INVESTMENT PHILOSOPHY AND APPROACH

The fixed income market comprises a variety of investors with diverse goals and risk constraints. Pugh Capital believes that these competing interests can create inefficiencies within the market that can be exploited through rigorous research and active management relative to a client-specified benchmark.

Pugh Capital's fixed income investment approach is designed to provide incremental returns relative to the client's benchmark while minimizing downside risk. Client portfolios are invested in the full spectrum of US dollar-denominated, investment-grade securities, with an emphasis on higher credit quality and mortgage-backed securities. Portfolio durations are managed within a range of +/- 10% of the client's index, and securities held must have investment-grade ratings.

Our process begins with a top-down analysis to determine investment themes across fixed income sectors. We identify significant trends within the economy as well as the fixed income and equity markets. The firm then develops an interest rate outlook and target portfolio profile. These trends and rate forecasts are incorporated into the process of determining sector or industry weightings as well as yield curve and duration positioning.

At the security level, Pugh Capital's investment team conducts thorough bottom-up research on individual issues to identify the most attractive securities on a relative-value basis. These securities are also screened for consistency with our macro outlook. Risk management techniques emphasize diversification, stress testing under various market scenarios and a disciplined sale approach for troubled securities.