STIP returned +1.05% during the quarter, performing in line with the FTSE Canada All Corporate Bond Index (the “Index”) during the period while outperforming the Index year-to-date.

Both credit spread and interest rate exposure contributed to total returns during the quarter. Credit returns were driven by positions in high-quality global/domestic systemically important banks and large domestic telecom issuers. Canadian multinational pipeline companies and the Fund’s participation in Coastal GasLink’s historic bond offering – the largest in corporate Canadian history – also generated strong returns.

AGB returned +1.91% during the quarter, outperforming the FTSE Canada All Corporate Bond Index (the “Index”) by +82bps.

The Fund generated outsized returns from credit spread exposure and participated well in the rally of short to intermediary Canadian risk-free yields. Credit returns were driven by positions in high-quality Yankee and global systemically important banks, as well as specialty financials like aircraft lessors. Energy-infrastructure issuers, led by a sizeable position in Coastal GasLink’s historic bond offering, and select consumer discretionary issuers also generated strong returns.

DOF returned +1.82% during the quarter, outperforming the FTSE Canada All Corporate Bond Index (the “Index”) by +73bps. 

The Strategy generated outsized returns from credit spread exposure and prudently navigated a volatile interest rate environment. Credit returns were driven by positions in high-quality Yankee and global systemically important banks and select consumer discretionary and real estate issuers. A sizeable position in Coastal GasLink’s historic bond offering – the largest in corporate Canadian history – was the top contributor during the quarter. The portfolio’s dynamic hedging overlay acted as a net detractor, but we remain comfortable with sacrificing modest amounts of yield to embed prudent downside protection.

SOF returned +1.92% during the quarter, notably outperforming the Bloomberg US High Yield (CAD Hedged) Bond Index (the “Index”) by +100bps.

The Strategy’s outperformance relative to traditional fixed income strategies across the risk spectrum can be attributed to SOF’s ability to generate outsized returns from credit spread exposure. Credit returns were driven by specialty financials like aircraft lessors and business development companies. Additionally, consumer-related issuers, particularly airlines and cruise lines, and debt of energy companies generated strong returns. The portfolio’s dynamic hedging overlay acted as a net detractor, but we remain comfortable with sacrificing modest amounts of yield to embed prudent downside protection.

Headline interest rate exposure was modestly increased, while credit risk was relatively unchanged quarter-over-quarter. Geographically, the portfolio trimmed well-performing EUR-domiciled exposure in favour of increasing exposure to domestic credits. Sector-wise, profits were realized in well-performing positions across sectors, and the portfolio tactically reversed its net short consumer-related exposure. In terms of credit quality, the portfolio’s overweight to investment grade was trimmed quarter-over-quarter as BBB rated exposures were reduced in favour of adding back to select high yield issuers. We believe the Strategy is well-positioned to continue providing investors with strong risk-adjusted returns as an effective alternative to traditional fixed income, equity, and private asset allocations.