Fixed Income Investment Strategy

YHB Investment Advisors manages fixed income investments with the objectives of creating stable portfolios, dependable cash flows, and predictable rates of return with relatively limited levels of risk. For these reasons, bonds can play a vital role in almost all portfolios.

Our fixed income strategy focuses on the use of individual taxable or tax-free bonds tailored to meet each client’s portfolio needs. In acquiring individual bonds, we emphasize:

  • Quality investment grade vehicles
  • Good value
  • Generous yields
  • Minimized credit and interest rate risk

Individual Bonds vs. Bond Funds: We prefer individual bonds over bond funds. Bond funds do not provide with certainty many of the features of an individual bond such as a fixed coupon rate, maturity date, maturity value and yield to maturity.

Maturity and Duration: Our discipline leads to purchases of high-quality, investment grade securities, typically corporate and municipal bonds, of short to medium maturities. We do not believe investors are compensated for the added risk assumed by holding longer maturities. The predominant use of short and intermediate term (1-12 year) bonds, “laddered” to mature over a period of several years, preserves capital and minimizes the impact of interest rate volatility.

Risk Management: Risk to bond holders exists from several primary sources: interest rate risk, reinvestment risk, call risk, credit risk, and from one hidden source, inflation. The “real” return to the bondholder, income and principal minus inflation, is directly affected by the inflation rate. The use of laddered bonds minimizes the inflation risk because the portfolio will have bonds maturing often which can be reinvested a higher interest rates.

Bond Types and Process: We manage both taxable and tax-exempt bonds as warranted by client circumstances (including tax bracket) and yield spreads. We employ primarily corporate and/or municipal bonds, and in certain circumstances we use government or agency bonds, as appropriate. We have access to a substantial inventory of bonds through our custodians and trusted relationships with a variety of fixed income brokers. This allows us to buy bonds at “wholesale” prices and more attractive returns.