Aside from providing predictable income through coupon payments and having lower risk to investment principal than equities, high-quality fixed income investments often act as a hedge against volatility in the equity markets making a fixed income allocation a method of reducing overall portfolio risk.
Maidstone’s fixed income allocations will consist of a diversified portfolio of investment-grade rated (as rated by at least one of the major bond-rating agencies at time of investment) corporate, municipal bonds and fixed-income Exchange Traded Funds (“ETFs) with durations and maturities that are both appropriate for each client’s cash flow needs and contemplate current yield and potential reinvestment rate risks and opportunities. The mix between corporate bonds, corporate bond ETFs and municipal bonds will depend on each client’s after-tax yield for issues of comparable risk and duration.
Maidstone has access to the over-the-counter bond market and can trade with over a dozen dealers providing tremendous liquidity. This means you are purchasing in a competitive market, not buying marked-up bonds out of your broker-dealer’s inventory. A significant advantage of a portfolio of individual issues over bond mutual funds is that your holding aren’t subject to being sold because other mutual fund holders panic and sell when prices are at their lowest. Maidstone generally purchases bonds for clients with the intention of holding them to maturity.
Each corporate bond will be analyzed for yield, duration and the issuing company’s leverage ratios, interest coverage, and free cash flow history. Also, we analyze bondholders’ protections such as change-in-control provisions, call provisions and other covenants contained within each bond’s indenture. Each municipal bond will be evaluated based on yield, duration and whether the source of funds covering the interest and principal are generated by a reliable tax base or revenue generated by a specific project which the issue is intended to fund.