Stocks and Bonds Have Value

Jesse Koepp
Senior Client Relationship Manager

Benjamin Graham, the father of value investing, recommended a balance between stocks and bonds for investors who do not feel that 100% equities fit their objectives. Although we believe that investors should utilize stocks to build wealth over long time periods, we understand the need that some people have toward owning fixed income securities.

Fenimore’s fixed income objective is to invest in a diversified portfolio of fixed income securities in order to provide capital preservation with income generation. Our security selection process is focused on quality and positions are most commonly held until maturity. Our strategy may invest in corporate bonds, U.S. Treasury securities, certificates of deposit, and/or U.S. government securities, including agencies and other fixed income instruments.

We utilize fundamental financial analysis to determine the financial strength of the issuer and its ability to repay its obligations and interest payments until maturity. While we are cognizant of bond ratings, we rely on our own assessment of credit risk. That being said, Fenimore will primarily invest in fixed income securities with ratings that range from BB to AAA. When investing in bonds, we attempt to identify individual fixed income securities that offer yield and credit spreads to compensate for the risks inherent to the particular security.

Our strategy is not subject to any maturity or duration restrictions for fixed income securities and will vary its average dollar-weighted portfolio maturity and duration depending on the current interest rate environment. Presently, our strategy concentrates primarily on issues that mature in 1 to 10 years. Fenimore believes that a portfolio can be adequately diversified with a minimum of 20 securities from across different sectors of the market. At times, we may overweight areas that we believe offer significant potential versus other areas of the market.

Given the current interest rate environment and the continued uncertainty of the Federal Reserve’s actions, we have remained cautious and positioned our fixed income portfolios with a short duration. This may help mitigate swings in bond prices should interest rates suddenly rise. If and when rates increase, we believe Fenimore will be in a position to take advantage of the opportunity for clients by reinvesting our portfolios of laddered bonds at higher rates.

In addition to a separately managed fixed income portfolio, Fenimore can tailor a balanced portfolio, of individual stocks and bonds, that meets the growth and income needs of the client. Each allocation may be different depending on client variables such as time frame, income needs, risk tolerance, etc.

To learn more about Fenimore’s fixed income offerings please visit the link provided.

Please see Fenimore disclosure.