Tuesday April 14th, 2015
The Fund tactically allocates across the credit spectrum including high yield, investment grade, government bonds, and cash.
The Fund was negative in March. High yield was the worst performer as risk aversion and concerns over rising rates drove outflows from the space. Canadian corporates and government bonds also declined after the Bank of Canada kept rates on hold. Poloz came across less dovish than expected after suggesting recent oil price stabilization and monetary policy action had mitigated some of the negative effects on the economy.
This month the Fund increased its allocation to high yield from 38% to 58%, and decreased its allocation to corporate investment grade bonds from 57% to 37%. Government bond positions were maintained at 3%.
North American markets stalled after rallying the previous month and ended lower in March. There was much focus on the FOMC meeting this month with many expecting a strong push for a rate hike later this year in light of continued strong job growth. As anticipated, the Fed removed the word “patient” from its statement, however there were some dovish undertones that resulted in a rally in bonds as the outlook for a potential hike was pushed back.
In commodities, oil tested new cycle lows near $40, but managed to bounce into month end on the back of rising Middle East tensions as Saudi Arabia was drawn into the conflict in Yemen.
The USD dollar continued to grind higher, especially against Eurozone currencies. CAD saw further weakness, despite rates being kept on hold, as the Bank of Canada warned of economic slowdown resulting from the shock in oil prices.