Manulife Strategic Income Fund

Analysis: Because of the very active way that this fund is managed, it is a tough one to classify. Most consider it to be a high yield bond fund, but in my view, it is more of a tactically managed global bond fund.

While there is some high yield exposure in the portfolio, it invests in a wide range of fixed income investments including high yield bonds, investment grade corporate bonds, global emerging market debt, U.S. treasuries, and Government of Canada bonds. In addition, it has a dynamic currency overlay that is designed to protect against adverse currency movements.

At the end of November, the fund held approximately 16% in emerging market debt, and nearly two thirds was invested in corporate bonds. Quality was relatively high, with an average credit rating of BBB. The managers set the fund’s sector weights based on their top down business cycle analysis that considers such things as yield spreads, and economic growth. Once the sector mix is set, bottom-up analysis is done to find the securities they feel are best position to benefit from their macro view, with an emphasis on yield generation.

This process is very active. There have been some pretty big significant shifts in the sector allocation over the past several years in order to take advantage of some of the major trends. For example, and 2009 they dramatically increased their exposure to high yield bonds, moving it for more than 10% to nearly 40% of the fund by the end of the year.

Performance has been decent, gaining 4.5% in 2013. For the past five years, it has gained an annualized return of 6.5%. While this may have lagged many of the high yield funds, it has handily outpaced many of the global bond funds.

Looking at the portfolio, I believe that the managers are well positioned for the current fixed income environment. Still, I do not believe that this is a core bond fund. Instead, it is a smaller piece of your overall fixed income allocation.