Philosophy & Process
The world’s capital markets are becoming increasingly interrelated and interdependent, with political and social events often playing a significant role in economies around the world. LM Capital Group has long recognized the evolution of today’s financial trends and has a successful track record in the management of fixed income. LM Capital Group utilizes a global, macroeconomic approach when examining fixed income markets, augmenting the investment process with scenario planning—a structured, team-based methodology that serves as a qualitative risk management tool to examine potential events and their impact on our portfolios. LM Capital Group’s investment performance demonstrates that consistent application of this process adds value for our clients over time. LM Capital Group views this process as a suitable, conservative management style that responds to long-term fundamental trends. It is risk averse, yet globally comprehensive in nature.
I. Matrix Construction
To achieve a consensus on the perceived direction of interest rates, the Investment Strategy Group (ISG) uses a unique method to analyze current data: applying a matrix created by Co-Founder and Senior Managing Director Luis Maizel in his work at Harvard Business School. LM Capital’s matrix is composed of the following six crucial economic factors: Inflation, Employment, Trade Balance, Budget Deficits, International Influences, and Economic Indicators.
II. Security Selection
Individual security selections are based upon specific criteria developed by the ISG. LM Capital uses screening techniques to help identify the types of securities that fit within the investment policy structure. Bonds are evaluated on the basis of duration, convexity, call features, quality, yield-to-maturity, and other factors to ensure that each security meets the client’s investment guidelines.
III. Trend Identification
By applying fundamental economic analysis, the ISG scores the matrix indicators on a numeric scale with a double weighting for Inflation and Economic Indicators. Examination of the matrix assists in determining the most attractive fixed-income markets and aids in identifying capital flows between countries.
IV. Situation Analysis
Once the initial portfolio allocation and construction process is complete, it is followed by a “what-if” scenario planning stage that examines what market reaction may occur in response to unexpected future events, either political, economic, or social. This allows LM Capital to be proactive in managing client portfolios in changing economic environments.
V. Portfolio Construction
The Trend Identification scores guide the portfolio positioning relative to the assigned benchmark with respect to average maturity, duration, and sector/country allocation decisions within the constraints imposed by the client’s investment policy.
Self Discipline
Although LM Capital spends a great deal of time exploring the impact of potential political, social, and economic events through its Global Scenario Planning process, it does not make radical changes in reaction to near-term movements. LM Capital focuses on long-term investment trends.
Short Term