Fund in Focus: Dynamic Advantage Bond Fund

Strong holding for defensive investors

The managers of the Dynamic Advantage Bond Fund, a core bond offering from Dynamic Funds (a wholly-owned subsidiary of Scotiabank) have been defensively positioned for several quarters, and has held up well as market volatility increased through the end of August with traders swinging between risk-on and risk-off trades, yield curve inversions, and growing investor anxiety over global trade and tariff issues.

Dynamic’s veteran fixed-income managers Domenic Bellissimo, with a six-year tenure on the fund, and Derek Amery (since March of this year) are very active in implementing their strategy.

The fund has a flexible mandate and can invest across the various fixed-income sectors, including government bonds, corporate bonds, real return, and high yield bonds. Bellissimo and Amery are very active in managing the interest rate and credit exposure of the fund.

At the end of August, the geographic portfolio allocation consisted of 85% in Canadian bonds, 12% in the U.S., and the rest in the U.K. The asset mix looks very different from the FTSE/TMX Canada Universe Bond, with only 3.1% in Government of Canada bonds, compared with nearly 23% in the index.

The fund currently has 104 holdings, and allocates nearly 54% to Canadian corporate issues and 13% to provincial bonds. This positioning results in a yield to maturity that is well above the benchmark, with a credit quality that is firmly investment grade.

The managers continue to have some worries about inflation and have about 17% of the portfolio invested in inflation-protected bonds. In the past few quarters, as bond yields rose, they have added duration exposure to the portfolio. At the end of August, duration sat at 8.35 years, compared with 8.09 years for the broader market.

Looking ahead, it appears that interest rates are expected to level off over the next few months as the pace of global economic growth slows and central banks become more dovish over the next few quarters.

The managers continue to be active, adjusting allocations and duration so that the fund will stay well positioned to benefit if the managers’ expectations for the market play out.

With a reasonable MER of 1.43%, steady monthly distributions of $0.0115, and an average 3-year standard deviation of 1.84%, compared with a median 3.66% for the category, I continue to like this fund for its defensive positioning, and I see it as a strong holding for more defensive investors.

Dynamic Advantage Bond Fund
Fund company: Dynamic Funds
Fund type: Canadian Fixed Income
FundGrade: B (August)
Style: Top-down macro
Risk level: Low to Medium
Load status: Optional
RRSP/RRIF suitability: Good
Manager: Domenic Bellissimo since March 2012; Derek Amery since March 2019
MER: 1.43%
Fund code: DYN258 (Front-end load)
Minimum investment: $500

Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.

Notes and Disclaimer

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.