A Strategic Income Fund that is Thriving in a Challenging Bond Market

Carl Kaufman is the co-president, co-chief executive officer and managing director, fixed income at Osterweis Capital Management. He is the lead portfolio manager for the Strategic Income strategy, which he has managed since its inception in 2002. He is also a lead portfolio manager for the Flexible Balanced strategy.

Prior to joining Osterweis in 2002, Mr. Kaufman was a senior member of the convertible bond team at Robertson Stephens, where he focused on technology and biotech securities. Before that, he spent 19 years with Merrill Lynch in its institutional sales office, specializing in convertible bond and equity sales and trading.

As of 4/30/18, the Osterweis Strategic Income Fund (OSTIX) had an annualized return of 6.18% since its inception on 8/30/02. Its performance exceeded that of its benchmark, the Bloomberg Barclay’s U.S. Aggregate Index (AGG), by 278 basis points (the AGG returned 4.03% over that period). It has approximately $6.1 billion under management.

Carl graduated from Harvard University (B.A. in Music, cum laude) and attended the New York University Graduate School of Business Administration.

I interviewed Carl last week.

You were early in adopting an unconstrained approach to managing fixed income. Can you explain how that came about and what you have seen in the years since the Osterweis Strategic Income Fund launched in 2002?

The decision to pursue an unconstrained approach was a natural extension of our firm’s core philosophy. We were founded 35 years ago by John Osterweis with the belief that managing money requires maximum flexibility and should not be ruled by style boxes. Our objective was to create a strategy that provided the opportunity to deliver alpha across market cycles and effectively manage risk.

Our investment strategy was built around the idea that there are two distinct bond market cycles, and leveraging opportunities within each would be the key to generating sustainable returns. The first cycle, which primarily impacts investment grade (IG) bonds, is the interest rate cycle. The second is the credit cycle, which is generally more important for high-yield (HY) bonds, where defaults are a bigger risk. For us, it is critical to have the flexibility to manage exposures as we move through both of these cycles.