PH&N Total Return Bond Fund

Analysis: While interest rates are likely on hold for the near to medium term, the fact remains that interest rates will be moving higher at some point in the future. Knowing this, many investors may be tempted to move out of fixed income and into even safer investments such as cash. In our opinion, this is not a wise move as we believe that fixed income investments should form a cornerstone of most investment portfolios.

When interest rates do move higher, the value of a fixed income investment will fall. But, 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. As of December 31, it has significant exposure to corporate bonds, holding 43% of the fund in corporates 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 use a number of nontraditional strategies including the use of high yield bonds, mortgages and derivatives. Because of this, it has outpaced the PH&N Bond Fund of late 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 should allow the managers to be more nimble in managing the fund.

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 major 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.