Q&A Series

Our ongoing Q&A series features Carillon Tower affiliate managers sharing their diverse investment philosophies and thoughts on the market.

Todd Thompson, CFA Q&A with Todd Thompson, CFA
Managing Director, Portfolio Co-Manager, Reams Asset Management

Reams Asset Management, an affiliate of Carillon Tower Advisers, is a fixed income specialist whose mission is to provide institutional quality investment expertise and unmatched client service to a diverse group of investors. It applies a consistent process across a range of products and customized client solutions. Learn more from Todd Thompson, CFA, Portfolio Co-Manager of the Carillon Reams Core, Core Plus, and Unconstrained Bond Funds.

What is the Reams investment team’s structure and approach?

We have a lean and long-tenured investment team that uses a flat structure and as few formal meetings as we can get away with. Constant communication, collaboration, and input from the entire team are very important to us. We manage all of our portfolios using a team-based approach, and there are no individual portfolio managers overseeing their own strategies.

We also take a generalist rather than specialist mindset regarding bottom-up research and rotate sector coverage every two years. We believe this helps analysts avoid developing tunnel vision with respect to their coverage areas or championing “their names” without enough regard for relative value considerations across the entire portfolio. In addition, this coverage model encourages broad participation when we are discussing the merits and risks of a specific issuer, bringing multiple viewpoints to bear rather than relying on just one individual to form an opinion on a given security.

What are the tenets of Reams’ investment philosophy?

One pillar of our investment philosophy is to be opportunistic and respond to volatility in credit spreads and interest rates. We react to relative value opportunities as they arise, rather than relying on economic forecasting and predicting market movements. A natural offshoot of this mindset, and a key differentiating feature versus many of our peers, is that we focus on delivering attractive total returns over a full market cycle, not on maximizing portfolio yield or generating a high level of current income. In order to be truly opportunistic within fixed income, you cannot also blindly follow a yield-oriented approach.

Another pillar of our approach is how we define risk: permanent loss of principal or the inability to meet investment objectives, not volatility or tracking error versus a benchmark. We also avoid backward-looking risk measures and “risk-budgeting” techniques. Instead, we prefer to manage risk through stress tests and scenario analysis on individual bonds and the overall portfolio.

Finally, we believe our size allows us to invest in niche areas of the market that are typically overlooked by larger fixed income managers. These segments of the bond market are often priced less efficiently, frequently giving rise to relative value opportunities that we seek to capitalize on. Our size also allows us to be nimble and flexible in terms of managing portfolio exposures, shifting positions dynamically in response to a constantly evolving opportunity set.

Can you describe the investment process the team employs?

At a very high level, the Reams Investment Committee, which is comprised of our CIO Mark Egan, our co-founder Bob Crider, and myself, directs high-level macro themes such as duration positioning, yield curve strategies, and sector rotation calls across all three of our funds. The credit and securitized teams implement these top-down views and are also responsible for bottom-up credit research and security selection, including downside risk assessment based on scenario analysis. We use a decision grid to determine which investment ideas are appropriate for each of our funds, based on their specific portfolio construction parameters and guidelines. Our team also uses an in-house attribution system that provides real-time feedback on sources of return and risk.

What factors do you think are the most important for investors to watch in 2022?

Inflation emerged with a vengeance in 2021, driven by several underlying factors including pent-up consumer demand, supply chain shortages, and pockets of tightness on the labor market. Understanding the root causes and expected longevity of elevated inflation levels will be critical to assessing capital markets in 2022. The unemployment rate in the U.S. continues to plummet and is rapidly approaching 4.0%, reflective of strong labor markets. With the participation rate still soft and demographics shifting as baby boomers retire, upward pressure on wages could be more structural in the near term and help keep inflation elevated, potentially undermining the recovery in gross domestic product (GDP) growth.

Inextricably connected to this topic is U.S. Federal Reserve policy, both the standard removal of emergency accommodation measures and the Fed’s potential reaction if high inflation proves to be sticky in 2022. Given the ever-shifting nature of the Fed’s goalposts, not to mention the conflation of its dual mandate (full employment, price stability) with a shadow imperative to prop up risk assets, the Fed’s statements and actions over the coming year will undoubtedly influence interest rates and in turn capital markets.

Finally, we must once again mention COVID-19 as a potential driving factor in 2022. Despite massive vaccination programs launched nearly a year ago, availability and participation have been uneven on a global basis. The virus continues to linger and have far-reaching health and economic implications, both here and abroad. Ongoing virus fears have prevented many businesses from fully reopening, curtailed many in-person events that impact economic activity, and suppressed both business travel and tourism. Concerns over contracting COVID, disruptions to education and childcare services, vaccine mandates, and strict workplace policies have also combined to keep a large number would-be workers at home and out of the labor force. If these conditions persist well in 2022 they could create additional labor shortages that continue to pressure wages higher in an already tight labor market, adding more fuel to the inflation fire. Conversely, additional variants and waves of infections may threaten the ongoing recovery, causing the current stretch of rapid GDP growth to dissipate almost as quickly as it arrived.

