Active management is all about the potential for an investment manager to add value over a passive and often less expensive approach to investing. When investors are allocating to more inefficient and less transparent asset classes, like fixed income, it can make sense to partner with an active manager who could add value.
Corporate bond markets by their very nature are quite inefficient especially relative to equity markets. This bodes well for active managers like ourselves who could add value with our flexible approach.
Corporate bonds don’t trade on exchanges and transparency on price is poor. Most fixed income instruments are not listed on any exchange. Our portfolio management team has decades of experience pricing and trading global corporate bonds. We also have a strong network of global relationships with bond issuers, trading desks and bank syndication teams. This expertise and global reach means we are ideally positioned to find active trading opportunities.
Corporations typically have one equity security but many different bond issues with unique terms and characteristics. A publicly listed company may have a single class of common stock but over 20 bond issues outstanding at one given time. The relative abundance of differentiated securities results in an investment universe that is much larger and more prone to mispricing. It also means relative value analysis of different investment alternatives is possible. We have a wealth of experience in identifying what we see as mispriced corporate bonds, and in many of our strategies have the flexibility to “go where the value is” to take advantage of these opportunities for our investors.
Most bond investors are highly constrained and don’t focus on value. Most fixed income mandates are quite restrictive and simply invest with the goal of outperforming an index. A large part of the fixed income market, particularly in Canada, focuses on matching an index and lacks the flexibility to invest based purely on risk and reward. Our flexibility is a key advantage we use to help support our investors’ investment objectives.
Constant issuance and refinancing presents opportunity for active investment. The global corporate bond market is constantly changing as company debt matures or is refinanced. RPIA has deep relationships with corporate bond issuers and banks built over many years, and a strong presence in the new issue market which positions us to identify those new issues we view as attractively priced to help extract value for investors. As passive investors rebalance their portfolios to match a changing index, we are often presented with what we believe are profitable trading opportunities.