These strategies seek to generate returns from the credit spreads of corporate bonds.
Core returns are generated through positions in bonds which offer generous compensation versus risk. The interest rate risk is hedged out, and where appropriate, modest leverage is applied to the remaining credit exposure. Bonds are not typically held to maturity in our Fund but are replaced as we discover and secure more promising opportunities. Our Fund is dynamic to best ensure that we are invested in the bonds offering the greatest return for risk at any given time.
These returns are enhanced through active trading of mispriced instruments from either the long or short side.
The types of inefficiencies that we can take advantage of include:
- Behaviour of index funds, large institutions and retail investors
- Regulatory and mandate restrictions imposed on banks and institutions
- Motivations of other market participants
- Leveraging market relationships to access exclusive opportunities
We also use comparative analysis to seek out pricing discrepancies between securities. This can involve dislocations across markets or sectors (i.e. Canada vs. US or Banks vs. Insurers), pricing discrepancies between two entities (i.e. Bell vs. Rogers) or even within different securities issued by the same entity (i.e. RBC 5y vs. 7y or senior vs. subordinated debt).
The last layer of our credit strategies is tactical short term trading where we exploit various opportunities.
- Capitalizing on the opaque nature of bond markets which creates temporary inefficiencies
- Generating returns through active participation in the new issue market
- Momentum and technically driven trading
- Profit from motivated sellers willing to sacrifice price due to other motivations or pressures