Investment Philosophy
Community Capital Management (CCM) invests in government-related subsectors of the bond market traditionally excluded from the major bond indices. CCM believes these government-related subsectors of the bond market are chronically undervalued and may offer a relative yield advantage, and an opportunity to generate above-average risk-adjusted returns with lower volatility and lower credit risk than the benchmark (Barclays Aggregate Bond Index).
Investment Process
Community Capital Management specializes in the construction and management of high-quality government-related bond portfolios composed primarily of non-index securities. The portfolio management team establishes long-term strategic asset allocation ranges, which may call for the inclusion of instruments from the following subsectors (among others):
- Taxable municipal bonds
- Multifamily Agency Mortgage Backed Securities (MBS)
- Single Family Agency MBS (collateralized by loans with relatively low loan balances)
- Government-guaranteed Small Business Administration (SBA) pools and loans
The selection and/or creation of securities within these subsectors often entails one or more of the following actions:
- Maintain perpetual awareness of supply of new and secondary issues
- Collaboration with municipal bond issuers and their underwriters
- Analysis of secondary-market loans, and subsequent securitization
The credit quality and duration of each portfolio is constructed to be at or near the benchmark (typically, the Barclays Aggregate Bond Index). Within each subsector, bonds are assigned a fair market value (based largely on the bond's relative yield spread vis-à-vis similarly structured bonds of the same credit quality) and examined within the context of the entire portfolio, placing specific emphasis on duration, convexity, projected prepayment speeds, and liquidity constraints.
Interest rate risk is mitigated by constructing a portfolio duration with the goal of remaining within a 10% or 15% band vis-à-vis the benchmark. Credit risk is monitored by researching (1) the bond issuer, (2) borrowers representing the sources of repayment of the bond (3) the creditworthiness of the credit enhancing entity (when applicable), and (4) any national and/or local economic factors affecting the issue.
Sell Discipline
Sell decisions are primarily by one of two "triggers":
- Portfolio drifts from duration target and/or sector allocation target
- Changing credit conditions