Tuesday March 10th, 2015
The Fund tactically allocates across the credit spectrum including high yield, investment grade, government bonds, and cash.
The Fund was positive in February. Tightening credit spreads across high yield and investment grade holdings drove gains, while government bonds was a slight performance drag. This month saw stabilization across the energy sector which helped the high yield index recover higher. After last month`s surprise Bank of Canada rate cut, government bonds traded lower as better oil dynamics and improving trade deficit data raised questions on the need for further rate cuts.
This month the Fund took advantage of the recent run higher in Canadian bonds and pared back its positioning, while also shifting capital back into high yield. The Fund increased its allocation to high yield from 19% to 38%, and decreased its allocation to corporate investment grade bonds from 66% to 58% and to government debt from 14% to 3%.
Markets rebounded higher in February with dip buyers emerging on waning geopolitical concerns and optimism on the global growth outlook. Concerns over Greece’s ability to meet its fiscal pledges receded as bailout provisions were extended by the ECB. Generally positive U.S. earnings, strong jobs data and supportive Fed comments helped the S&P close up 5.7% on the month. European equities outperformed other developed markets as inflows increased on the back of the ECB’s supportive actions from the previous month. U.S. 10 year yields squeezed quickly back above 2% as safe haven demand declined, and the market began to price in a higher probability of a June rate hike.
In commodities, oil managed to recover off the lows with prices buoyed by news of cuts in production and the potential for supply disruption in the Middle East. Gold gave back its January gains retreating lower as safe haven demand declined.
The U.S. dollar continued to exhibit selective signs of strength notably against Japanese yen, Swiss Franc and emerging market currencies. CAD was able to recover higher buoyed by signs of oil recovery and better than expected trade deficit numbers. However, the BOC’s recent dovish comments continued to provide an overhang on the loonie with further rate cuts expected in the coming months.