The Turning Tides of Fixed Income

2022 has been a historic year for fixed income investors. A year highlighted by the war in Ukraine, global supply chain disruptions, surging inflation pressures and central banks in North America responding with one of the fastest interest rate hiking cycles on record which sparked one of the worst performing periods in history for the asset class.

However, with yields sitting at their highest levels in over a decade, fixed income is back to doing what it’s supposed to do for investors – generate income, preserve capital and stabilize overall portfolio volatility.

AGF offers a full suite of fixed income solutions for a wide range of investor needs – including core, income, and global diversification. Explore our solutions:

 

AGF Canadian Strategic Bond Fund

A core "plus" strategy utilizing alternative fixed-income asset classes to provide greater diversification and higher potential yields.

Managed by AGF's Investment Oversight Committee, the fund holds an 85% minimum* of AGF Fixed Income Plus Fund, a top Morningstar-rated (series F)1 fund and 2022 FundGrade A+ Award Winner2.

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*Neutral weighting of the underlying fund, as of April 2023. The underlying holdings of the fund are not fixed and may change over time.

AGF Global Unconstrained Strategic Bond Fund

A 'go-anywhere' fund that focuses on the most attractive fixed income opportunities from issuers around the world.

Managed by AGF's Investment Oversight Committee, the fund holds an 85% minimum* of AGF Total Return Bond Fund, a top Morningstar-rated (series F)1 fund.

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*Neutral weighting of the underlying fund, as of April 2023. The underlying holdings of the fund are not fixed and may change over time.

AGF Global Defensive Portfolio Fund

The Portfolio seeks capital preservation by investing primarily in a globally diversified mix of fixed income funds with a neutral asset mix target of 100% fixed income.

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Taking an Active Approach to Fixed Income

With bonds now providing a more competitive yield and better potential for downside protection, here are a few important considerations as you reevaluate fixed income for your clients’ portfolios.

 

The Return of the 60/40

A more balanced approach between equities and bonds is going to be important going forward. The 40% in a traditional 60/40 balanced portfolio not only continues to be a diversifier and cushion against volatility within equities, but now offers the potential for higher returns as well.

When looking at the U.S. market, the average annual return of the 60/40 over the past 4 decades has been 10.2%, only lagging US equities by 2.4% with reduced volatility.

 

 

Source: Morningstar Direct as of December 31, 2022. US equities represented by the S&P 500 Index (US$) and the 60/40 Portfolio by a blend of 60% S&P 500 Index (US$) and 40% Bloomberg US Aggregate Bond Index (US$). One cannot invest directly in an index. Hypothetical performance is not necessarily indicative of future results.

With the rise in U.S. treasuries, AGF Fixed Income Plus Fund, an underlying fund in AGF Canadian Strategic Bond Fund, has maintained a higher allocation to U.S. fixed income securities relative to peers, offering potential for higher returns and flexibility to overweight/underweight fixed income securities globally based on where the team finds opportunities.

 

The Return of Income

The very factor that precipitated challenging returns (rising rates) has also led to more attractive yields for bonds. With the return of a more competitive income environment, various bond asset classes, including government and investment grade, can now provide investors with much higher distribution potential, raising the bar for other yield-oriented securities such as dividend stocks and GICs.

“We’ve had a regime change in markets. Investors needed to chase yield and accept a much higher volatility to achieve their long-term objectives over the past decade. But with the significant re-pricing of real interest rates, that is no longer necessary. Income is the most certain element of a return profile and, when you have enough of it, there should be less need for excessive risk taking.”

– AGF Fixed Income Team

For yield enhancement, AGF Global Corporate Bond Fund, an underlying fund in AGF Global Defensive Portfolio Fund, employs an array of opportunistic high yield instruments including preferreds, loans and emerging markets bonds, in addition to investment grade corporate and government bonds which act as anchors of the strategy.

 

Diversifying Fixed Income Assets

Focusing on domestic bonds can be a good strategy for certain investors. However, core fixed income portfolios – particularly those with allocations to longer-term bonds only – have longer duration exposure and higher interest rate sensitivity. The inclusion of non-core fixed income classes such as convertible bonds and high yield bonds can diversify portfolios by providing differentiated sources of risk and return, different levels of duration risk and exposure to various interest rate regimes.

 

Source: Morningstar Direct. Period: 3/1/2013 – 2/28/2023. Canadian Investment Grade Bonds represented by the Bloomberg Canada Aggregate Bond Index (C$), Global Investment Grade Bonds by the Bloomberg Global Aggregate Bond Index (C$), Emerging Markets Bonds by the JPM EMBI Global Core Index (C$), Global High Yield Bonds by the Bloomberg Global High Yield Index (C$), Convertible Bonds by the Bloomberg US CnvtblsCsh Py>$250mn Index (C$) and Loans by the Bloomberg USFRN 5-Yr Index (C$). One cannot invest directly in an index. Past performance is not indicative of future results.

