Feb 2026 On-Site Visit with Sage
Overview of Sage
On February 11, 2026 we conducted an on-site visit with Sage Advisory Services, our professional bond SMA manager based in Austin, Texas. Sage manages over $30 billion in assets with a team of roughly 60 professionals. During our visit, Bob Moser introduced us to key members of the firm across portfolio management, research, trading, and client service. What stood out most was the longevity of the team—every individual we met has been with the firm for at least 15 years, reflecting a stable culture and consistent investment philosophy. We are also their only direct private client relationship, which provides us with a highly customized experience. Their office environment—located in a residential area of Austin in a building they own—mirrors the firm’s long-term orientation and disciplined approach.
Investment Process
Sage’s bond selection process is driven by deep, proprietary credit research. The team maintains internal ratings on public corporate bonds and actively compares those assessments to agency ratings from firms such as S&P and Moody’s. Differences between their internal view and the commercial ratings often create opportunity. For example, they believe Moody’s tends to downgrade issuers more frequently than fundamentals warrant, which can create attractive entry points. Sage's approach incorporates both bottom-up security analysis and top-down industry perspectives, while carefully managing portfolio characteristics such as duration and yield curve positioning. The result is an actively managed strategy with moderate turnover, reflecting their near-term orientation toward identifying relative value.
Portfolio Performance
Performance across both the investment grade (IG) and high yield (HY) SMAs has been strong. Over the past year, the investment grade strategy returned 8.16%, outperforming its benchmark by 0.28%, while high yield returned 9.76%, outperforming by 0.83%. Since inception, the IG SMA has generated an annualized excess return of 0.56%, and the HY SMA has generated 1.12% of annualized excess return.
Sector positioning currently favors banks, finance companies, REITs, energy, and utilities. Sage’s macro outlook aligns with our own mid-cycle framework—moderate economic growth with contained inflation. They noted that much of current capital expenditure activity is concentrated in AI-related investment. Looking ahead to 2026, they expect total returns to be driven primarily by income rather than price appreciation, given tight credit spreads. They are not anticipating significant rate cuts from the Federal Reserve in the near term.
High Yield Discussion
The primary focus of our visit was a detailed discussion of our high yield allocation—specifically how it may behave in a recession and whether our current mix between investment grade and high yield remains appropriate.
Sage presented historical recession analysis showing that BB-rated bonds generated positive returns of approximately 2.5% during past recessions, compared to roughly 4.5% for investment grade bonds. While BB returns were lower than IG returns, they were meaningfully better than riskier assets. B-rated bonds experienced approximately -4% returns, which, while negative, compared favorably to equities (-11%) and CCC-rated bonds (-12.5%) during those same periods.
Importantly, BB/B high yield duration is currently at an all-time low, which provides added resilience against rate-driven volatility. Default experience further supports the higher-quality bias: BB default rates have historically been just 1–3% even during recessions, while B-rated bonds saw default rates of approximately 20% during the Global Financial Crisis and 9% during COVID. This reinforces the importance of maintaining a quality tilt within high yield. Sage also expressed the view that private credit markets could face more significant stress in a downturn than higher-quality public high yield.
From a portfolio construction standpoint, our investment grade strategy has an information ratio of 0.68, and high yield is 0.60, reflecting consistent risk-adjusted value added. That said, due to market appreciation and the absence of rebalancing, our high yield allocation has drifted modestly higher—from 29% in April 2024 to 32% today. One practical solution would be to redirect income generated by the high yield SMA into the investment grade SMA, rather than contributing it externally (assuming donor-advised fund commitments are already met).
Overall, because our high yield exposure is tilted toward higher quality, supported by historically low duration, and aligned with our long-term investment horizon, we remain comfortable with the allocation—with modest rebalancing to maintain discipline. The key takeaway from this discussion is that high yield is an asset class that we can feel comfortable holding throughout the economic cycle.