Fixed Income

Bonds and other fixed-income securities typically offer investors both a steady income stream and the safety of principal preservation. Eagle Fixed Income analysts focus on credit assessments as well as structural aspects to discern those securities most appropriate for each fixed-income program.

Affiliated Mutual Fund

Eagle offers five Fixed Income investment programs: Government Securities, High Quality Taxable, High Quality Tax-Free, Special Fixed Income and Core Fixed. These portfolios undergo the same intensive investment process.

Investment Process
Investment
Team
Performance
Literature

Portfolio managers anticipate and respond to changing market conditions such as:

  • Interest-rate trends
  • Economic outlook
  • Federal Reserve policy
  • Sector valuations

After analyzing these variables, managers establish current strategies and maturities for the portfolios. Securities are selected from a broad base and are evaluated on their status in the following categories:

  • Current yield
  • Credit quality
  • Call risk/protection
  • Coupon structure
  • Capital gains potential
  • Inefficient pricing

Generally speaking, management focuses more on structural bond analysis than credit analysis. Management believes that there are good opportunities to capitalize on the market's inefficiencies by investing in securities with unique characteristics that may help to reduce portfolio volatility and enhance yield. Our research staff carefully analyzes the structural features of asset-backed and mortgage-backed securities.

Sell discipline

  • Current portfolio-maturity profile no longer met by bond
  • Significant negative change to credit rating
  • Development of more attractive investment opportunity
  • Taking advantage of capital gains without compromising long-term income returns
  • Calling of bond


Portfolio characteristics

Government Securities1

  • U.S. Treasury and government agency bonds, including mortgage-backed securities (MBS)

High Quality Taxable1,2,3

  • U.S. Treasury and government agency bonds
  • Investment-grade corporate bonds
  • Investment-grade mortgage-backed (MBS) and asset-backed (ABS) securities

High Quality Tax-Free4

  • Municipal bonds with interest income exempt from federal income tax

Special Fixed Income1,2,3,5

Eagle retains full discretion to determine a portfolio's allocation among the following:

  • U.S. Treasury and government agency bonds
  • Investment-grade corporate and municipal bonds
  • Investment-grade mortgage-backed (MBS) and asset-backed (ABS) securities
  • High-yield corporate bonds, convertible securities and preferred stocks

Core Fixed3

  • U.S. Treasury and government agency bonds
  • Investment-grade corporate bonds
  • Investment-grade mortgage-backed securities (MBS) and asset-backed securities (ABS)
  • Normal cash level: 5% or less


Risk Information

(1) Asset-backed securities and mortgage-backed securities are created by pooling loans from a variety of sources and issuing bonds that are backed by these loans. Creditworthiness stems from the credit quality of the underlying loans, as opposed to corporate bonds in which creditworthiness is derived from the earning power of the issuing company. The primary risk of these securities is interest-rate risk. Rising interest rates might cause loan principal prepayments to slow, resulting in less available principal to invest at prevailing higher rates. Conversely, rate decreases might accelerate prepayments, leaving more dollars to invest at lower rates.

(2) Investment grade refers to fixed-income securities rated BBB or better by Standard & Poor’s or Baa or better by Moody’s.

(3) Convertible securities and preferred stock combine the fixed-income characteristics of bonds with some of the potential for capital appreciation of equities and, thus, may be subject to greater risk than pure fixed-income instruments. Unlike bonds, preferred stock and some convertible securities do not have a fixed par value at maturity, and in this respect may be considered riskier than bonds. Convertible securities may include convertible bonds, convertible preferred stocks and other fixed-income instruments that have conversion features.

(4) Accounts using High Quality Tax–Free may only be available at select broker/dealers.

(5) Investments in high-yield bonds and convertible securities are subject to the client’s authorization, as set forth in the Investment Management Agreement. Such investments may be subject to greater risks than other fixed-income investments. The lower rating of high-yield bonds (less than investment grade) reflects a greater possibility that the financial condition of the issuer or adverse changes in general economic conditions may impair the ability of the issuer to pay income and principal. Periods of rising interest rates or economic downturns may cause highly leveraged issuers to experience financial stress, and thus markets for their securities may become more volatile. Moreover, to the extent that no established secondary market exists, there may be thin trading of high-yield bonds, which increases the potential for volatility.