Marret’s investment philosophy is a blend of top-down and bottom-up strategies. Marret begins with a macro forecast and selection of industry overweights and underweights, then moves into company and individual security selection.
After identifying attractive sectors, this strategy is utilized to identify securities within these industry groups and isolate positive opportunities. The company fundamentals are reviewed to assess their ability to generate cash to meet interest and principal obligations. These fundaments include:
- Industry position
- Operating leverage
- Management strength/experience
- Historical earnings and future projections (via stress test)
- Company’s liquidity profile
- Company ratios and accounting practices, and
- Stock price as a leading indicator of changing credit fundamentals.
The goal of the process is to identify securities whose trading levels are inconsistent with the team’s analysis of potential return and underlying risk.
Key elements of the portfolio structure
- Diversify industry exposure
- Limit exposure
- Invest across a broad spectrum of maturities
- Identify special situations that reduce risk yet offer acceptable returns
- Avoid interest rate speculation
- Select issues with a good call protection and security backing
- Minimize default risk through ongoing analysis based on industry and company fundamentals
- Assess each security’s liquidity characteristics and diversify between levels.