80% of our efforts are spent on credit analysis

The key characteristic of our fixed-income portfolios is the presence of a normally larger than benchmark weighting of corporate bonds. We believe the credit market provides the opportunity to outperform while government paper provides stability, liquidity and helps us remain duration neutral.  As a result, 80% of our efforts are spent on credit analysis. We do not participate in interest rate anticipation and remain duration neutral. This way, we mitigate the risks we can’t control and let our research guide our investment making. 

Portfolios for income, yield and growth

The key criteria used to determine fixed-income portfolio composition are credit analysis, economic and market data, sector allocations and credit quality ratings. When it comes to individual holdings we look for the best combination of credit quality and coupon (yield) for the portfolio. Depending on the coupon of a corporate bond, the decision will be made to move up or down the credit quality scale. Trading decisions are made on a daily basis to maintain equilibrium in the portfolio with current projections for the market and individual securities. 

Why corporate bonds? The power of the coupon

  10 Year Yield Credit Ratings Risk Premium
10 Year Government of Canada Bond 2.08% AAA 0
Provinces 2.85% AA 77 bps
407 ETR 3.28% A 120 bps
Loblaws 4.28% BBB 220 bps
Source: Foresters Asset Management, 2019. For illustrative purposes only.