Fund in Focus: RBC Global Corporate Bond Fund
Disciplined process, focused on risk management
RBC Global Corporate Bond Fund has recovered nicely from the pandemic-induced spring market meltdown, and is posting a year-to-date gain of 3.8%, pretty much in line with the category average. The fund is actively managed by the RBC team of Frank Gambino, Marty Balch, and Soo Boo Cheah. It invests in a diversified portfolio of bonds from corporate issuers around the world. While the focus is on investment-grade bonds, the managers can invest a portion in non-investment grade issues. And in fact, at the end of September, while about 37% of holdings were investment grade, 19% of assets were allocated to non-investment grade bonds.
Average credit quality is modest, with a weighted average of BBB, which is the lowest rung of the “investment-grade” rating.
Geographically, the focus is on developed markets. Roughly half is invested in the U.S., 16% in Canada, 22% in international markets, and 11% in emerging markets. Given this mix, the weighted average term to maturity is listed at 9.9 years, resulting in a duration of 7.0 years. This makes the fund somewhat sensitive to the movements in interest rates.
It offers a yield to maturity of 2.5%. In comparison, the yield to maturity for the Canadian bond market is listed at 2.2%. With global interest rates expected to remain flat or move lower, this fund would be expected to help increase return in a well-diversified fixed-income portfolio.
The fund has been defensively positioned, which has muted absolute returns. For the three years ending Sept. 30, it generated an average annual compounded rate of return of 3.5%, which was slightly below the peer group.
However, volatility has been lower than the peer group, resulting in above-average returns on a risk-adjusted basis. In addition, it has done a very good job protecting capital in down markets. This is a fund that has been on my focus list for several years. I like the well-resourced management team, the disciplined process, and the focus on risk management. I see this as a solid pick for those looking for high-quality, global bond exposure.
RBC Global Corporate Bond Fund
Fund company: RBC Global Asset Management
Fund type: Global Fixed Income
Style: Top-down macro/Bottom-up security selection
Risk level: Low
Load status: Optional
RRSP/RRIF Suitability: Good
Managers: Frank Gambino since Aug. 2004; Marty Balch since June 2009; Soo Boo Cheah since Dec. 2009
Fund code: RBF580 (No-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.
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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.