Insight from David Stonehouse, Vice-President and Portfolio Manager, AGF Investments Inc.
David Stonehouse provides his current outlook for interest rates and where he is finding opportunities in fixed income
We believe the key to adding value in fixed income is to leverage our long-tenured expertise in our core competencies to deliver sustainable alpha to our clients. We focus on adding value by strategically allocating across fixed income categories and currency. We believe our strengths lie in the use of global fixed income specialists to capture investment opportunities and that our disciplined methodology, using proprietary models and fundamental research, enables us to capture inefficiencies across global fixed income markets.
The AGF Fixed Income Plus investment strategy combines a large, high quality core investment grade bond portfolio with select exposure to additional income-generating asset classes up to a maximum of 30%.
The core strategy emphasizes quality while focusing on managing term and duration relative to the benchmark. The core also includes high-quality investment grade credits with attractive yield spreads. The "plus" portion employs alternative income-generating asset classes, such as high-yield bonds, convertible debentures and emerging market debt, to supplement the core.
These asset classes, while providing higher yields and/or return expectations, can also dampen interest rate volatility within the portfolio as they typically exhibit low correlations with traditional bonds due to their lower interest rate sensitivity. They also provide the potential for capital appreciation, which has rewarded investors in this strategy historically. Top-down decisions are distilled from the team’s macro-economic analysis of the Canadian and global economy. Some of the factors discussed include economic growth, inflation, central bank policy, yields and spreads. This analysis drives the core/”plus” exposure as well as duration, curve, credit and sector allocations. These decisions emphasize relative risk-adjusted return prospects.
The strategy is well diversified across fixed income categories and sectors while a risk-controlled framework is integrated within the research and portfolio management process, with a goal of generating favourable risk-return outcomes for our clients. Equity research from the North American and Global Equity teams is leveraged to identify opportunities in corporate, convertible and emerging market bonds with strong potential to outperform.