| Fund Company | Phillips, Hager & North Investment Management |
| Fund Type | Canadian Bond |
| Rating | $$$$ |
| Style | Multiple |
| Risk Level | Low |
| Load Status | Optional |
| RRSP/RRIF Suitability | Excellent |
| TFSA Suitability | Excellent |
| Manager | PH&N Fixed Income Research Team since July 2000 |
| MER | 0.60% |
| Code | PHN 340 – No Load Units |
| Minimum Investment | $500 |
Analysis: Despite the threat of rising interest rates, fixed income investments should form the cornerstone of most investment portfolios. Rates have been hovering near historic lows and many are expecting them to begin moving higher in 2013. When this happens, the value of fixed income investments will fall.
While some decline is inevitable, not all fixed income funds are created equally. For example, those funds with more exposure to corporate bonds are expected to hold their value better. This is because corporate bonds typically pay a higher rate of interest than government bonds, which reduces their sensitivity to rising rates. Also, funds that have a shorter term to maturity are also expected to hold their value better when rates move higher.
The PH&N Total Return Bond Fund both of those covered. It has significant exposure to corporate bonds, holding nearly 49% of the fund in corporate bonds and 6% in Government of Canada bonds. The fund also has a healthy 32% exposure to provincial bonds, which offer high yields than Canada’s and should outperform in a rising rate environment. It has a shorter average term to maturity than the benchmark DEX Bond Universe, and nearly half the fund is in bonds with maturities of less than 5 years. It is a very high quality portfolio, with nearly 85% rated “A” or better.
The fund is managed in a very similar fashion to the PH&N Bond Fund, but can utilize a few nontraditional strategies including the use of high yield bonds, mortgages and derivative strategies. As a result, it has outpaced the PH&N Bond Fund recently and we expect that trend to continue in the near to medium term. This opinion is based on two key factors. First, the managers have a number of different strategies in their toolbox that will allow them additional flexibility to add yield and protect capital. Second, it has a smaller asset base, which allows the managers to be more nimble.
We believe that this fund is a great core holding for most investors. It exhibits relatively low levels of volatility and has shown low to negative correlation to the equity asset classes. This will allow it to help reduce the overall volatility of your portfolio and help provide better downside protection in volatile markets.