Intensive research effort
We believe we can deliver above-average, long-term returns to fixed-income investors by investing in primarily corporate bonds as opposed to government bonds. In-depth research – qualitative and quantitative – enables the fixed-income team to identify companies and corporate bonds that offer the greatest potential for higher value added returns, steady sources of income and capital protection. As a result of its intensive research effort, the team does not pursue an interest-rate anticipation strategy, does not invest in bonds rated below investment grade and does not invest in bonds issued in any currency other than the Canadian dollar.
Our investment universe is determined by both “grades” of bonds, the industries in which the companies reside and current projections for the market and individual securities.
We meet with issuers’ senior management to ensure we have a good understanding of how they’re going to pay their debts and determine how highly they value their credit rating. We evaluate their business models, their business acumen and their commitment to debt holders. We then combine this information with an understanding of the industry in which the company operates, the economy in general and ultimately ask ourselves, “Can we lose money with this company or issuer?”
We never extend capital – lend money – to a company without a thorough knowledge of the firm’s financial health. We closely examine the balance sheet subjecting it to rigorous analysis. We assess the firm’s earning power, its assets, its liabilities and its ability to generate free cash flow. We gauge refinancing risk, scrutinize debt covenants and take a range of other financial statements into consideration.
The top-down macroeconomic view informs all investment decisions; we look at interest rates, inflation, employment, credit availability as well as a range of leading indicators. This is supplemented by sector analysis of the industry the company inhabits.