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The Paradigm Shift and the Case for Credit

By increasing credit allocations and reducing equity exposure, investors can make their portfolios more resilient to continued market volatility. They can also capture value from the fact that fixed income yields are much more attractive today than equity earnings yield by historical standards. 

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Credit Market Themes in 5 Charts

Q4 2022

2022 was a challenging year for the markets, but we believe there are a number of reasons to be optimistic about fixed income and credit in 2023. Through a series of charts, we highlight the credit market themes and opportunities we are focused on today.
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Value vs. Values

The Evolution of ESG Considerations for Pension Plan Investments

Over the past several years, pension funds have been thrust into the center of the ESG debate due to the influence they have on the actions and practices of large corporations as large stewards of capital. In our article published in The Observer by the Association of Canadian Pension Management (ACPM), we highlight the spectrum of approaches that Plans have taken and how ESG integration complements – rather than compromises on – investment performance.

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The Hurdles Facing Foundations Have Never Been Higher

Responding to a higher disbursement obligation in a lower return environment

In light of the Government of Canada's decision to increase the disbursement quota for foundations, we believe foundation executives and trustees should look to “Active Credit” to improve the return potential of their fixed income allocation.

Cover of The Hurdles Facing Foundations Have Never Been Higher document
Cover of The Hurdles Facing Foundations Have Never Been Higher document
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RPIA Develops a Bespoke Fossil Fuel Exclusion Strategy for Institutional Investors

We are pleased to announce the launch of our new strategy, RP Broad Corporate Bond (Fossil Fuel Exclusion), designed in partnership with our client, University of Toronto Asset Management (UTAM), and in collaboration with FTSE Russell. Learn more about the strategy and how the first-of-its-kind screening approach was developed!

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What Should An Allocator Do With Their Core Bond Portfolio?

Faced with a challenging return environment, pension and endowment investors are presented with some difficult choices. We believe that a thoughtful unbundling of the fixed income allocation can help investors preserve liquidity needs and generate more income than a traditional core allocation without increasing portfolio risk.

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Our Solutions

Our Solutions

We serve a broad range of investors through a variety of solutions catering to their unique investment goals. We apply our differentiated active skillset in all our strategies, which vary from low-risk to higher-risk. Although our toolkit and risk/return levels vary across our suite of products, our credit expertise, proprietary technology, and rigorous risk management is applied throughout. We have collaborated closely with institutional investors in developing several of our strategies to ensure that the portfolio mandate aligns with their long-term investment objectives.

RPIA Develops a Bespoke Fossil Fuel Exclusion Strategy for Institutional Investors

RPIA Develops Carbon-Reduced Fixed Income Solution

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Investment Process

Investment Process

RPIA's approach is to apply a highly active, dynamic investment process that enables us to consistently extract value from the global credit market, driven by security selection. Investors do not need to compromise on credit quality or sacrifice liquidity to improve their portfolio returns. Our active approach can be distilled into four steps:

1. The Investment Committee uses their expertise and experience to collaborate and identify a key theme based on prevailing macroeconomic conditions.

2. The Credit Research Team conducts deep-dive research to determine the most compelling issuer, drawing from their knowledge of the sectors each team member covers.

3. We utilize our proprietary technology and expertise to identify the most attractively priced bond within that issuer's capital structure

4. The Portfolio Management Team sizes the position accordingly within the strategy based on factors such as conviction level, existing exposures, and liquidity considerations to name a few.

The entire process is overseen by our independent Risk Management Team and Committee who analyze policy constraints, stress testing, and concentrations across strategies.

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Our Strategies

Our Strategies

RPIA offers a range of investment strategies reflecting our investors' diverse risk and return objectives. Our flagship institutional long-only strategy is RP Broad Corporate Bond, which has evolved into a suite of strategies for specific goals in collaboration with investors. In addition to our institutional-focused mandates, we also offer absolute return-focused strategies.

1. Long-Only Strategies

  • RP Broad Corporate Bond
  • RP Broad Corporate Bond (BBB, Fossil Fuel Exclusion)
  • RP Broad Corporate Bond (Fossil Fuel Exclusion)

2. Alternative Credit & Fixed Income

  • RP Debt Opportunities
  • RP Select Opportunities
  • RP Fixed Income Plus

3. Mutual Funds

  • RP Strategic Income Plus Fund
  • RP Alternative Global Bond Fund
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ESG

ESG

RPIA considers Environmental, Social, and Governance ("ESG") factors when making investment decisions for all the strategies we manage. When we include these factors alongside traditional financial metrics, we can think more broadly about risk and make more prudent investment decisions. In other words, it is in the best interests of our investors to integrate ESG into our process. Through our in-depth credit research, we are in regular communication with the management teams of the issuers in which we invest. We have also partnered with an institutional investor to design a strategy that targets specific ESG outcomes and, in this case, an Environmental outcome. We have been a signatory to UN PRI since 2018 and have several other industry memberships ( learn more).

