Given the somewhat unique mandate of this fund, it’s a tough one to classify. It invests in a diversified portfolio of bonds, right across the credit spectrum, ranging from AAA rated government bonds to high yield.
The investment process is a blend of top down macro analysis, which helps the team set the mix of investment grade and high yield, and fundamentally driven, bottom up credit analysis that helps evaluate the individual securities. They use a relative value type approach, looking for securities that are trading below what the teams believes they are truly worth.
There is no minimum or maximum exposure to high yield in the fund, and it will range based on the opportunity set. At the end of March, it held approximately 11% in cash, 47% in high yield, and 41% in investment grade bonds.
Even with a significant portion of the portfolio invested in high yield, the managers will look to preserve capital, rather than chase yield for the sake of yield. This results in a more defensively positioned portfolio than you may see from other high yield offerings. The upside is you get potentially lower volatility, but the downside is you will likely lag when the high yield markets are rallying.
Performance on an absolute basis has been somewhat mediocre, gaining an annualized 4% over the past five years. However, factoring in the lower volatility the fund has experienced, and performance is well above average, on a risk adjusted basis.
If there is a drawback to the fund, it is its cost. With an MER of 2.11% it is a bit pricey when compared with other quality high yield and global bond offerings.
Ultimately, I believe the emphasis on quality and capital preservation will help investors looking for conservative access to high yield offerings. It is certainly not a core holding, but rather a compliment to your otherwise well diversified fixed income sleeve.