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
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
Lysander Funds Ltd.
Global Fixed Income
FundGrade A+ Award: 2015, 2016
Deep Value Credit
John Carswell, Canso Management Team
LYZ801A (front-end load)
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
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.
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only and is not intended as personalized investment advice.