Mr. Macdonald: Aviva Investors is a global asset manager fully owned by a company called Aviva Plc, a U.K.-based public company and the fifth largest insurance company in the world.
Aviva Investors has about 360 billion in assets under management, and that's a combination of assets that we manage for the affiliate insurance companies and then also for other institutional clients. Here in North America, Aviva Investors has about 50 billion under management, and of that about 6 billion we manage here in Canada under Aviva Investors Canada. My role is to head the group in Canada. Given that our parent company is a global insurance company, a lot of the portfolios that we've historically managed are fixed income. We therefore have a strong heritage in that fixed income and risk management space. The portfolios that Aviva Investors manage here in Canada and most of the portfolios that we manage in the U.S. are fixed income portfolios, utilizing all the various fixed income asset classes. The overriding philosophy that we have for our portfolios is to provide consistent value added for the end client over the entire cycle. We are predominantly and historically have been a participant in the credit markets or the corporate bond markets. We believe that those markets are structurally inefficient, so you can add value in those markets - unlike the government bond markets, which are very efficient. And we believe that corporate credit is really where our core competency lies, whether it's in the investment-grade, high-yield, securitized or private debt market.
TWST: Tell us about the investment process. I believe you have a top-down and bottom-up approach.
Mr. Macdonald: It's a well-defined process and a lot of this has evolved from managing insurance portfolios. When you are running insurance money, investment processes tend to be very well defined and rigorous, with a strong risk management philosophy. You're right, our process is a combination of the top-down and the bottom-up. On top of this is something we call our FTV framework, which is the cornerstone of our process. FTV stands for fundamentals, technicals and valuation; it is the analytical framework that the research team uses to analyze and value credits, companies and their securities in the credit markets. That really feeds into the bottom-up part of the equation, which leads to security selection. The top-down component involves the portfolio management team making a six-month forecast of each of the asset classes, which is done every six weeks. We'll forecast the rate of return for government bonds, investment-grade bonds, high-yield and securitization markets, etc. The portfolio construction really comes about by the intersection of those two components, the top-down and the bottom-up.
I should mention that at Aviva Investors, the credit research is equal and yet independent from portfolio management. Our analysts do not report into any portfolio managers; they report to the head of research. We think that's an advantage versus shops that don't do that because when analyzing a company and valuing its securities, our credit research team can do so independently of our portfolio managers. It lends more rigor to the process. Secondly, when we talk about FTV, a lot of fixed income asset managers don't really consider the "V," or valuation portion when performing credit analysis. Valuation is traditionally in the domain of the portfolio manager, but our research team very much looks at valuation as part of the overall process.
What occurs after the intersection of top-down and bottom-up is the portfolio construction. Out of the FTV framework comes a score on each security, which reflects the strength of the underlying recommendation. The FTV is linked to portfolio construction by another framework called BONUS that stands for buy, outperform, neutral, underperform and sell. Clearly the bonds that go into the portfolio that are rated "buy" will have a much higher weight than those rated less than that. That's really how portfolio construction occurs. It is a fairly rigorous framework that we use to build portfolios, and buy and sell securities.
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