Tactical Bond Fund Commentary
Portfolio Sub-Advisor: Aston Hill Asset Management Inc.
Manager Commentary - December 31, 2011
The Fund lagged its benchmark for most of the year as slow
growth and lack of inflationary pressures provided an environment
where yields for risk free assets could continue to rally. Added to
this was the ongoing troubles in Europe which continued to play
havoc with investors as many flocked to the safety of the U.S.
dollar and Treasury bonds in the second half of 2011.
In this environment, the yield on a Government of Canada ten year
bond rallied to an all-time low of 1.84%, and credit spreads
widened for high yield bonds and other credits as well. The Fund
underperformed its benchmark for the year as it held significant
cash positions and was overweight higher yielding bonds relative to
its benchmark. Performance in Canadian bonds proved to be quite
different across sectors. Long duration government bonds were the
top performers for the year by a wide margin. Meanwhile, with
credit spreads widening and with bonds issued by companies
typically having a shorter maturity, the Corporate bond sector
underperformed long bonds but were not far behind the overall
index. High yield bonds also underperformed the overall index and
were roughly in line with the performance for short term
bonds.
The Portfolio Sub-Advisor added to its holdings in high yield bonds
throughout 2011. Although this asset class has lagged the
performance of investment grade bonds, it still has the potential
to outperform in 2012. Within this asset class, the Fund maintains
a significant weight in senior secured first lien securities,
otherwise known as "bank debt". The Portfolio Sub-Advisor believes
these securities offer better protection than the subordinated debt
from the same issuer and, in many cases, still offers significant
cash yield. The Portfolio Sub-Advisor added to the Fund's holdings
in the bank debt of CCS Inc. CCS Inc. is a company that specializes
in the storage and treatment of waste fluids and materials from the
oil & gas industry. The Fund also increased its holdings in the
Telecommunications Services sector with bonds from Bell Canada,
Rogers Communications Inc. and Shaw Communications Inc.