Thursday October 16th, 2014
The Fund tactically allocates across the credit spectrum including high yield, investment grade, government bonds, and cash. The Fund was negative in September as credit sold off sharply especially across high yield.
The current portfolio is positioned to benefit from increasing demand for corporate debt, with a tilt towards high yield over investment grade debt. This month investors became increasingly anxious over impending Fed interest rate hikes and exited positions in riskier credit. High yield was sold back down to the lows seen in July which dragged on fund performance.
The Fund allocation remained relatively unchanged with approximately 60% high yield, 37% investment grade credit and 1% government debt exposure. The Fund maintained a cash position of approximately 2%.
Geopolitical concerns in Russia/Ukraine and the Middle East continued to overhang markets this month. Pro-democracy protests in Hong Kong and an independence referendum in Scotland also contributed to the general sense of unease. Economic data pointed towards slowdown in China, and European data was also sluggish. In response, the PBOC added liquidity to support China’s 5 largest banks, while the ECB made a surprise rate cut and added almost $1tr in stimulus in an attempt to fend off deflationary pressures. Canadian markets fell on weakness experienced across cyclical commodity sectors. The US continued to diverge from other developed nations and posted a strong Q2 GDP, as well as improving economic activity. Speculation over the path of future US interest rate hikes continued to weigh on investors’ minds.
Commodities experienced heavy selling this month as the S&P GSCI closed down 6%. The combination of supply overhang, weak Chinese demand and a strong US dollar saw negative performance across grains, metals and energy.
The US dollar had another month of strong gains. The diverging interest rate and growth outlook between the US and other developed countries saw the US dollar appreciate against every G10 currency. The loonie fell 3% this month to 1.1200.