STIP gained +3.97% during the quarter, a lower return than the FTSE Canada All Corporate Bond Index (the “Index”), which had a higher exposure to interest rates during the period.

Both credit spread and interest rate exposure contributed to total returns during the quarter as credit spreads and interest rates rallied. Credit returns were well-diversified across sectors, with domestic and French energy-infrastructure issuers leading the way. Positions in high-quality global/domestic systemically important banks and select specialty financial holdings with attractive relative value attributes also boosted returns. Domestic telecommunication companies continued to generate respectable returns, while opportunistic trades in US media issuers proved timely. The Fund’s recent increase in provincial and government-related exposures significantly contributed to total returns.

Headline risk exposure was steadily reduced during the period as credit spread and interest rate valuations grew less attractive at the index level. Geographically, the portfolio notably rotated out of US positions and into EUR-domiciled exposures, which continues to be concentrated on high-quality Yankee banks and corporate issuers with global operations. Sector-wise, the portfolio monetized financial, consumer staple, and industrial-related positions and added to energy-infrastructure issuers. Quality-wise, the portfolio finished the period with an A- rating and minimal (2%) high yield exposure, which primarily consists of a corporate hybrid security of a domestic telecom that is rated investment grade at the issuer level. We believe the Fund can continue to actively source positive returns from both interest rate and credit spread exposure, underpinned by an attractive technical environment for credit. 

AGB returned +2.41% during the quarter, a lower return than the FTSE Canada All Corporate Bond Index (the “Index”), which had a higher exposure to interest rates during the period.

The Fund generated outsized returns from credit spread exposure and participated well in the rally of short to intermediary 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. Security selection within the energy sector also generated significant returns, bucking the underperformance of global energy sector spreads at the index level. Although it was a net detractor overall, the Fund’s dynamic hedging portfolio proved its worth by notably reducing severe market volatility on several occasions during the quarter.

DOF returned +1.57% during the quarter, a lower return than the FTSE Canada All Corporate Bond Index (the “Index”), which had a higher exposure to interest rates during the period.

The Strategy generated outsized returns from credit spread exposure, but the portfolio’s inherently low duration led to underperformance relative to more traditional fixed income that benefited from the rally in interest rates. Credit returns were driven by positions in high-quality Yankee and global systemically important banks and energy-infrastructure issuers. Other contributions were well-diversified across sectors, highlighted by Rogers Communications (telecom), Boeing (industrial), and Allied Properties (real estate) being three of the top five contributors during the quarter. Also of note, a securitized security backed by the revenue of Subway restaurants was a top ten contributor. Although they were net detractors overall, the Fund’s dynamic hedging portfolio proved its worth by notably reducing severe market volatility on several occasions during the quarter.

SOF returned +3.03% during the quarter, underperforming the Bloomberg US High Yield (CAD Hedged) Bond Index (the “Index”) due to the index’s higher exposure to interest rates.

The Strategy produced another quarter of strong results by generating outsized returns from credit spread exposure. Credit returns were primarily driven by financial-related exposures which were well-diversified between specialty financials like business development companies, diversified banks, and select consumer finance issuers. Additionally, consumer-related issuers, including homebuilders, were notable contributors as the industry’s spreads rallied alongside more friendly financial conditions. Although they were net detractors overall, the Fund’s dynamic hedging portfolio proved its worth by notably reducing severe market volatility on several occasions during the quarter.

Interest rate exposure and credit risk were reduced quarter-over-quarter as the investment team prepared for more attractive entry points. Geographically, the portfolio increased domestic and EUR-domiciled exposures while US exposure decreased mainly due to an increase in US-based hedges. Sector-wise, financials remain the portfolio’s largest exposure, while real estate exposure was reduced in favour of adding to issuers in the industrial and communication sectors. In terms of credit quality, the portfolio’s overweight to investment grade was trimmed quarter-over-quarter as opportunities arose in 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.