AGF’s ‘Go-Anywhere’ Fixed Income Fund
AGF Total Return Bond Fund utilizes a ‘go-anywhere’ approach, enabling the portfolio management team to be tactical and focus on what they believe to be the most attractive opportunities in the global fixed income space.
June 7, 2023 • fixed income
The strategy offers three main potential benefits: diversification, duration management and downside protection.
Diverse Region and Asset Class Exposure
A crucial takeaway from the past year is the importance of asset class diversification within the fixed income universe. Diversifying fixed income not only geographically, but by asset class, can potentially help contribute to portfolio outcomes over the long term as different types of debt have unique risk and return profiles and most importantly – act differently at different times. Traditional fixed income portfolios that are comprised of core investment grade (“IG”) debt, such as Canadian, US or Global IG, or long dated government bonds, such as Long-Term US Treasuries, tend to have high correlations with each other.
Source: AGF Investments Inc. and Morningstar Direct as of April 30, 2023. Long-Term US Treasuries represented by the Bloomberg US Treasury 20+ Yr Index, Canadian IG by the Bloomberg Canada Aggregate Index, US IG by the Bloomberg US Aggregate Index, Global IG by the Bloomberg Global Aggregate Index, Emerging Markets (EM) Bonds by the JPM EMBI Global Core Index, US High Yield (HY) by the Markit iBoxx Liquid High Yield Index, Convertibles by the Bloomberg US Convertibles Index and Loans by the Bloomberg USFRN 5-Yr. Correlation is a statistical measurement of the relationship between two variables. In this case, compared to Long-Term US Treasuries. A correlation of less than one is considered a favourable correlation. Returns shown are hypothetical based on backtested data of the indices, as mentioned above, historical returns and provided for illustrative purposes only. One cannot invest directly in an index. Past performance is not indicative of future results.
AGF Total Return Bond Fund has the ability to invest in bonds outside of North America and other fixed income asset classes which have historically demonstrated lower correlations to long-term U.S. treasuries.
The very factor that led to challenging fixed income returns last year, rising interest rates, has also led to more attractive yields for bonds. As demonstrated below, the yields to maturity are very elevated compared to last year, and when added to a portfolio offers the potential for higher returns.
Source: AGF Investments Inc. and Morningstar Direct as of April 30, 2023. Long-Term US Treasuries represented by the Bloomberg US Treasury 20+ Yr Index, Canadian IG by the Bloomberg Canada Aggregate Index, US IG by the Bloomberg US Aggregate Index, Global IG by the Bloomberg Global Aggregate Index, EM Bonds by the JPM EMBI Global Core Index, US HY by the Markit iBoxx Liquid High Yield Index, Convertibles by the Bloomberg US Convertibles Index and Loans by the Bloomberg USFRN 5-Yr. Returns shown are hypothetical based on backtested data of the indices, as mentioned above, historical returns and provided for illustrative purposes only. One cannot invest directly in an index. Past performance is not indicative of future results.
From an income perspective, non-traditional fixed income asset classes such as EM Bonds, US High Yield Bonds, Convertible Bonds and Loans can now provide investors with much higher distribution potential compared to traditional investment grade bonds.
Dynamic Duration Management
Traditional, core fixed income portfolios, particularly those with static allocations, have historically had longer duration exposure and higher interest rate sensitivity. The inclusion of non-core fixed income classes such as convertible bonds, loans and high yield bonds can diversify portfolios by providing differentiated sources of risk and return, different levels of duration risk and provide exposure to various interest rate regimes.
The duration figures in the chart below are all modified duration. Modified duration shows the approximate shift in a bond’s price an investor can expect per every 1% change in interest rates.
Source: AGF Investments Inc. and Morningstar Direct as of April 30, 2023. Long-Term US Treasuries represented by the Bloomberg US Treasury 20+ Yr Index, Canadian IG by the Bloomberg Canada Aggregate Index, US IG by the Bloomberg US Aggregate Index, Global IG by the Bloomberg Global Aggregate Index, EM Bonds by the JPM EMBI Global Core Index, US HY by the Markit iBoxx Liquid High Yield Index, Convertibles by the Bloomberg US Convertibles Index and Loans by the Bloomberg USFRN 5-Yr. Durations shown are hypothetical based on backtested data of the indices, as mentioned above, historical returns and provided for illustrative purposes only. One cannot invest directly in an index. Past performance is not indicative of future results.
Duration considerations plays a large role in the portfolio construction process of AGF Total Return Bond Fund. Since the Fund uses an unconstrained approach, the duration profile has been quite dynamic over time, which makes it a potentially helpful addition to a portfolio to better navigate changing yield environments.
Active Drawdown Protection
For the period ending April 30, 2023, AGF Total Return Bond Fund has outperformed both the Bloomberg Global Aggregate Bond Index and the Morningstar Multi-Sector Fixed Income Category.
