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We believe that fixed income allocations should reduce total portfolio risk, not add to it--that fixed income should be there when our clients need it most.

EARNEST Partners manages fixed income portfolios across the range of duration targets from short, through intermediate to long.  Our benchmarks include both total return indices and client liabilities.  Across all strategies, the firm seeks to balance performance with capital preservation.  Our process has been used over decades through a range of good economic times and bad from the S&L crisis and the Orange County debacle to the demise of Long-Term Capital Management and WorldCom and finally the recent subprime crisis.  Through all of this, our process stands on sector and security selection and careful portfolio construction while avoiding interest rate guessing and other macro-economic forecasting.

Our investment process begins with an awareness of how large and full of opportunity the domestic bond market is.  We use our Meta Data Sort to identify high potential sectors on such factors as quality, collateral, structure, duration, option-adjusted spread and other factors.  We allocate capital across these sectors in a way that produces a portfolio with the same or better qualities than the benchmark against which it is measured.  While many managers are tempted by yield, we always remember capital preservation is more important with core fixed income investing.  Before investing, we scrutinize guarantees, cash flows, industries and financial statements.  The investment team tests each idea.  Nothing is taken for granted, not even Government involvement.

We believe what matters most is not the promised option-adjusted spread, but the delivered duration-adjusted return after correcting for credit and prepayment losses. 
 

Approved sectors are combined into a model portfolio that considers credit quality, interest rate risk and structure.  The objective is to build portfolios that have a relatively high probability of beating their benchmarks over any rolling three-year period while seeking to minimize the risk of underperformance.  Our portfolios generally have as their targets effective credit quality that is comparable to or better than their benchmarks, duration that is comparable to their benchmarks, and better structure/less prepayment risk than their benchmarks.  We also seek to manage our spread duration and control for contribution to spread beta relative to the benchmark.  And finally, we believe our years of experience and knowledge that every trade matters enables us to add value through security selection.

Our process can be applied to a full range of institutional clients from defined benefit plans to stable value portfolios, from single-premium deferred annuities to rainy day funds, and from mutual funds to long-tailed workers compensation plans.  Our experience with insurance clients and liability matching makes our process a solid choice for Liability-Driven Investing (LDI), for which we work to deliver corporate bond returns with government bond risk.

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