We build the BBH Income Fund's portfolio bond-by-bond based on fundamental analysis and our unique valuation framework that allows us to filter the market for potentially compelling values. We also require a Margin of Safety when purchasing credits. The margin of safety varies by the type and rating of the bond. It sets a price cushion that we believe will be likely to define an attractive price for the bond over the longer term, allowing for the cyclicality of credit markets. Repetition of our investment process builds a portfolio of risk exposures consisting of durable credits trading at attractive yields.
We look to purchase credits that possess the following investment criteria:
- Durability: We require that the issuers in our fund possess a durable revenue model and/or collateral. We also assess the business’ ability to withstand a wide variety of regulatory scenarios and economic shocks
- Transparency: The issuer must operate a business model and financial structure that we can identify and understand. The more complex the business model or esoteric the capital structure, the less likely we will invest in the issuer
- Management: Strong management is critical to identifying a durable credit and we identify management teams that maintain a balanced approach toward all capital providers of capital
- Structure: The issuer’s ability to generate adequate internal funding to support its capital structure is critical. We validate that the issuer does not bear excessive debt given the underlying volatility of cash flows, nor maintain an unhealthy reliance on the capital markets for funding