fOCUS Income
Management Program
The primary objective of the Focus Income account is to generate income. The investment tactics utilized in this program are varied.
The interest rate environment has always been difficult to navigate. To address some, but not all aspects of the “credit” and “interest rate” risks associated with maintaining income oriented accounts we employ a number of tactics.
Credit risk is the risk that an issuer might default on an interest or dividend payment. In an effort to decrease credit risk in the Focus Income program, we primarily use the securities of U.S. government sponsored entities (agency securities). We also use managed funds rather than income producing securities of corporations. When using funds, we attempt to identify experienced and superior management companies that have demonstrated capabilities as managers of diverse portfolios of income producing assets. No assurance can be given that these managers or their funds can continue to deliver performance. Once these management companies and their respective funds have been selected for inclusion in our universe, we gather daily data on factors affecting the funds. We take into account premiums or discounts relative to net asset values, current yields, liquidity of the shares, relative credit risk spreads, and the asset classes utilized.
Addressing some of the aspects of interest rate risk is another objective of the Focus Income programs. Interest rate risk is the possibility of a reduction in the value of a security, especially an income producing security, resulting from a rise in interest rates. Typically this risk can be somewhat reduced by diversifying the durations or reducing the durations of the fixed-income investments that are held in a portfolio at a given time. Our approach to reducing the durations of the Focus Income accounts that invest in managed corporate income funds is to make simultaneous investments in an inverse fund. Such a fund is designed to move inversely to the price performance of the 30-year U.S. Treasury bond. After positions in both the income funds and the inverse fund are established, we will continuously monitor the Focus Income accounts for position imbalances as a result of changes in market conditions. Following what we determine as an imbalance, we will re-position the Focus Income accounts between the income producing portion and the inverse portion.
The client can designate a tax exempt strategy or a taxable strategy based on the type of account and current personal income tax situation. The majority of the investments made in the tax exempt program will feature investments in open and closed end funds that invest primarily in instruments that pay income that is exempt from federal income tax. The bulk of the investments made in the taxable program will be made in open and closed end funds that invest primarily in securities that pay interest or dividends that are subject to federal income tax.
No assumptions can be made that any of the objectives can be achieved by using the investment tactics mentioned in this program description. A number of complex factors are involved in successfully investing for income. Managing credit and interest rate risks involve constantly changing conditions. While we believe our approaches to the tasks are reasonable, only risk oriented investors should consider investing in the Focus Income Programs.