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The ‘go-anywhere’ Lysander-Canso Corporate Value Bond Fund a FundGrade A+® Award winner
11/21/2017 10:19:12 AM
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DUE DILIGENCE
Objective research, analysis, and insight on investment funds in Canada from an acknowledged industry expert



By Dave Paterson  | Wednesday, November 08, 2017


 



In the bond space, there are few shops that are as well respected as Canso, the managers of the FundGrade™ A Grade Lysander-Canso Corporate Value Bond Fund. It’s a “go anywhere,” unconstrained, value-focused bond fund. Using a very thorough, fundamentally-driven credit analysis process, lead manager John Carswell and the team at Canso Investment Counsel look to build a concentrated portfolio of investment-grade and high-yield bonds. The strategy has clearly worked, as the team has delivered consecutive FundGrade A+ Awards in 2015 and 2016.

Canso has a lot of bench strength in its 28-member investment team, which gives them the ability to look at credit a little differently than some of their peers. They start with a fundamental review to understand a company’s cash flow picture, which helps them assess the probability of being repaid. Next, they delve deep into the covenants, so they understand their rights, should things go south. With this info, the team creates their own internal credit rating for a potential bond investment, and determines their maximum loss score, which is essentially their worst-case scenario.

Once the managers understand a company’s credit, they like to invest in those that are trading at or below what they estimate to be the recovery value of the bond, and avoid those they believe are overvalued. The managers are active in their approach, and will manage credit quality based on the risks of the market.

At the end of September, the portfolio duration was 2 years, well below the 7.2 years of the broader Canadian bond market. Its yield to maturity was 3.1%, quite a bit more than the index. Just under half is invested in high-yield bonds, and financial-sector issues make up 52% of the fund’s holdings. Communications and industrial are two other large sectors, representing a combined 23%. The fund held 157 individual positions as of Sept. 30.

Performance has been strong, with the fund delivering an average annual compounded rate of return of 5.5% for the past five years ending Sept. 30. What’s more impressive is the fund has posted this performance with a 3-year average standard deviation of only 3.65%, giving it the lowest Fundata Volatility Ranking of 1/10. However, given the fund’s unconstrained mandate, volatility could end up being higher if markets get dicey.

This is a solid pick for investors looking to complement their existing bond holdings with an active, uncorrelated, credit-focused fund.

Lysander-Canso Corporate Value Bond Fund
Fund company:
Lysander Funds Ltd.
Fund type:
Global Fixed Income
FundGrade Rating: A (September)
FundGrade A+ Award: 2015, 2016
Style: Deep Value Credit
Risk level: Low-Medium
Load status: Front-end load
RRSP/RRIF suitability: Good
Manager: John Carswell, Canso Management Team
MER: 1.52%
Fund code: LYZ801A (front-end load)
Minimum investment: $5,000

Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson’s Top Funds Report, offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.

Notes and Disclaimer

© 2017 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.

 

 
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