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COVID-19

Our Response

 

Updated as of September 21, 2020 

We continue to aim to strike an appropriate balance between our commitment to the health and safety of all our employees, and our obligation as a firm and individuals to continue providing essential services to our clients. To that end, and in line with Federal, Provincial, and Municipal recommendations for businesses, we have implemented a Return To Work Plan that, with appropriate and reasonable safeguards to protect them, will see employees work on site and from home on a rotational basis. We have enacted standard health and safety measures such as: avoiding non-essential travel outside of Canada, maintaining physical distancing between workstations, frequent hand washing, and wearing  a  mask whenever physical distancing is not possible. In addition to these standard health and safety measures, we have enhanced the air filtrations system in our offices by adding air purifiers and high grade filters to our HVAC system to boost the air quality throughout the building. RPIA will endeavour to update these efforts as the pandemic evolves and new expert advice becomes available.

Market Conditions & Opportunities Ahead

COVID-19 has and will continue to reshape the global economic landscape. Six months on from the liquidity crisis of March 2020, investors are faced with a difficult challenge. Equity markets have rebounded strongly and valuations sit at elevated levels by historical standards. In contrast, fixed income securities provide a very low yield, with little margin of safety if interest rates rise. A 60/40 blend of equities and bonds may not deliver the return individuals and institutions are looking for.

We believe investors should be looking to credit strategies as a way of addressing this challenge. Credit is often referred to as “equity light” – a way of generating a reasonable return without the downside risk of equity investments. The performance of credit investments has been strong since March 2020. Looking forward, we continue to be excited by the opportunity to invest in corporate bonds at attractive levels. Uncertainty in the market generally leads to volatility, which we believe represents an opportunity for actively managed credit strategies.

Please contact a member of the Client Portfolio Management team if you would like to discuss our market views or strategies in more detail.

Market Insights

Protecting Capital in an Inflationary Environment

February, 2022

Typically, equity and bond prices move in opposite directions. However, 2022 has begun with both assets moving lower together. This recent behaviour stems from changing expectations around monetary policy and is driven by changes in the pace of inflation, higher probabilities of interest rate hikes, and other policies that could drive bond yields higher (and prices lower).

The latest US CPI reading released today showed a year-over-year inflation increase of 7.5%, leading US markets to now expect a 50bps increase in rates in March and approximately 6 to 7 rate hikes in 2022 in total.

Closer to home, the Bank of Canada decided not to raise rates during its meeting in January, which was a surprise to markets. Notwithstanding its decision, inflation in Canada continues to rise and recently peaked at 4.8%, causing a gap between this measure and the overnight rate.

Inflation vs. BoC Overnight Rate
Source: Bank of Canada, Statistics Canada


We have reduced the interest rate risk in our strategies over the past 6 months during this volatile period, which has led to meaningful amounts of capital preservation relative to traditional bond indices. 
We are not trying to time the bottom of the rates cycle, but rather patiently waiting and keeping risk levels at or near their lows.

We have begun using the volatility and dispersion in credit markets to extend our highest conviction themes, including:

1. Banks and financials that benefit from higher rates and have strong regulatory frameworks,
2. Companies with solid funding profiles and a high chance of a ratings upgrade, and

3. Improving credits that are still benefiting from re-opening exposure globally.

Geographically, we have reduced our exposure to EUR-denominated credit markets given the expectation that the European Central Bank would need to become more focused on withdrawing stimulus and increasing rates later this year. 

This is an exciting time for us as bond investors, and the coming months should give us the opportunity to demonstrate our focus on capital preservation and allow us to search for compelling return opportunities for our investors.

 



 

 

 

 


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 upon 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.

 

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