Friday August 19th, 2016
- Credit continues to be the sweet spot for investors with high yield and investment grade bonds rallying positive for the month.
- With low expectations of a rate increase from the Federal Reserve, credit spreads tightened on improved financial outlooks for the cheaper borrowing for corporations.
- High yield bonds were the largest contributor to the Fund’s positive return whereas U.S. Corporate bonds outperformed their Canadian counterparts.
- Options written to hedge the duration on the U.S. portion of the portfolio were accretive to Fund performance.
July saw a continuation of a post Brexit relief rally. Although the outcome for European growth was likely long term negative, short term flows outweighed those concerns as investors needed to put money to work. Equities rallied higher with the S&P making new all -time highs, while European markets recovered higher. With central banks keeping rates at exceptionally low levels, the hunt for yield was heightened as investment grade and high yield credit rallied. Commodities experienced weakness led by the energy complex. Crude prices sank over $10 on concerns of a supply glut. As a result, commodity cyclical currencies also saw weakness. Slack Canadian economic data and worries over a housing bubble were additional headwinds for the loonie this month.