Navigating security selection within the global fixed income market can be complex. Consider a managed solution strategy such as AGF Global Defensive Portfolio Fund which can be used as a core fixed income holding and provide exposure to these specialized fixed income segments.

 

Why AGF for Fixed Income

AGF’s Fixed Income Team was initially formed by our founder Warren Goldring when establishing our firm in 1957. Before starting AGF, Warren Goldring worked as an analyst specializing in bond and fixed-income investing, later taking an active role in shaping AGF’s approach to the asset class.

In today’s complex fixed income market, AGF’s Fixed Income Team leverages their long-tenured expertise in core and specialized areas of the market and disciplined processes towards delivering on our investment objectives for our clients. In addition, their active approach aims to capture value-add opportunities and navigate volatile periods through dynamic duration management, ensuring that interest rate sensitivity is appropriately toned up or down based on the prevailing yield environment.

 

Our Team

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The AGF Investment Oversight Committee (IOC) provides strategic asset allocation and ongoing monitoring for many of the AGF Platform Funds with the ability to adjust allocations in response to changing markets. The IOC is a dedicated team made up of AGF’s senior investment, risk and product team members. The team provides ongoing investment oversight and asset allocation as well as portfolio and risk analytics. David Stonehouse is the portfolio manager responsible for making and carrying out all investment decisions as part of his role within the IOC.

 

Our Funds

Full suite of fixed income strategies positioned for all market regimes.

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Fund Managers & Investment Team / Resources

Andy Kochar
Andy Kochar, CFA®
Vice-President, Portfolio Manager and Head of Global Credit
AGF Investments LLC
Jean-Sébastien Nadeau
Jean-Sébastien Nadeau, MBA, CFA®
Portfolio Manager
AGF Investments Inc.
Tom Nakamura
Tom Nakamura, CFA®
VP & Portfolio Manager, Currency Strategy and Co-Head of Fixed Income
AGF Investments Inc.
Tristan Sones
Tristan Sones, CFA®
VP & Portfolio Manager, Co-Head of Fixed Income
AGF Investments Inc.
David Stonehouse
David Stonehouse, MBA, CFA®
SVP & Head of North American and Specialty Investments
AGF Investments Inc.
AGF Investment Oversight Committee
AGF Investment Oversight Committee
AGF Investment Oversight Committee
AGF Investments Inc.
Vice-President, Portfolio Manager and Head of Global Credit

Andy Kochar is a principal member of AGF’s Fixed Income Team and serves as the firm’s head of global credit. Using a cross-asset framework, Andy is responsible for the research and allocation of credit risk across all of AGF’s fixed income portfolios.

He previously served as Associate Portfolio Manager for AGF’s credit-oriented portfolios from 2013 to 2018. Prior to that, for more than five years, Andy served as Investment Analyst, Credit Research at Acuity Investment Management, which was acquired by AGF in 2011.

Andy earned a B.A. in Economics (Cum Laude) from York University and he is a CFA® charterholder.

Portfolio Manager

Jean-Sébastien Nadeau serves as a Portfolio Manager on the AGF Investments Fixed Income Team. His main focus is to support the management of the AGF Fixed Income Plus Fund and the AGF Global Corporate Bond Fund through fundamental and credit research as well as portfolio construction.

Prior to joining AGF Investments, Jean-Sébastien was a lead analyst at the Bank of Canada where he gained valuable insight into how monetary policy is developed and implemented in Canada. He started his career in the Corporate Fixed Income Team of Caisse de Depot et placement du Quebec.

Jean-Sébastien earned a BBA (major in Finance) and an MBA (Finance) from Université Laval. He holds a Financial Risk Manager (FRM) designation and is a CFA® charterholder.

VP & Portfolio Manager, Currency Strategy and Co-Head of Fixed Income

As Co-Head of Fixed Income, Tom brings more than 15 years of experience managing a wide array of portfolios and is a key contributor to the team's analysis of the global macroeconomic landscape, with specific emphasis on currencies. He is responsible for developing currency strategy and providing counsel on the implications of currency moves for the firm.

He also serves as a portfolio manager of AGF Total Return Bond Fund/Class, AGF Emerging Markets Bond Fund and AGF Global Opportunities Bond ETF, and has served on the AGF Investments Asset Allocation Committee since 2016.

