Pennsylvania Trust

Investment Philosophy and Selection Process

Sector Rotation

The Fixed Income Portfolio is managed with a “sector rotation” style. Our managers look at the market in terms of individual sectors, such as governments, municipals, corporates, asset-backed securities, and mortgage securities. Relative valuation between sectors is an important consideration. We invest in sectors that offer superior absolute and relative value with consideration given to the sector’s performance outlook and its historical normal spread to Treasuries. Sectors which Pennsylvania Trust believes are undervalued will generally be over weighted in the portfolio and subsequently sold as they become fully valued.

Active Duration Management

Duration management is based on forecasts of probable trends in interest rates and is performed on a continual basis. These forecasts are supported by detailed analysis of important economic factors and lead to adjustments in the average maturity of our bond portfolios. At the same time, the changing shape of the yield curve is evaluated to determine the spacing of our maturities.

Volatility Management

Volatility management allows us to assess both portfolio and individual security risk given current and potential market movement. Volatility is a comprehensive measure of portfolio risk that captures sector, security, duration, yield curve and other non-traditional sources of risk. This analysis is accomplished through the use of interest rate simulation, sector and security sensitivity analysis, and portfolio modeling which allows us to analyze the effect of interest rate changes on our portfolio.

Yield Inefficiencies

Individual security selection is bottom-up and based upon analysis of each individual investment. As value investors, we seek to identify securities that are inefficiently priced and/or misunderstood. Our focus is on the spread between a specific security and a comparable duration Treasury or peer group issues. Our internal research team is responsible for specific security recommendations.