Investment Products: Fixed Income - Product Details

Core
Within the Core Fixed-Income mandate, the focus is on adding value through an actively managed, diversified portfolio. A key element of our success is risk control. We believe that there are numerous opportunities in the bond market without subjecting the portfolio to extreme interest rate calls. The duration, therefore, is constrained within a narrow range. Within our Core mandate, we actively structure the portfolio to take advantage of anticipated changes in the shape of the yield curve. Sector weights are adjusted to reflect spread levels available and expected. At times, we may have a heavier than average weighting in short-term Corporate bonds. Credit analysis is, therefore, an integral part of the decision-making process to ensure the portfolios benefit from the higher yields we seek, while avoiding potential downgrades and poorer quality issues.

Within our Core Fixed-Income portfolios, we will, generally, have a duration of plus or minus 0.3 years on either side of the Scotia Capital Universe. We will hold between 25 to 35 issues and will have an overall portfolio quality rating of “A” or better. We will also hold no more than a maximum of 10% in securities with a rating of “BBB”. Securities with a rating of below “BBB” will not be purchased.

Index-Enhanced
Our approach begins with dividing the designated benchmark into two segments – determined by average term to maturity of less than 5 years and of 5 years and longer. The longer term segment has been designed to emulate the characteristics of the index. For the short-term segment (under 5 years), we would hold, predominantly, Corporate issues. However, we would emulate the key risk characteristics (duration, convexity, term, cash flow) of the short-term aspects of the index with these securities.

High Yield
We designed our High Yield product to provide our Clients with a higher income-producing vehicle. Credit analysis is the most important aspect of high-yield investing. In addition to traditional financial ratio and trend analysis, we make extensive use of in-house modeling, stress testing and bankruptcy analysis. High-yield securities tend to be issued for shorter terms to maturity than the investment-grade instruments. As a result, portfolio duration tends to remain shorter in high-yield portfolios than the investment-grade Corporate bond issues. In fact, duration often becomes a secondary concern for high-yield investors, since income – not price change – is the major contributor to total returns. Within the high-yield area, we tilt the portfolio to focus on industries and companies where we expect improving performance. Sector rotation in search of spread compression remains a secondary focus.

Structured
Managing a structured bond portfolio to add value, and construct safeguards to meet the payment schedule, requires both sophisticated financial engineering tools and practical judgement. We recognize that there are practical constraints in the marketplace and use financial engineering tools alongside our market knowledge to construct the “optimum” portfolio.

Our Fixed-Income Team hand-picks all bonds for credit quality, value and availability, and only then uses sophisticated computer models and software – which have all the necessary optimization capabilities to establish and monitor a portfolio. We add value to a structured portfolio by integrating with it an active management component. Trading opportunities, arising from undervalued securities, are identified by the firm’s computers on a historical and theoretical basis, while other fundamental research determines which of these opportunities are practical under the constraints of the portfolio.

Money Market
Guardian’s Money Market investment approach focuses on credit management, with moderate shifts, to take advantage of shifting yield curve dynamics.

For the money market mandates we invest in high quality, short-term fixed-income securities issued or guaranteed by Canadian governments, Canadian chartered banks and Corporations. Maturities are, generally, from one month to one year, averaging around 180 days. The securities have a minimum quality of “R1” or “A1”. Duration targets are adjusted from time to time, depending on our expectations for short-term interest rates over the next 2 to 9 months.

We generally prefer to be invested in Corporate securities over Treasury Bills where possible, but only after the Corporate issuer has passed our credit screening and has been accepted on an internal approved list. Yield pick up strategies are used wherever possible, always within strict credit quality guidelines. Capital preservation concerns always override an opportunity for higher yield.