Download Our ESG Policy Read Our 2021 Sustainability Report

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Explore Our Funds

RP Broad Corporate Bond

This actively managed credit strategy's primary objective is to outperform the FTSE Canada All Corporate Bond Index net of fees in a risk-controlled manner. The strategy aims to add value through superior credit selection across global credit markets and avoid uncompensated interest rate risk by remaining duration-neutral versus the benchmark.

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RP Broad Corporate Bond (BBB, Fossil Fuel Exclusion)

An actively managed credit strategy whose primary objective is to outperform the FTSE Canada Corporate BBB Index net of fees by 100 bps on an annualized basis. The strategy extends on our longstanding Broad Corporate Bond investment process by including explicit ESG targets. Investments in tobacco and munitions are prohibited, and the strategy aims to keep the carbon intensity at least 30% lower than the index.

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RP Broad Corporate Bond (Fossil Fuel Exclusion)

An actively managed credit strategy with the primary objective of outperforming the FTSE Canada All Corporate Ex Fossil Fuels Enhanced Bond Index by 100 bps (net of fees) on an annualized basis. The strategy merges our long-standing investment process with a transparent, rules-based approach to screening fossil fuel exposure out of the portfolio.

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Market Commentary

Evolution of the EU Taxonomy

January, 2022

What is it?

We believe that the inclusion of nuclear and natural gas as “green” technology in the EU taxonomy could have important implications for energy and utility companies in the Eurozone and for future Canadian and US regulation where both play larger roles in their respective economies. 

  • The EU Taxonomy is a classification system that defines environmentally sustainable economic activity under EU law
  • The Taxonomy came into law in July 2020 with specifics now being ratified (referred to as “delegated acts”)
  • One section that is yet to be determined was the designation of nuclear and natural gas as “green” activities given their role in the transition away from higher emitting energy sources

 

Where do we stand?

  • The European Commission announced expert consultations at the start of 2022 to define the criteria for the inclusion of natural gas and nuclear activities as sustainable
  • Natural gas inclusion entails a variety of requirements, mainly aimed at ensuring natural gas plants are being developed only to replace higher emission sources (mainly coal)
  • Nuclear inclusion covers activities such as R&D, maintenance of existing assets, and construction of new nuclear plants

 

What is our view?

The EU’s treatment of natural gas and nuclear could have wide-ranging implications for Eurozone issuers and similar Canadian and US policies. Policy setting could have larger-scale impacts in Canada and the US where both natural gas and nuclear energy dominate consumption and energy exports. 

  • We view the inclusion of natural gas and nuclear as positive developments but the regulation needs to place a greater emphasis on both technologies as transitory, not permanent
  • Specific considerations regarding natural gas include:
    • Defining natural gas as a “green” technology may slow the transition to lower-emitting sources such as renewables and biofuels, even if it helps replace coal power 
    • The current proposal does not place enough emphasis on natural gas as a transition fuel and may result in member states locking in natural gas technology for decades instead of building future capacity in renewables
    • Permanent adoption of natural gas as “green” would undermine Europe’s pathway to net-zero which requires a decrease in natural gas consumption to 13% by 2030 and 3% by 2050 (from 22% today).

Graph from 2012 to 2050 showing natural gas' estimated decline from ~20% to 3% of total electricity generation
Source: BNEF

  • Still much to be debated over nuclear:
    • Despite being a near-zero emissions technology, nuclear must meet the EU Taxonomy’s “Do No Significant Harm” threshold which will require member states to show credible, long-term plans for waste treatment
    • The proposal opens the door for Small modular reactor technology (an area of R&D that Canada has been a leader in

As Eurozone members debate the inclusion of natural gas and nuclear as “green”, we think the implications go far beyond the EU. The EU Taxonomy is the “standard setter” for regulations in other jurisdictions, so the treatment of natural gas and nuclear has important implications for energy-dominant economies and the financing of activities related to both fuel sources (a topic we discuss here). Canada ranks amongst the top natural gas exporters in the world and is consistently a top natural gas and nuclear energy consumer. Energy, utility, and financial issuers could face challenges as regulation comes into force. 

World Map showing Nuclear and Natural Gas Consumption per capita with Canada and Russia having the highest

Source: Our World in Data

The treatment of natural gas and nuclear is a trend we will continue to watch closely, considering how changes in definitions from “green” to “transitory” will impact the US and Canada.

 

 

 

 

 

Important Information

The information herein is presented by RP Investment Advisors LP (“RPIA”) and is for informational purposes only. It does not provide financial, legal, accounting, tax, investment, or other advice and should not be acted or relied upon in that regard without seeking the appropriate professional advice. The information is drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does RPIA assume any responsibility or liability whatsoever. The information provided may be subject to change and RPIA does not undertake any obligation to communicate revisions or updates to the information presented. Unless otherwise stated, the source for all information is RPIA. The information presented does not form the basis of any offer or solicitation for the purchase or sale of securities. Products and services of RPIA are only available in jurisdictions where they may be lawfully offered and to investors who qualify under the applicable regulation. RPIA managed strategies and funds carry the risk of financial loss. Performance is not guaranteed and past performance may not be repeated. “Forward-Looking” statements are based on assumptions made by RPIA regarding its opinion and investment strategies in certain market conditions and are subject to a number of mitigating factors. Economic and market conditions may change, which may materially impact actual future events and as a result RPIA’s views, the success of RPIA’s intended strategies as well as its actual course of conduct.


