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During the quarter, there were a number of changes to the Recommended List.
The changes are:
Additions
RBC Global Corporate Bond – We like this fund for a number of reasons. First, it is expected that corporate bonds will outperform governments when rates move higher. This fund invests exclusively in corporate bonds. Second, the duration is shorter than the benchmark which will help mitigate the impact of rising interest rates. Third, all currency exposure is hedge and fourth, the historic risk reward profile is very strong compared not only to the index, but also the global fixed income category.
Manulife Strategic Income Fund – We like this fund because of the way that it is managed. It is a tactically managed bond fund that invests in a wide range of fixed income sectors including global government bonds, investment grade and high yield corporate bonds. It also employs a dynamic currency management strategy to help add return and provide downside protection.
Deletions
TD Real Return Bond Fund – This fund was removed from the list on valuation concerns of real return bonds. Recently, yields on Real Return Bonds touched historic lows of 0.30%. Further, the duration of the fund is 15.1, leaving it susceptible to any increase in interest rates, in the absence of inflation. We believe that the risks to the downside for real return bonds are as high as they have been in recent memory.
Mackenzie Cundill Value Fund – The main reason for this fund’s removal from the list is that its volatility profile has risen dramatically in the past several quarters. Historically, the Cundill Value Fund had exhibited a level of volatility that was in the lower half of the category and was below the benchmark. That has changed and the volatility is now significantly higher than the benchmark and is in the upper half of the category. Based on information provided to us by Mackenzie this increase in volatility has occurred as a result of the fund’s deep value style. However, based on the history we have observed in our ten years of following the fund, this uptick in volatility is out of character and not consistent with the risk reward characteristics we had initially recommended. We will be continuing to follow the fund and have a conference call scheduled with the fund managers in late August.
BMO Guardian Global Technology Fund – This fund was removed from the list because it was liquidated during the quarter.