| Fund Company | Phillips, Hager & North Investment Management |
| Fund Type | Canadian Short Term Fixed Income |
| Rating | Not Rated |
| Style | Duration Management |
| Risk Level | Low |
| Load Status | No Load / Optional |
| RRSP/RRIF Suitability | Excellent |
| TFSA Suitability | Excellent |
| Manager | PH&N Fixed Income Team |
| MER | 0.61% – series D units, 1.15% – Advisor sold units |
| Code | PHN 250 – No Load Units PHN 6250 – Front End Units |
| Minimum Investment | $5,000 |
Analysis: With the recent bump up in yields, many may now be looking for ways to shorten the duration of your fixed income holdings. For those looking to do that, this fund my top pick, particularly if you can access the Series D units, which carry a 0.61% management fee. If you have to pay the full freight of the Advisor Series units, it’s not as attractive an option as the 1.15% MER eats into the returns.
It is a well managed portfolio that invests in a mix of short term bonds and up to 40% in NHA insured mortgages. As of June 30, it holds 16% in mortgages, 53% in corporate bonds, with the balance in government bonds. The focus of the fund is on bonds with maturities of less than five years. The current average term to maturity is 2.7 years. The fund’s credit quality is very high.
While the short term nature of the fund implies that it is a good parking place, it can still experience losses, as we have seen in the past couple of months. In June, it lost 0.6%, and was down 0.4% in May as bond yields shot higher on worries spurred by comments by U.S. Federal Reserve Chairman that the massive bond buying program may come to an end sooner than later.
Despite the losses, it held up much better than longer dated fixed income investments. The DEX Bond Universe was down more than 2% in June and nearly 1.5% in May. While the losses with this fund are unfortunate, it did exactly what it was supposed to do in a rising rate environment, and that is provide better downside protection that traditional bonds.
Looking ahead, I expect that the recent volatility that we’ve witnessed in the bond markets will stick around for a while. Short term bonds, while not immune to losses can play a key role in helping protect your assets by providing better downside protection than more traditional fixed income investments. The Series D units of this fund remain my top pick for short term bond exposure. The Advisor Series units are still a good bet, but not nearly as compelling an option.