| Fund Company | Norrep Funds |
| Fund Type | Miscellaneous – Income & Real Property |
| Rating | A |
| Style | High Yield |
| Risk Level | Low to Medium |
| Load Status | Optional |
| RRSP/RRIF Suitability | Fair |
| TFSA Suitability | Fair |
| Manager | Bill Holy since September 2011 |
| MER | 1.71% |
| Code | NRP 1101 |
| Minimum Investment | $5,000 |
Analysis: This is not your father’s short term income fund. While a more traditional short term bond fund invests mainly in high quality, investment grade short term bonds issued by governments and corporations, this fund invests mainly in short term high yield bonds and senior loans. At the end of September it held 44% in high yield, and 33% in senior loans. The rest of the portfolio was 9% cash and 14% in investment grade bonds.
With the emphasis on high yield and loans, credit quality will be lower. For example, the TD Short Term Bond Fund is invested fully in bonds that are rated BBB or above. In comparison, the Norrep offering has more than half invested in bonds rated below BB.
The result is a portfolio that offers a much higher yield. At the end of September, the yield to maturity was listed at 5.3%. This is nearly three times the yield offered by more traditional short term bond funds. Duration is comparable, coming in at 2.3 years.
Performance, particularly over a three year period has been strong, gaining an annualized 3.87% to the end of September. This handily outpaced its peers. Over the same period, the TD Short Term Bond Fund gained 1.45%, while the PH&N Short Term Bond & Mortgage Fund was up by 2.09%.
With the higher risk investments, it is not unexpected to see that volatility has been higher than with the more traditional offerings. Surprisingly, it has only shown a loss in 3 of the past 36 months. Going forward, I would expect this to increase, as the lower quality offerings may suffer at the expense of higher quality bonds as investors move into higher quality investments during the market volatility.
While I like this fund, it is not for everybody. It is higher risk than the more traditional short term funds available. If we see any sort of a liquidity issue in the high yield or senior loan market, the fund could experience a larger drop. I also expect that it will lag during periods of market volatility, as the riskier bonds are sold off as investors flee to the safe haven of government debt. Still, over the long term, if you have an above average appetite for risk, this may be a decent spot for your short term money. If you’re not comfortable with the prospect of a loss of capital, you will want to avoid this and focus on a fund that invests in higher quality issues.