Tom earned a Bachelor of Commerce from the University of Toronto. He is a CFA® charterholder and a member of CFA® Society Toronto.

Registered as a Portfolio Manager under AGF Investments Inc.

VP & Portfolio Manager, Co-Head of Fixed Income

With nearly three decades of experience managing a wide array of fixed income portfolios, Tristan co-leads the AGF Investments Fixed Income Team and helps navigate the global macroeconomic landscape with specific emphasis on global sovereign debt, especially hard and local currency emerging market debt.

Tristan serves as co-lead portfolio manager of AGF Investments’ Global fixed income mandates – AGF Total Return Bond Fund/Class, AGF Emerging Markets Bond Fund and AGF Global Opportunities Bond ETF. He is also a co-lead portfolio manager on the AGF Strategic Income Fund.

Tristan earned an Honours B.A. in Mathematics from the University of Waterloo. He is a CFA® charterholder and a member of CFA® Society Toronto.

Registered as a Portfolio Manager under AGF Investments Inc.

SVP & Head of North American and Specialty Investments

David Stonehouse oversees AGF Investments’ North American and Specialty Investments teams while maintaining direct portfolio management responsibilities for his current mandates.

With nearly three decades of experience managing both fixed income and balanced mandates, David employs a rigorous and disciplined investment process combining a top-down approach to duration and asset allocation with a bottom-up approach to security selection. David is a member of The Office of the CIO – a structure within the Investment Management team at AGF Investments. This leadership structure encourages and further embeds collaboration and active accountability across the Investment Management team and the broader organization.

David received a B.Sc. in Applied Science from Queen’s University, an MBA in Finance and Accounting from McMaster University and is a CFA® charterholder.

Registered as a Portfolio Manager under AGF Investments Inc.

AGF Investment Oversight Committee

Fixed Income Analysts & Portfolio Specialists
Conor McKinnon*
Credit Analyst
Pranav Natarajan, FRM, CFA®
Credit Analyst
Jie Shi
Analyst
Sherry Xu, MBA
Foreign Exchange Analyst
Izabela Siwoski Uliana, LL.B.
Director, Multi Asset Portfolio Specialist

 

* AGF Investments LLC. The AGF Fixed Income Analyst Team consists of individuals from AGF Investments Inc. and AGF Investments LLC. AGF Investments entities only provide investment advisory services or offer investment funds in the jurisdiction where such firm, individuals and/or product is registered or authorized to provide such services.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual 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 security holder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

1 Morningstar Ratings and Rankings reflect performance as of February 28, 2023. AGF Fixed Income Plus Fund Series F - overall rating compared with 475 funds in the Canadian Fixed Income category. AGF Total Return Bond Fund Series F - overall rating compared with 437 funds in the Global Fixed Income category. Please see full performance details here.

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2 FundGrade A+® Awards: 

FundGrade A+® is used with permission from Fundata Canada Inc., all rights reserved. The annual FundGrade A+® Awards are presented by Fundata Canada Inc. to recognize the “best of the best” among Canadian investment funds. The FundGrade A+® calculation is supplemental to the monthly FundGrade ratings and is calculated at the end of each calendar year. The FundGrade rating system evaluates funds based on their risk-adjusted performance, measured by Sharpe Ratio, Sortino Ratio, and Information Ratio. The score for each ratio is calculated individually, covering all time periods from 2 to 10 years. The scores are then weighted equally in calculating a monthly FundGrade. The top 10% of funds earn an A Grade; the next 20% of funds earn a B Grade; the next 40% of funds earn a C Grade; the next 20% of funds receive a D Grade; and the lowest 10% of funds receive an E Grade. To be eligible, a fund must have received a FundGrade rating every month in the previous year. The FundGrade A+® uses a GPA-style calculation, where each monthly FundGrade from “A” to “E” receives a score from 4 to 0, respectively. A fund’s average score for the year determines its GPA. Any fund with a GPA of 3.5 or greater is awarded a FundGrade A+® Award. For more information, see http://www.FundGradeAwards.com. Although Fundata makes every effort to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Fundata.

AGF Fixed Income Plus Fund won in the Canadian Fixed Income CIFSC Category, out of 311 funds. The FundGrade A+ start date was 1/31/2013 and the FundGrade A+ end date was 12/31/2022.

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Certain performance returns presented are hypothetical and for illustrative purposes only. They do not represent actual performance of an AGF mutual fund or client, nor do they guarantee future performance. Historical performance results for investment indices have been provided for general comparison purposes only, and do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. One cannot invest directly in an index.

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Publication date: April 12, 2023