are tied to the success of the firm. Independence
allows for a long-term orientation, focused on long-term viability based on long-term client
success. At STW, the people who make management decisions are directly involved with the clients.
They don’t need the approval of a parent company. This is likely to result in very different
resource allocation than would a short-term focus on quarterly earnings paid back to the outside
owner.
Why do you limit the size of your firm?
Isn’t bigger better?
We certainly have limited the size of the firm. Any bond
manager is limited not by the total size of the market but by the depth of the smaller sectors in
which he should invest for his clients. Control of assets managed allows for bond portfolios to be
made up of bonds rather than derivative bond substitutes. It permits quick movement among sectors.
It allows for activity in the entire portfolio, rather than necessitating replication of the
benchmark in a portion of the holdings. We manage the entire portfolio all of the time, so we must
limit the assets we manage far more strictly than if we belonged to the overweight/underweight,
closet indexing school.
Why don’t you offer us a broader range
of products? What if we decide to invest in junk bonds or convertibles?
We believe in specialty management. The fundamental characteristics of low-grade bonds,
convertibles and emerging market bonds are all more closely related to those of equities than to
investment-grade bonds. We believe you want the best manager responsible for each asset class. To
change our organization to focus on these other classes would destroy the things that have
contributed to our past accomplishments. We believe that only a very large organization has any
chance of competence in all of the “plus” sectors. Paradoxically, the large size of the
organization would be just the thing to prevent the execution of their strategies in the
market.
Why don’t you more closely match the contents of the
portfolio to the specific characteristics of the benchmark?
Low tracking error never paid extra pension benefits. Avoiding overvalued bonds may require moving
away from benchmark content. This reduces fundamental risk but increases tracking error. If a good
investment were not included in the benchmark, it would be a bad idea to avoid it for that reason
alone.
|
|
|
|
|
|
|
|
