An Update on the IA Clarington Core Plus Bond Fund

Dan Janis: In the bigger picture, we think over time as rates start to gravitate lower, that should help buffer the economy so we don't have to worry about this recessionary issue.

What are the overall attributes of the Core Plus Bond Fund?

Dan Janis: We clipped the coupon with low volatility, between 0% and 4%. We want to make sure it's high-quality, so always high-quality investment grade. We want to make sure at the edges that we can add some value, whether it be currency or some duration. But again, have the high-quality focus. So that volatility is between 0% and 4%, so commensurate with a high-quality portfolio with no surprises.

Position size becomes very important on the credit side and making sure that as we make allocations, we understand why we made an allocation to sell and why we made allocation to buy. So at certain times we may put a global type position in, whether it be an emerging market government or potentially a G7 government that could offer some opportunity, number one, through a currency differentiator and possibly from capital gains.

Can you discuss some positioning changes the team has made?

Noelle Corum: The items we own have all been vetted. We like what we own, but we would look to rotate into more U.S. over time, but that's got to be on a tactical basis because we really don't need to turn over those names right away. So that's kind of the liquidity piece.

Another piece of that is really getting the factor exposure. So within the bucketing worlds with carry, value and defensive, getting that in the right space, and we probably have about 10% of that to go. And again, over time we look to balance out risks across sectors and then also risks across North America, so U.S. and Canada.

Credit positions are distributed across carry, defensive and value sleeves. What's the current distribution of holdings?

Noelle Corum: Defensive is eventually going to be at 50%, and then value and carry will be 25% each. So given the kind of construction of the fund, it is going to be our more conservative fund. If you kind of look at the long horizon of a cycle, like five to seven years, you would look to see about 50% of the fund being in that defensive bucket. Right now we have a little bit more carry, a little bit more value. We're okay with that because we're within the Fed's cutting cycle. We think there’s going to be a soft landing. We're comfortable with those having a little bit more in carry and value. But over time, we again would look to make that shift. But of course it has to make sense for our clients because we don't want to turn over a ton when it really doesn't make sense from a yield perspective.

Can you give an example of how a holding is allocated based on your factor model?

Noelle Corum: If you think about the buckets, again, we found a name that didn't fall in any one of those buckets. So it wasn't a carry name because it wasn't cheapest within the universe. It wasn't a cheap energy name, it's Gibson Energy, and it also wasn't a defensive name because it's energy and it's BBB-, but it's yielding 3.6%, and they had another bond in there that was yielding 3.9%. Even at those levels, really not giving us much. It's not that compelling of a story with a BBB- name.

And again, we knew we had too much risk from the top-down level in the energy space. So we rotated out of that name and into Ford, which is a carry name within the U.S. investment grade (IG) universe, and it's a value name within the Canada IG universe. So it offers compelling yields. It's still within that BBB- space. So again, providing some carry exposure and offers yields that are 80 basis points above where the lowest Gibson Energy name was.

How do you feel about the risks in the current macro environment?

Dan Janis: In the bigger picture we think over time as rates start to gravitate lower, that should help buffer the economy, so we don't have to worry about this recessionary issue. Also, we understand on the macro side, we have the China situation, which we have to pay attention to probably not as much today, but over time this stimulus package was pretty significant. So we do think that's going to help around the world on stimulating economies, especially that are close and proximate to China, together with commodity currencies, i.e., Australia, New Zealand, and Canada. So down the road there could be opportunities in those three to take advantage of, which we see as an opportunity in this product.

Recorded on October 1, 2024.

For definitions of technical terms in this piece, please visit iaclarington.com/glossary and speak with your investment advisor.

Agile Investments Management, LLC was appointed sub-advisor to the IA Clarington Core Plus Bond Fund effective September 4, 2024.

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