"At the time, you really couldn't go to the very large firms because their minimums for fixed income and those who were specializing in fixed income were just way too high," he says. "It wasn't an option for separate account management."
They decided to spend time and capital allocation to put together trading systems and portfolio allocation systems as well as the philosophical implementation to be able to serve the middle market. Genter says the challenge was how to deal with cash flows and trade orders from smaller clients and-the biggest challenge-take medium size accounts and aggregate trades so that the firm was doing block trades as if it were a large institution.
"The goal," he says, "was to be able to have separate custom tailoring from the standpoint of goals, objectives, tax planning and the like, but now from a management standpoint and from a trading and implementation standpoint be able to trade them as close to them being one as possible."
Top-Down, Bottom-Up
As a fixed-income manager, RNC Genter is an active manager, says Genter. "We believe the days of having a safe-deposit-box mentality are over; they have been over for quite some time with regard to both return generation and risk control."
The firm actively manages the average maturity and the durations; the maturity distribution along the entire maturity curve spectrum; and the securities it has in different sectors-whether Treasuries, agencies and corporate bonds, municipals, general obligations or revenue bonds. It also actively manages along the quality scale, shifting among the different investment-grade qualities so all securities stay investment grade.
RNC Genter's management style starts with a top-down approach to get a sense of where the overall market is going. An intensive quarterly meeting of all the firm's investment professionals results in written outlooks and policies regarding GDP growth, where core and headline inflation is headed and the direction of interest rates, earnings and dividend growth.
"As we break down into doing the fixed-income section and the equity section, as we look for individual ideas, we want to affirm that we have continuity with where we think the big picture is as a check and balance," he says.
Based on those macro factors, various decisions on the fixed-income side follow: overall maturity targets and interest rate directions; whether to be somewhat longer than the market or shorter; determining if the earnings environment is good and the economic environment and cash flows are improving, whether to have more in corporate bonds and less in Treasuries; and what sectors to be in.
Once the team has decided maturity, quality and sector distribution, they shift to a bottom-up process to find names to fill those sleeves. This involves a fundamental, grassroots search for ideas, and then doing quantitative breakeven analysis and stress-testing the overall portfolios to make sure each one is going to meet those parameters.
On the equity side-which comprises high-dividend, value and core equity strategies and a combination of value and growth-they follow the same process. The firm's research analysts look for new ideas, in addition to maintaining research on and rating the firm's existing ideas. Separately, a portfolio management team carries out the implementation.
The equity side tends to have a value tilt, and in the high-dividend space, stocks must meet certain parameters with regard to dividend generation. "The dividend strategy is not your grandfather's portfolio," says Genter. "Four hundred and one of the S&P 500 companies are now paying dividends, so you can get representation in all of the major sector groups and even in most of the sub-industry groups and structure a very diversified portfolio."