Source: AGF Investments Inc. and Morningstar Direct as of April 30, 2023, in Canadian dollars, net of fees. The rates of return shown are used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the investment funds or returns on investment in the investment funds. Returns shown are hypothetical based on backtested data of the Bloomberg Global Aggregate Bond Index and Morningstar Multi-Sector Fixed Income Category historical returns and provided for illustrative purposes only. The Bloomberg Global Aggregate Index is a proxy for the global investable IG bond market. One cannot invest directly in an index. Past performance is not indicative of future results.
|
Annualized returns as of April 30, 2023 (net of fees) |
YTD Return |
1 Year Return |
3 Year Return |
5 Year Return |
10 Year Return |
Since PSD* |
|
AGF Total Return Bond Fund, Series F |
2.41% |
0.73% |
0.00% |
0.71% |
2.25% |
5.07% |
|
AGF Total Return Bond Fund, Series MF |
2.13% |
-0.12% |
-0.84% |
-0.16% |
1.48% |
4.41% |
|
Bloomberg Global Aggregate Bond Index |
2.91% |
0.45% |
0.14% |
0.86% |
1.75% |
- |
|
Morningstar Multi-Sector Fixed Income Category |
3.56% |
3.67% |
-4.67% |
0.19% |
3.01% |
- |
*The Performance Start Date (PSD) of the fund is July 9, 2001.
Source: AGF Investments Inc. and Morningstar Direct. Past performance is not indicative to future results.
A major key to the Fund’s success has been an emphasis placed on low levels of volatility and downside protection. The Fund has exhibited a lower level of volatility and has experienced a significantly lower maximum drawdown relative to the Bloomberg Global Aggregate Bond Index and the Morningstar Multi-Sector Fixed Income Category.
|
April 30, 2023 (net of fees) |
Std |
Max Drawdown |
|
AGF Total Return Bond Fund, Series F |
5.65% |
-13.10% |
|
AGF Total Return Bond Fund, Series MF |
5.65% |
-13.90% |
|
Bloomberg Global Aggregate Bond Index |
6.69% |
-28.45% |
|
Morningstar Multi-Sector Fixed Income Category |
8.44% |
-20.67% |
Source: AGF Investments Inc. and Morningstar Direct, from 8/1/2001 to 4/30/2023, in Canadian dollars, net of fees. One cannot invest directly in an index. Past performance is not indicative to future results.
An Upside Capture Ratio of greater than 100% is considered desirable and a Downside Capture Ratio of less than 100% is considered desirable, see the full definitions below.
Looking at the Fund’s up and down capture ratios since August 2001, although the Fund participated in less than half of the market upswings, it was able to outperform the Morningstar Multi-Sector Fixed Income Category and has greatly outperformed during market downswings, only participating in a third of the market’s negative returns. The Fund has also been able to capture a higher spread between market upswings and downswings relative to the Morningstar Multi-Sector Fixed Income Category.
Source: AGF Investments Inc. and Morningstar Direct, from 8/1/2001 to 4/30/2023, in Canadian dollars, net of fees. Returns shown are hypothetical based on backtested data of the Bloomberg Global Aggregate Bond Index and Morningstar Multi-Sector Fixed Income Category historical returns and provided for illustrative purposes only. The Bloomberg Global Aggregate Index is a proxy for the global investable IG bond market. One cannot invest directly in an index. Past Performance is not indicative of future results.
Upside Capture (Ratio): The Upside Capture Ratio is calculated by taking the portfolio’s return and dividing it by the benchmark’s return in periods when the benchmark return was positive. An Upside Capture Ratio of greater than 100% is considered desirable.
Downside Capture (Ratio): The Downside Capture Ratio is calculated by taking the portfolio's return and dividing it by the benchmark's return in periods when the benchmark return was negative. A Downside Capture Ratio of less than 100% is considered desirable.
Commissions, trailing commissions, management fees and expenses all may be associated with investment fund investments. Please read the prospectus before investing. The indicated rates of return are the historical annual compounded total returns including changes in share or unit value and reinvestment of all dividends or distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.
MER as of September 30, 2022. AGF may, in its discretion, temporarily waive some or all of the expenses of the Fund, which will result in a reduction in the MER. AGF may cease to offer any such waiver at any time without notice.
Series F securities can be purchased under the simplified prospectus only through a registered dealer who has obtained consent of AGF to offer Series F securities.
The commentaries contained herein are provided as a general source of information based on information available as of April 30, 2023, and are not intended to be comprehensive investment advice applicable to the circumstances of the individual. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however, accuracy cannot be guaranteed. Market conditions may change and AGF Investments accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained here.
Holdings are subject to change and do not represent all of the securities purchased, sold or recommended for the portfolio. It should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by AGF Investments.
This document may contain forward-looking information that reflects our current expectations or forecasts of future events. Forward-looking information is inherently subject to, among other things, risks, uncertainties and assumptions that could cause actual results to differ materially from those expressed herein.
This material is for informational and educational purposes only. It is not a recommendation of any specific investment product, strategy, or decision, and is not intended to suggest taking or refraining from any course of action. It is not intended to address the needs, circumstances, and objectives of any specific investor. This information is not meant as tax or legal advice. Investors should consult a financial advisor and/or tax professional before making investment, financial and/or tax-related decisions.
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“Bloomberg®” and Bloomberg Global Aggregate Bond Index are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by AGF Management Limited and its subsidiaries. Bloomberg is not affiliated with AGF Management Limited or its subsidiaries, and Bloomberg does not approve, endorse, review or recommend AGF Total Return Bond Fund. Bloomberg does not guarantee the timeliness, accurateness, or completeness, of any data or information relating to AGF Total Return Bond Fund.
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