Hi courageous gladiators at Dday -3,
An investment firm manages a broadly diversified portfolio of global investment-grade and high yield corporate bonds for its clients. The Fixed Income team consists of a portfolio manager and three credit analysts who review and manage the portfolio. The portfolio manager uses a top-down approach while the credit analysts use a bottom-up methodology.
We are in Fixed Income Attribution and they are asking to contrast Top-Down vs Bottom-Up Approach and came up with this answer concerning Bottom-Up :
The bottom-up approach used by the credit analysts focuses on company-specific fundamentals such as ratings, revenues, earnings, cash flows, and new product developments. The bottom-up approach searches for undervalued securities and is sector neutral.
I am confused, how are they sector neutral ?
Isn’t Sector/Quality Effect the added value the manager would derive at his micro level from overweighing or underweighting a sector vs the benchmark ?
Or are we saying we are at the Micro Level (and I misread by thinking there was a Macro Level using Top-Down and a Micro Level using Bottom-Up) and that in this team they have one side in charge of determining normal weights to sectors but still at the Micro Level (using Top-Down approach) and the other team using Bottom-Up to pick undervalued securities but being neutral to the sector ? Sounds like it could be that.
I am scared I am mixing things up with Top-Down approach at the sponsors level (Macro Attribution) and Bottom-Up approach at the Fixed Income Portfolio Manager (Micro Attribution), which isn’t great 3 days before D-Day …