Chip Carlson, CFA, President of Corbyn Investment Management, joined Keith Black, Managing Director of RIA Channel, to discuss Corbyn’s view of active management.
Corbyn Investment Management specializes in short-duration high-yield bonds and value investing for equities. Its goal is to reduce volatility in both equity and fixed-income investments. Historically, Corbyn offered balanced equity and fixed-income exposure in separately managed accounts (SMAs) and the Greenspring Fund.
After feedback from financial advisors who wanted to make their own asset allocation decisions, Corbyn transitioned from balanced investing to funds focused exclusively on either equity or fixed income exposures. Carlson is one of the portfolio managers of both the Greenspring Income Opportunities Fund (GRIOX) and the Cromwell Greenspring Mid Cap Fund (GRSPX).
Carlson states that mid-cap stocks are less efficiently priced than large-cap stocks due to lesser coverage by Wall Street analysts, offering an opportunity for experienced active managers to add value. Given the increasing concentration in large-cap portfolios, advisors are looking to add diversification into the mid-cap sector. Midcap stocks appear undervalued, as they are trading at a ten-year low relative to the S&P 500 based on forward price-to-earnings ratios. The Cromwell Greenspring Fund Mid Cap Fund (GRSPX) invests in well-managed mid-cap companies that generate substantial cash flows and have strong capital structures.
The Greenspring Income Opportunities Fund (GRIOX) invests in short-duration high-yield bonds. Carlson and his team use active credit analysis and the same investment philosophy previously offered in SMAs and the balanced fund. Corbyn seeks to identify the debt issue that the CFO wants to retire most quickly, which can be the highest coupon, the shortest maturity, or the debt with the most restrictive covenants. Ideally, the debt is retired before maturity, which reduces its duration and volatility.
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