Go-anywhere flexibility lifts Lysander-Canso Short Term & Floating Rate Fund
8/19/2018 9:15:45 AM
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By Dave Paterson  | Wednesday, June 06, 2018


 



In the bond space, there are few shops that are as well respected as
Canso Investment Counsel, the managers of Lysander-Canso Short Term & Floating Rate Fund. Manager John Carswell aims for high current income and some long-term capital appreciation with a fundamentally-driven credit analysis process. The fund won the FundGrade A+ Award in 2017, and continues to place in the first quartile of performance. Here’s a look at what’s behind this Lysander fund’s success.

One of the big reasons is that the manager can invest not only in traditional short-term bonds, but also in floating-rate securities and convertible bonds. The fund has a go-anywhere mandate, but as of the end of May, more than 90% of the portfolio was invested in Canada.

The fund also has flexibility around credit quality, and can invest up to 40% in non-investment grade issuers. And at the end of May, nearly 10% was in fact allocated to non-investment grade debt.

Canso’s 28-member investment team gives it the bench strength for an in-depth fundamental review to understand a company’s cash flow picture, to assess creditworthiness, and covenants, to understand their rights should things go south. An internal credit rating system and maximum loss score sets up a worst-case scenario.

The managers are active in their approach, and will manage credit quality based on the risks of the market. The result is a concentrated portfolio, with the fund holding 60 securities. The top 10 holdings make up roughly half of the portfolio. In the expectation of higher yields, the fund is defensively positioned, with half of the portfolio invested in floating-rate notes.

This positioning has benefitted the fund. In April, the FTSE/TMX Short Term Bond Index was down 0.07%, the fund was up 0.09%. Year to date, the index was up 0.11%, while the fund gained 0.25%. For the 12 months ending in April, the fund returned 0.51% to the end of April, compared with a loss of 0.83% for the index.

Looking ahead, given the bench-strength of the management team and the active investment process they use, I would expect this fund to be able to outpace most of its peers on both an absolute and risk-adjusted basis. However, given its focus on corporate debt over government issues, it may be a touch more volatile than its peers over short-term periods.

Lysander-Canso Short Term & Floating Rate Fund
Fund company:
Lysander Funds Ltd.
Fund type:
Canadian Short-Term Fixed Income
Rating: B (April)
Style: Bottom-up Credit Analysis
Risk level: Low
Load status: Front-end load
RRSP/RRIF suitability: Good
Manager: John Carswell since Sept 2013
MER: 1.31%
Fund code: LYZ805A
Minimum investment: $5,000


Source: Fundata Fund Profiler, as of April 30, 2018

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.

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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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