BBH Income Fund

Overview

BBH Income Fund (“The Fund”) seeks to provide maximum total return with an emphasis on current income, consistent with the preservation of capital and prudent investment management. 

The Fund seeks to achieve its investment objective by investing in a well-diversified portfolio of fixed income instruments, including floating or variable rate debt instruments, using a value-oriented approach, described below.

The Fund’s investments will be primarily focused in notes and bonds issued by domestic and foreign corporations, financial institutions, the U.S. Government, and government agencies and government guaranteed issuers, asset-backed securities, consisting of consumer and commercial asset-backed securities; commercial mortgage-backed securities and residential mortgage-backed securities, and loan transactions.

The Fund has no limitations on the range of maturities of the debt securities in which it can invest and may hold securities with short-, medium- or long-term maturities. The Fund will seek to maintain an overall portfolio duration (sensitivity to changes in yields) that is consistent with the broad investment grade market through the use of securities held and U.S. Treasury futures. Under normal circumstances, the Fund is managed with the intention of maintaining an effective duration of between 80%-120% of the effective duration of Bloomberg Barclay's US Aggregate Index, which as of May 31, 2018 was approximately 5.94 years.

The Fund also expects to maintain, under normal circumstances, the following exposure limitations at the time of purchase: 95% of the Fund's assets in instruments denominated in U.S. Dollars, including securities issued by corporate or sovereign issuers domiciled outside of the U.S.; 75% or more of the Fund's assets in instruments with an investment grade rating; 25% or less of the Fund's assets in instruments rated “BB” (or equivalent) and below, which are commonly referred to as “junk bonds”; 10% or less of the Fund's assets in corporate or sovereign debt of issuers domiciled in emerging markets (defined as an issuer in the JPMorgan Emerging Market Bond Index - "JPM EMBI"); and 5% or less of the Fund's assets in instruments rated "CCC" (or equivalent) and below. 

The Fund may invest in money market instruments, repurchase agreements, commercial paper and derivative instruments, consisting of futures, swaps and options, to meet its investment objective.

Approach

The Fund intends to invest only in debt instruments which are performing, durable, and available at an attractive valuation.  The Advisor believes that a portfolio of fixed income instruments meeting these criteria can outperform the broader bond market.

With respect to fixed income instruments, the term “performing” indicates that the instrument is making payment of interest and principal on schedule, while the term “durable” signifies the Investment Adviser’s assessment that the obligor responsible for making payment on the instrument is likely to continue making such timely payment in a variety of future economic circumstances. 

The Investment Adviser considers instruments to be “attractively valued” where the Investment Adviser believes that the instrument’s excess return potential (total return in excess of comparable-maturity Treasury instruments) exceeds that which would be normally justified by the instrument’s underlying risks.

We determine whether an instrument is “attractively valued” using our own proprietary quantitative framework to help assess each security’s long-term return potential.

If an investment’s excess return potential declines, the Fund is likely to sell part of its position.  Conversely, if the valuation becomes more attractive (typically from a price decline), the Fund is likely to increase the size of its investment up to a concentration limit.  When an instrument is no longer trading at an attractive valuation, according to this framework, the Fund aims to sell the investment entirely and invest the proceeds in cash or Treasury instruments until it identifies another attractively valued investment.

Risks

Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk; investments may be worth more or less than the original cost when redeemed.

The value of some asset- backed securities and mortgage-backed securities may be particularly sensitive to changes in prevailing interest rates and are subject to prepayment and extension risks, as well as risk that the underlying borrower will be unable to meet its obligations.

Below investment grade bonds, commonly known as junk bonds, are subject to a high level of credit and market risks.

The Fund also invests in derivative instruments, investments whose values depend on the performance of the underlying security, assets, interest rate, index or currency and entail potentially higher volatility and risk of loss compared to traditional bond investments.

International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards. Prices of emerging market securities can be significantly more volatile than the prices of securities in developed countries, and currency risk and political risks are accentuated in emerging markets.

The Fund may engage in certain investment activities that involve the use of leverage, which may magnify losses.

A significant investment of Fund assets within one or more sectors, industries, securities and/or durations may increase its vulnerability to any single economic, political, or regulatory developments, which will have a greater impact on the Fund's return.

Barclays Capital U.S. Aggregate Bond Index:  covers the USD-denominated, investment-grade (rated Baa3 or above by Moody's), fixed-rate, and taxable areas of the bond market. This is the broadest measure of the taxable U.S. bond market, including most Treasury, agency, corporate, mortgage-backed, asset-backed, and international dollar-denominated issues, all with maturities of 1 year or more.

Credit Quality letter ratings are provided by Standard and Poor's, Moody's and Fitch and are presented as the higher of the three ratings. When a security is not rated by Standard & Poor's, Moody's or Fitch, the highest credit ratings from DBRS and Kroll may be used. Credit ratings reflect the credit quality of the underlying issues in the portfolio and not of the portfolio itself. Issues with credit ratings of BBB or better are considered to be investment grade, with adequate capacity to meet financial commitments. Issues with credit ratings below BBB are considered speculative in nature and are vulnerable to the possibility of issuer failure or business interruption.