Fixed-income Investment Process

Fixed Income Management Process

Through understanding of the customer’s needs by checking their investment objectives, expected returns, risk tolerance and operational guideline checks, we determine the basic management policies including target duration, investment bond ratings, and etc. Under basic management strategy we will construct our portfolio by adding undervalued assets which can henceforth give high returns. We will re-adjust the direction of investment strategy and portfolio through periodic assessment of benchmark performance.

Step. 1 Operation Strategy
- Check external guidelines
- Market environment analysis and forecast (Estimate trend phase)
- Decide management strategy (Target duration, Credit level)
Step. 2 Portfolio construction
- Search for high return-generating assets
- Excavate and include relatively undervalued assets
- Dealing Position Open (within guideline)
Step. 3 Performance Analysis
- Evaluate adequacy of return, duration, and asset composition
- Analysis of profit contributions from investment sector and maturity
- Check investment goals and rebalance portfolio according to needs

Feed-Back

Fixed Income Research Process

Fixed Income research task consists of analysis of basic conditions of economy (fundamental), interest rate prospects, and money market movements. Internal research within fixed income department and external research which are provided by brokerage houses, bond pricing agencies, credit rating agencies and etc. are comprehensively utilized. There is no separate research team for the fixed income department, hence each fund manager is under a dual role system in which they are in charge of fund management and sector research. The fund managers share their responsible sector information in stand meetings, and regular strategy meetings to assist in actual operation.

Fixed Income Research System

Internal Research

Fixed Income
Division

Fundamental
Money Market
Interest Rate
Outlook
Credit Trend

Coordination

Research Sector

Fund Managers responsible for their own sector (fundamentals, money market, interest rate outlook and credit)

Each manager is responsible for expressing their opinions about their respective sector through collecting data and information management.

External research source

Periodically secure sell-side research data (Selection of five external resource sources for reference in weekly meetings)
Network with other sources

External company rating system

Utilization of credit reports from three major credit rating agencies
Utilization of Korea Investors Service (KIS) Database and Bondweb
Utilization of company valuation tools provided by KIS-NET

External research

Split management of each fund manager’s fund within the concept of team management

It is better to have the individual manager responsible for the outcome of the fund rather than holding the team responsible

* But, fund managers are actively involved in strategic decision making process of team in order to prevent cases of extreme dogmatism.

Unique team management format of the MIDAS fixed income team

Manager’s dual role: standing meetings to share information if problems exist within their respective sector

* Fund managers request and share information about sectors that other managers cover

Ideal implementation of team approach system

Dual Role
Management of responsible fund	Research of responsible sector

Responsible sector follow-up

Contribution to information sharing and deriving management strategy

Application within the range consistent with respectful fund