Dynamic Advantage Bond Fund

Analysis: Managed by the team of Michael McHugh and Dominic Bellissimo, we believe this fund is well positioned for the current interest rate environment. First, it is heavily weighted to corporate bonds, with some exposure to high yield. This will increase the yield generated by the portfolio, allowing for higher returns in a flat rate environment and better downside protection when rates move higher. Second, approximately 10% of the fund is in investment grade foreign bonds, which will lower the sensitivity to Canadian interest rates. Third, the manager is actively working to control duration by using a number of strategies including selling long bonds, selling bond futures short and the use of floating rate notes.

Using these strategies, the fund has set itself up to provide better downside protection when rates rise. In reviewing the historic upside and downside capture ratios over the past five years, we found that it captured about 75% of the upside of the DEX Universe Bond Index, yet only experienced a third of the losses.

Another thing that we like about this offering is that it one of the few remaining bond funds that is available in a corporate class version, which means that investors in non registered accounts can better manage their tax burden. On an after tax basis, the returns have more than offset its higher costs when compared to a comparable ETF.

Looking at the performance during May, the process is definitely working. The DEX Bond Universe Index dropped by nearly 1.5%, while this fund, with its defensive positioning was lower by 1.0%.

Despite posting a loss during May, it is our opinion that this fund remains one of the best bond fund picks for very conservative investors. We believe that the defensive positioning will protect investors when yields are pushed higher.