Canadian Long Core Plus Fixed Income Strategy seeks to provide relatively high yields and stability of capital by investing in Canadian core fixed income instruments as well as non-benchmark securities, including mortgages and international and high yield bonds. The strategy is actively managed using interest rate, credit, and liquidity strategies, and the duration of the strategy is managed within a +/- two year range relative to that of the strategy's benchmark. Further, the strategy gains exposure to a portion of its government bond allocation through the use of derivatives. This frees up capital to invest in absolute return strategies with the objective of contributing to the strategy’s overall value-added target and outperforming the financing costs of the derivative instruments.
To achieve its investment objective, the strategy will utilize “core” fixed income instruments found in the benchmark, as well as contain a significant allocation to non-benchmark securities, including mortgages, high yield corporate bonds, and emerging market debt. The strategy also employs leverage to achieve its investment objective.
Strategy overview
- Invests primarily in longer term fixed income securities issued by Canadian governments and corporations as well as securities from outside of Canada
- Derivatives will be employed to create additional capital, which will be used to invest in allocations to out-of-benchmark fixed income securities such as, mortgages, global bonds, high yield bonds and absolute return strategies in order to achieve the investment objective
- Uses multiple fixed income strategies for strong diversification and stable returns
- Duration is managed within a +/- two year range relative to the benchmark
- Actively managed using interest rate, credit and liquidity strategies
Our approach
Investment philosophy and style
- The strategy’s primary objective is to add value while controlling risk.
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There are four distinguishing characteristics of the team’s philosophy:
- The use of multiple underlying fixed income strategies to add value
- A conservative approach, with moderate positions taken concurrently in a number of strategies focusing on the risk/reward profile for the strategy and portfolio overall
- An emphasis on risk controls, using strict guidelines and rigorous monitoring
- An emphasis on the use of yield enhancing strategies, such as foreign, corporate and provincial bonds and mortgages
- This approach has been honed over more than thirty years, and aims to provide consistent and predictable added value, whether in terms of total return or in terms of income objectives. The key to achieving these objectives is to have many strategies working for the portfolio at the same time.
Investment process
The team’s four-stage investment process involves:
- Identifying opportunities: The team identifies attractive investment opportunities with favourable risk/reward characteristics by analyzing strategies within a framework of three indicators – economic fundamentals, valuation, and sentiment/technicals.
- Communication, coordination, and relative value analysis: The size of any one position will depend on the strength and consistency of the measurements signaled from the three indicators mentioned above, and the fund manager’s convictions stemming from their own research and input provided by strategy specialists. The team incorporates a comprehensive risk-based approach that includes environmental, social, and governance (ESG) downside risk analysis for applicable types of investments.*
- Portfolio construction: Once the team has identified the appropriate strategies, they analyze them within a total portfolio context in order to build a portfolio containing the best strategies capable of producing stable and predictable returns based on their investment outlook, while mitigating downside risk.
- Monitoring: Performance and attribution is measured and monitored on an ongoing basis to ensure strategies are performing as expected.
*Certain investment strategies or asset classes do not integrate ESG factors, including but not limited to money market, passive and certain third-party sub-advised strategies.
Portfolio construction
- Portfolios are constructed using a consistent and repeatable process, with inputs from many individuals within the PH&N Fixed Income team.
- The team’s multiple-strategy approach means that the portfolio is constructed using a number of precisely-calibrated different strategies, subject to strict risk controls.
- A multi-stage compliance procedure ensures that the portfolio construction process remains consistent and adheres to the team’s guidelines.
- We use proprietary risk systems to monitor and measure the active risk budget for every portfolio the PH&N Fixed Income team manages.
- The Canadian Long Core Plus Fixed Income strategy pursues a number of “plus” strategies that take advantage of securities not included in the benchmark. These typically include mortgages, high yield corporate bonds, and emerging market debt. Each of these strategies are limited in scope and, in aggregate, are not expected to add significant volatility to the portfolio. The Canadian Long Core Plus Fixed Income strategy may also invest in convertible bonds and bonds with warrants, common equity, preferred shares, REITS and income trusts, non-Canadian securities, and non-hedged currency exposure.