Fixed Income Research Analyst Interview

I have a phone interview (1 hour long) with an independent recruiter late next week for the following position. How in depth would you expect the phone interview to go with the recruiter? Should I have specific fixed income investment suggestions at this point? Any topics you think i should not overlook? I would normally think of myself as an equity minded guy but I would be definitely excited about getting into FI. I have not had much experience with only FI so I am not exactly sure on what to expect. This would be for an independent broker/dealer doing research for their financial advisors. This individual will conduct in-depth research and write concise, actionable recommendations and thought pieces. The Research Analyst will be responsible for maintaining coverage of mutual funds and separate account managers; assisting advisors in constructing individual bond portfolios; assembling and reviewing bond market data to conduct in-depth, comprehensive analysis in order to make effective, educated assessments and buy/sell recommendations. This position will also afford the opportunity to take an active role in interviewing outside portfolio managers. The Research Analyst will be responsible for authoring written research reports and participating in ad hoc projects as necessary. The ideal candidate will have superior verbal and written communication skills in conjunction with an ability to develop strong interpersonal relationships both internally and externally. The successful candidate will have a history of high performance, the ability to take proactive initiative and follow through on projects independently. In addition, he/she will possess strong quantitative and qualitative skills and the ability to work independently and as part of a team. Self-motivation, high-energy, tenacity, perseverance, attention to detail and a passion for investing are additional attributes of the successful individual.

A few months ago, I decided to try to start understanding fixed income strategies, so I spent a few hours researching them and the following is a summary of my research (hope this helps some): General Fixed Income Strategies 1.) Make sure to be laddered (maturities: 6 month, 1 year, 2 years, 5 years, 10 years, etc.) 2.) Because non-Treasuries are usually sold in $10,000 increments, it takes about $100,000 to properly diversify bond holdings; no management fees and less interest rate sensitive because of definite maturities 3.) For instant diversification, invest in bond funds/bond ETFs; professionally managed, requires only $1,000-$5,000, highly liquid, has high interest rate risk due to indefinite portfolio maturity 4.) Invest 401(k) funds in best possible yields (usually means L-T) because taxes are deferred Strategies when interest rates rise 1.) Shift money into commodities (currency, gold, oil, etc.) as a hedge (higher interest rates hurt both stocks and bonds). 2.) Buy high-yield (or junk) debt because their yields are less sensitive to changes in interest rates. Investors typically judge high-yield debt by a firm’s ability to pay 3.) Shorten the overall maturities of your bond portfolio (to protect principal) 4.) Purchase floating rate bonds Fixed income tax strategies 1.) Remember that zero coupon bonds are taxed each year based on their accreted value (could be good buy for tax-deferred accounts). 2.) One may sell a bond that has declined in value and recognize the loss as a deduction to taxes Note: one may repurchase a similar bond, but if it’s within 30 days, the bond must be materially different Material difference: issuer, coupon, and/or maturity 3.) Municipal securities are exempt from federal taxation 4.) Federal treasuries are exempt from state taxation Strategies when interest rates fall 1.) Buy bonds 2.) Duration concept: the higher a bond’s coupon/yield and the lower the time to maturity, the less volatility; therefore, if you believe interest rates will decline, purchase bonds with low yields and longer terms until maturity (i.e. L-T US Treasuries) in order to maximally profit off of a bond’s sensitivity to interest rate changes Fixed income strategies during recession 1.) Shift money into corporate and high-yield debt because during recession higher default risk will cause a wider spread between US Treasuries and corporate debt, thus offering higher yields. As the economy recovers, the yield spreads should tighten, causing the investor to gain from price appreciation

Oh, quick side note: when it says, “strategies when rates rise/fall” that means strategies when an investor is anticipating a rise or a fall, not after it happens. Just an FYI.

kkent, if Canucks buy muncipal bonds, are they still tax free?

Hmm, I’m not entirely sure how commerce is taxed between Canada and the U.S. I think you’d be taxed in Canada at your marginal income tax rate.

kkent, yeah, that’s what I thought too. i had a client ask me that. i referred him to a “tax specialist”.

YM, What kkent posted could be valid strategies for an investor, but do not relate to a fixed income research role. Its saturday, and football is on, so I didn’t read the whole description (mind doesn’t work), but I’ll assume you are talking about credit/bond research. If this is a sell side shop, you will most likely sit in close proximity to your traders, which isn’t common on the equity side. If you are in the investment grade space, it will be largely relative value calls. If you can find out what sector you are interviewing for beforehand, do some reading on the drivers behind the companies. Be prepared to talk about the credit crunch and LBO’s. You could ask about if the analysts use CDS in their recommendations, etc… Sorry…my brain is shut off, but if you have any more questions; post 'em up.

