| Fund Company | Phillips, Hager North Investment Mgmt. |
| Fund Type | High Yield Fixed Income |
| Rating | $$$$ |
| Style | Credit Analysis |
| Risk Level | Medium |
| Load Status | No Load / Optional |
| RRSP/RRIF Suitability | Good |
| TFSA Suitability | Good |
| Manager | Hanif Mamdani since July 2000 |
| MER | 0.89% |
| Code | PHN 280 – No Load Units PHN 6280 – Front End Units |
| Minimum Investment | $5,000 |
Analysis: Having been closed to new investors since November 2010, if you don’t already own units of this great fund, then you are out of luck. After seeing a big jump in assets, management decided to cap the fund to protect existing unitholders. Despite not being open for new investment, we felt that an update was warranted.
The fund is a bit of a different animal than many other high yield funds, focusing on higher quality issues in the high yield space. It focuses on medium quality corporate bonds, convertibles, preferreds and some government debt. Historically, about half of the fund has been invested in bonds that were rated BB or better.
The manager sets the sector mix of the fund based on their relative attractiveness based on the outcome of their macro analysis. Once the sector mix is determined, the managers conduct a fundamental analysis on a number of companies, looking at their free cash flow, and interest coverage ratios to determine quality.
Given the fund’s size, management sought and was granted a slight change to the mandate last year, removing the fund’s cap on foreign holdings, giving it free reign. In reality, given the manager’s strengths, it is unlikely that we will see much of a change to the fund in the near term. As of June 30, it held 49% in the U.S., 4% in other developed countries with the balance in Canada.
It is conservatively positioned with a yield to maturity of 4.9%. Management is focusing on bonds from high quality issuers in non cyclical industries. While the credit quality of the portfolio may be higher than a more traditional bond fund, risk is mitigated through a shorter duration. As of June 30, the fund’s duration was 2.5 years, compared to the DEX Universe, which is closer to 7 years. This means than when rates do move higher, this fund is expected to hold up better than the broader index.
Given the more conservative nature of the fund, its performance can be a bit of a mixed bag. Longer term, results have been very strong, handily outpacing the DEX Bond Universe and Global High Yield universe over the past 10 years. Volatility is also the lowest in the category. Another bonus is that it carries a rock bottom MER of 0.89%.
This has long been one of our favourites in the fixed income space and we expect it to to be for the foreseeable future. We see this as a great way for investors to gain corporate bond exposure in their portfolio while at the same time adding some high yield, without taking on huge risk.