This strategy specifies a duration target that matches a pool of investment assets with the liability stream of a specific line of business. Our investment strategists work with a client’s internal or consulting actuary to identify the duration and convexity characteristics of a liability to construct a customized portfolio that should exhibit price movements similar to the liability.
To maintain the targeted duration, the strategy tends to avoid sectors with embedded prepayment risk, such as mortgage-backed collateral and callable bonds. As a result, there is a greater focus on longer duration corporate (public and private) bonds, taxable municipals and call-protected structured products. Our Investment Strategy Committee meets weekly to determine the relative after-tax value offered by different fixed income sectors, with special consideration given to the duration target of each individual portfolio.
As in all of our fixed income strategies, we pursue a disciplined, research-intensive approach in targeted duration portfolios. Our seasoned team of industry specialists continually evaluates opportunities in their sectors. We couple this with top-down research on macroeconomic factors that may drive performance in various parts of the bond market.
Targeted duration strategies work particularly well for companies in the Life, Annuity and Long-Term Care insurance businesses.