ESG Articles

Evolution of the EU Taxonomy

January, 2022

What is it?

We believe that the inclusion of nuclear and natural gas as “green” technology in the EU taxonomy could have important implications for energy and utility companies in the Eurozone and for future Canadian and US regulation where both play larger roles in their respective economies. 

  • The EU Taxonomy is a classification system that defines environmentally sustainable economic activity under EU law
  • The Taxonomy came into law in July 2020 with specifics now being ratified (referred to as “delegated acts”)
  • One section that is yet to be determined was the designation of nuclear and natural gas as “green” activities given their role in the transition away from higher emitting energy sources

 

Where do we stand?

  • The European Commission announced expert consultations at the start of 2022 to define the criteria for the inclusion of natural gas and nuclear activities as sustainable
  • Natural gas inclusion entails a variety of requirements, mainly aimed at ensuring natural gas plants are being developed only to replace higher emission sources (mainly coal)
  • Nuclear inclusion covers activities such as R&D, maintenance of existing assets, and construction of new nuclear plants

 

What is our view?

The EU’s treatment of natural gas and nuclear could have wide-ranging implications for Eurozone issuers and similar Canadian and US policies. Policy setting could have larger-scale impacts in Canada and the US where both natural gas and nuclear energy dominate consumption and energy exports. 

  • We view the inclusion of natural gas and nuclear as positive developments but the regulation needs to place a greater emphasis on both technologies as transitory, not permanent
  • Specific considerations regarding natural gas include:
    • Defining natural gas as a “green” technology may slow the transition to lower-emitting sources such as renewables and biofuels, even if it helps replace coal power 
    • The current proposal does not place enough emphasis on natural gas as a transition fuel and may result in member states locking in natural gas technology for decades instead of building future capacity in renewables
    • Permanent adoption of natural gas as “green” would undermine Europe’s pathway to net-zero which requires a decrease in natural gas consumption to 13% by 2030 and 3% by 2050 (from 22% today).

Graph from 2012 to 2050 showing natural gas' estimated decline from ~20% to 3% of total electricity generation
Source: BNEF

  • Still much to be debated over nuclear:
    • Despite being a near-zero emissions technology, nuclear must meet the EU Taxonomy’s “Do No Significant Harm” threshold which will require member states to show credible, long-term plans for waste treatment
    • The proposal opens the door for Small modular reactor technology (an area of R&D that Canada has been a leader in

As Eurozone members debate the inclusion of natural gas and nuclear as “green”, we think the implications go far beyond the EU. The EU Taxonomy is the “standard setter” for regulations in other jurisdictions, so the treatment of natural gas and nuclear has important implications for energy-dominant economies and the financing of activities related to both fuel sources (a topic we discuss here). Canada ranks amongst the top natural gas exporters in the world and is consistently a top natural gas and nuclear energy consumer. Energy, utility, and financial issuers could face challenges as regulation comes into force. 

World Map showing Nuclear and Natural Gas Consumption per capita with Canada and Russia having the highest

Source: Our World in Data

The treatment of natural gas and nuclear is a trend we will continue to watch closely, considering how changes in definitions from “green” to “transitory” will impact the US and Canada.

 

 

 

 

 

Important Information

The information herein is presented by RP Investment Advisors LP (“RPIA”) and is for informational purposes only. It does not provide financial, legal, accounting, tax, investment, or other advice and should not be acted or relied upon in that regard without seeking the appropriate professional advice. The information is drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does RPIA assume any responsibility or liability whatsoever. The information provided may be subject to change and RPIA does not undertake any obligation to communicate revisions or updates to the information presented. Unless otherwise stated, the source for all information is RPIA. The information presented does not form the basis of any offer or solicitation for the purchase or sale of securities. Products and services of RPIA are only available in jurisdictions where they may be lawfully offered and to investors who qualify under the applicable regulation. RPIA managed strategies and funds carry the risk of financial loss. Performance is not guaranteed and past performance may not be repeated. “Forward-Looking” statements are based on assumptions made by RPIA regarding its opinion and investment strategies in certain market conditions and are subject to a number of mitigating factors. Economic and market conditions may change, which may materially impact actual future events and as a result RPIA’s views, the success of RPIA’s intended strategies as well as its actual course of conduct.


Relationship Team

 
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Principal, Co-Head of Client Portfolio Management

Headshot of Ann Glazier Rothwell

Principal, Co-Head of Client Portfolio Management

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Principal, Client Portfolio Management

 
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Vice President, Client Portfolio Management

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Analyst, Client Portfolio Management