PH&N Total Return Bond Fund

Analysis: Despite the recent bump in yields, I still believe that fixed income should form a cornerstone in most investment portfolios, and the PH&N Total Return Bond Fund, particularly the Series D version remains one of my favourites.

What I like about this fund is that it is managed by the PH&N Fixed Income Team, which is one of the best on the street and have continued to put up strong risk adjusted numbers year after year. It is managed in a very similar fashion to the PH&N Bond Fund, but can use a number of nontraditional strategies including high yield bonds, mortgages and derivatives to help protect downside and add incremental return. Because of this, it has outpaced the PH&N Bond Fund of late and I 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 should allow the managers to be more nimble in managing the fund.

As of June 30, it holds more than half of the portfolio in corporate bonds, 30% in provincial bonds, 14% in government bonds, with the balance in cash and mortgages. It offers a yield to maturity of 3.1%, which is slightly above the DEX, with a duration of 6.6 years, which is neutral to the benchmark. Credit quality is very high, with only 3% invested in bonds that are rated BB or lower.

I believe that this can be a great core fixed income holding for most investors. The Series D units are considerably more attractive than the advisor sold units which carry an MER that is nearly double the 0.60% MER of the D-units. If you can’t access the Series D units, you may be better off looking at an alternative such as the Dynamic Advantage Bond Fund, which while more expensive offers better downside protection than the more expensive advisor sold units.