What are the main differences among the Carillon Reams Core Bond, Core Plus Bond, and Unconstrained Bond funds?

All three funds are managed by the same team, using the same overall investment process, and will therefore typically have similar top-down macro positioning, at least in a directional sense. In addition, there is often a high level of overlap in terms of the individual bonds held across all portfolios, subject to fund guidelines of course, although the weights may differ. In terms of formal guidelines, our Core Bond fund is designed primarily as an investment-grade and U.S.-dollar only fund. The Core Plus fund allows up to 25% in high-yield bonds and can also invest in non-U.S. dollar securities. As the name might suggest, the Unconstrained Bond fund has few constraints in terms of sector weights and security types. The Unconstrained fund does not have a stated limit on high-yield exposure, but it would be rare for the weight to exceed 65% or 70%. For the Unconstrained fund, portfolio duration is generally no more than 8 years and can be negative, with an effective range of -3 years to +8 years.

ABOUT Reams Asset Management

Reams Asset Management is a fixed income investment management firm whose mission is to provide high-quality investment expertise and unmatched client service. We apply our consistent investment process across a range of strategies, seeking to take advantage of volatility and react opportunistically to price and valuation dislocation in the bond market. Reams offers clients customized solutions that seek to maximize risk-adjusted total returns over a full market cycle and across a range of fixed income strategies.

To learn more about Reams Asset Management click here or contact us at 800.421.4184.

Reams Asset Management is a registered investment adviser that offers investment management services for both managed accounts and mutual funds. Reams Asset Management is a wholly owned subsidiary of Carillon Tower Advisers, Inc.

Risk Considerations:
The return of principal in a fixed income fund is not guaranteed. Fixed income funds have the same interest rate, inflation, issuer, maturity and credit risks that are associated with underlying fixed income securities owned by a fund. Mortgage- and Asset-Backed Securities are subject to prepayment risk and the risk of default on the underlying mortgages or other assets.

High-yield securities involve greater risk than investment grade securities and tend to be more sensitive to economic conditions and credit risk.

Foreign investments present additional risks due to currency fluctuations, economic and political factors, government regulations, differences in accounting standards and other factors. Investments in emerging markets involve even greater risks.

Derivatives such as options, futures contracts, currency forwards or swap agreements may involve greater risks than if the Fund invested in the referenced obligation directly. Derivatives are subject to risks such as market risk, liquidity risk, interest rate risk, credit risk, and management risk. Derivative investments could lose more than the principal amount invested. The Fund may use derivatives for hedging purposes or as part of its investment strategy. The use of leverage and derivatives investments could accelerate losses to the fund. These losses could exceed the amount originally invested.

A Fund may, at times, experience higher-than-average portfolio turnover, which may generate significant taxable gains and increased trading expenses, which, in turn, may lower the Fund’s return.

The Carillon Reams Unconstrained Bond Fund employs an unconstrained investment approach which creates considerable exposure to certain types of securities that present significant volatility in the Fund’s performance, particularly over short periods of time.

Short-sale risk includes the potential loss of more money than the actual cost of the investment, and the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.

Duration is a measure of the sensitivity of the price of a bond to a change in interest rates.

ABOUT Carillon Tower Advisers

Carillon Tower Advisers is the investment adviser for the Carillon Family of Funds and Scout Investments is the sub-adviser to the Carillon Reams Bond Funds. Reams Asset Management is a division of Scout Investments. Scout Investments is a wholly owned subsidiary of Carillon Tower Advisers. Carillon Fund Distributors is a wholly owned subsidiary of Eagle Asset Management (a sub-adviser to certain of the Carillon Family of Funds) and Eagle Asset Management is a wholly owned subsidiary of Carillon Tower Advisers. All entities named are affiliates.

Carillon Tower Advisers is a global asset management company that combines the exceptional insight and agility of individual investment teams with the strength and stability of a full-service firm. We believe providing a lineup of institutional-class portfolio managers is the best way to help investors seek their long-term financial goals.

The Carillon Family of Funds spans a range of investment objectives and asset classes designed for long-term investors. Whether fixed income or equity, domestic or internationally focused, our autonomous investment teams and portfolio managers are committed to fundamental research and active risk management in the pursuit of consistent performance as well as a client-first approach.

CFD20-0861 | 12/31/2022

Please consider the investment objectives, risks, charges, and expenses of any fund carefully before investing. Call 1.800.421.4184 or your financial professional for a prospectus, which contains this and other important information about the funds. Read the prospectus carefully before you invest or send money.

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