Need a little clarity… The description you pasted seems like it is an analyst for bond manager research not credit/relative value research on individual bonds. Is this correct? Judging by the description it looks like you’ll be recommending allocating more capital to FI Manager A vs. B because A is a short duration strategy, with less corporate exposure, etc. If that’s the case I would brush up on macro analysis and the statistical factors used to evaluate bond managers in varying scenarios, i.e. what % of the portfolio are spread products like corporates, and how that ties into the macro picture with the CP markets shaky, etc. In the other scenario you’d be analyzing the financial strength of, say Pepsi and Coke, in order to decide if the Pepsi 2036 maturity trading +15 bps to Coke is cheap, fair or rich and should you buy, sell or hold the bonds/CDS. If this is the case you need to be able to read Fin Stmts and interpert which company has the best credit profile ie EBITD/Int, Debt/EBITDA, receivables sold with recourse; and then forecast how the business itself is going and how it will impact this stuff.

After actually reading the description, it seems like BOMC is right. My input was geared towards credit research on specific credits, so feel free to ignore what I wrote.

Thanks guys, sorry I have been watching some football these last 2 days and somewhat absent from the computer (although that is a good thing for me sometimes). Yes, BOMC would be correct. This is more of a bond fund research position rather than conducting analysis on individual bond issues. I should get a much clearer picture from the recruiter later this week. One part of the description I left out: “The Research Analyst will interface with executive management and will have the opportunity to communicate directly with Advisors on a variety of issues/questions to assist them in managing their clients’ investment portfolios and developing relative value trade ideas.” I would assume then that what FIAnalyst originally posted would apply as well correct? How in depth would you expect the recruiters question to go? I would imagine that they are not as specific as the actual FI department interview and more on fit/character and if you actually follow the news? I have never gone through a recruiter for a job yet so this will be my first experience. Would you expect for them to ask me things along the line of how the First Data deal will effect the debt markets or what the implications are if the fed drops rates by .25% instead of .50%? Or more generic capital market questions to make sure I understand the relationships between everything? Finally, any idea on the compensation range? Thanks for the help.

I think the “other” part of the description probably refers to you speaking with the subadvisor/managers about the portfolio composition, where you think there’s value in the market, if they agree and to what extent they’re working it into the portfolio. Honestly, this is something you should seek clarity on with the recruiter or someone at the firm. Compensation? No idea… depends on where you’re working: brokerage house, trust dept, buy side… again… recruiter. I would definitely be prepared to talk about what is going on in the fixed income market on a macro level (the Fed, subprime, liquidity problems, etc.). Based on the description I doubt you’ll get into specific credit metric talks, etc. but I think being able to talk about how duration affects interest sensitivity, barbells vs. ladders, relative value, etc. are important. Good luck.

Thanks BOMC.

I am now at the point where I will be meeting with the recruiter face to face. They requested that I supply a writing sample for them to submit to the firm along with my resume. Since much of my research experience has been openly discussing investment ideas with my boss, I do not have any written reports authored by myself. I plan on putting something together in the next few weeks but I wondered if I should focus my report on a specific FI fund or on something other than FI? The only reason I ask is if I would hurt my chances by writing on a topic to individuals that are experts on the subject. If I write up something on a different field will they critique the writing sample less? Also, how long would you expect a writing sample to be?

I am taking a shot in the dark here but I think they’re looking for something that demonstrate you can articulate technical knowledge and financial topics in written format. I would be careful about writing up something on a topic you haven’t actually done thus far in your current position. In other words take one of the discussions you’ve had with your boss and build a simple two to three page report on the subject. What type of work do you do now?

Up until now I have been researching retirement plan providers and conducting initial investment selection for our clients. For example when a company wants to offer a 401(k) plan we would help decide which investments they should offer to their employees and then I would assist the participants with individual investment selection. I could take one of our previous clients situations and complete a comparison between two retirement plan providers and the investments available. My other option would be to compare two investments for inclusion in an initial investment lineup for a client. I think I can come up with something along those lines and two to three pages should easily be doable.

I think a 2-3 page write-up comparing some MFs in terms of strategy, performance, style, attributes etc. sounds pretty good. I am little surprised you wouldn’t be writing stuff like that up more formally anyways. Good luck.

Great insight into what the position entails. Perhaps do you have a credit research report sample of high yield bond or investment grade? Please send to