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Helmed by veteran managers Mark Wisniewski and Etienne Bordeleau-Labrecque of Toronto-based NinePoint Partners LP, the NinePoint Diversified Bond Fund is an actively-managed, diversified North American-focused fund with a flexible mandate allowing the managers to invest across the capital structure.
The fund takes an absolute return approach and aims for a 4% to 6% return, net of fees over a rolling three-year period, regardless of interest rates. It is managed using a disciplined investment process blending top-down macro views, thematic tactical trades, and bottom-up security selection.
The managers have a range of tools at their disposal, including the ability to alter interest-rate sensitivity, currency exposure, security mix, and credit quality to either capture potential upside or to reduce or manage risk.
Performance over the long-term has been decent, with an average annual compounded rate of return of 2.9% over the past three years, and 2.8% over the past five years ending July 31. The performance numbers are roughly in line with the category average, putting the fund in the middle of the pack for performance. However, when we factor in the risk level of the fund relative to other global bond funds, the risk-adjusted numbers are excellent. Year-to-date to July 31, the fund has gained 5.1% compared with the category average return of 4.7%.
For example, as of July 31, the annualized three-year standard deviation of the fund was 2.6% compared with 5.2% for the global fixed-income category. This results in a Sharpe Ratio that is significantly higher, at 0.59 for the fund versus 0.48 for the category. Furthermore, the fund has negative down capture ratio, meaning that it has historically been positive when the broader global bond market is negative. This makes it an excellent diversifier when used in a portfolio.
In their July commentary, the managers noted that “spreads are about 40% wider than the cycle tights we reached in January, making investment grade bonds attractive, on a relative basis.” They added that barring an external shock, they expect this technical backdrop to push spreads tighter into the fall, but possibly at a slower pace.
In the high-yield segment, the managers continue to favour a defensive approach, sticking with higher quality crossovers and fallen angels. They believe their current portfolio positioning provides a good balance between credit exposure and defensive positions.
As of July 31, the fund held 9.6% in government bonds, 75.5% in investment-grade corporate bonds, and 13.6% in cash and equivalents. Currently 99.5% of the portfolio is invested in North America. The managers have moved the overall effective portfolio duration to 6.14 years compared with 4.43 for the category average.
Despite the modest absolute return numbers, the defensive positioning of the portfolio combined with the experienced management team and active investment process keeps this as one of my top bond fund picks for most investors.
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
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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. Dave Paterson is employed as an advising representative (portfolio manager) by Empire Life Investments Inc. (ELII), a subsidiary of Empire Life Insurance Company. ELII is the investment fund manager and portfolio manager of the Empire Life Mutual Funds and the portfolio manager of the Empire Life Segregated Funds (collectively, the Empire Funds). As such, his employment and his compensation may be connected to the success of ELII and the Empire Funds. From time to time, the Empire Funds may buy, sell, hold, or otherwise have an interest in securities that may be discussed in this report.
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