Fund in Focus: Leith Wheeler Corporate Advantage Fund

Preferred share exposure weighs on performance

Leith Wheeler Corporate Advantage Fund is an actively-managed Canadian bond fund from employee-owned Leith Wheeler, based in Vancouver. It invests in a diversified portfolio of fixed-income securities, including investment-grade bonds, high-yield bonds, loans, preferred shares, and convertibles.

While the manager has some flexibility, the fund will be focused mostly in investment-grade issues. The fund can, however, hold up to 20% in bonds that are less than investment grade and up to 30% in preferred shares. This high-yield and preferred share exposure is likely to come from holding other Leith Wheeler funds that invest in those assets.

The investment process starts with a top-down analysis that reviews the economic and interest rate outlook. The managers then set their duration, sector, and credit quality targets.

Security selection is very much a bottom-up process, involving fundamental credit analysis that looks for credits trading at reasonable levels for both return and yield.

At the end of March, the portfolio was allocated 80% to bonds, 13% to preferred shares, and 5% to loans. Within the bond sleeve, over 80% was rated investment grade.

Over the past five years ending June 30, the fund has delivered an average annual compounded rate of return of 2.5%, compared with 4.4% for the FTSE Canada All Corporate Bond Index. Performance year-to-date has lagged, though, with the fund ahead 0.6% compared with 5.4% for the benchmark, a result of the preferred share exposure (the Leith Wheeler Preferred Share Fund is down 16.0% year to date).

Despite this recent downdraft resulting from the COVID-19 pandemic crisis, this is a well-managed, corporate-bond-centric offering, with a deep, well-resourced investment team, using a disciplined investment process. Moreover, their access to some non-core strategies would be expected to allow the fund to deliver decent relative returns with modest levels of volatility. I do not see this as a core holding, but rather a part of an otherwise well-diversified fixed-income sleeve of a portfolio.

Leith Wheeler Corporate Advantage Fund
Fund company: Leith Wheeler Investment Counsel
Fund type: Canadian Corporate Fixed Income
Style: Top-down macro/Bottom-up security selection
Risk level: Low
Load status: No-load
RRSP/RRIF suitability: Fair
Manager: Leith Wheeler Management team
MER: 0.79%
Fund codes: LWF021 (No-load units)
Minimum Investment: $25,000 directly through Leith Wheeler

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. 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.