"People who know credit really well tend to focus on corporate bonds,'' Rivelle said. "People who know structure really well tend to focus on mortgage-backed securities. Asset backed securities sit in a middle ground. You have to know something about structure and something about credit in order to buy them, so they don't get the same degree of attention." Rivelle recently upped his stake in asset-backed securities, selling some corporate bonds that have rallied.
Being small also makes a difference in bond selection and execution -- getting the best price when buying and selling, Rivelle said.
Despite advances such as electronic trading platforms that allow traders to see the prices at which bonds are changing hands, the bond market is still predominantly over-the-counter, Rivelle said.
"Buying bonds is like most people's experience with the housing market," he said. "There's no centralized pricing system that lets you know how much you should be paying. You have to drive the neighborhoods, walk the properties and collect the comparables. What we do as bond managers is drive the neighborhoods and try to identify those securities that represent compelling value." As of May 31, Total Return had 44 percent of its assets in corporate bonds, 18 percent in mortgage-backed securities, 14 percent in asset-backed securities, 17 percent in Treasury and federal agency bonds, and 6 percent in cash.
At least 80 percent of Total Return and at least 90 percent of Low Duration are invested in bonds rated investment-grade. Up to 20 percent of Total Return and up to 10 percent of Low Duration may be invested in junk bonds rated at least "B." Total Return, with $1.13 billion on March 31, has the second- best three-year record in its Lipper category after Dreyfus Intermediate Income Fund. Over the three years ended May 31, it gained an average of 7.6 percent a year, according to preliminary Lipper data. Year-to-date it has gained 4.5 percent, better than 90 percent of its peers.
Low Duration, with US$440.1 million, has the best three-year record in its category. It gained 7.1 a year in the three years ended May 31. So far this year it has gained 4.2, better than 89 percent of its peers.
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