Natixis Canadian Preferred Share Class invests in a diversified portfolio of preferred shares, but has the
flexibility to hold cash or bonds depending on market conditions. Managed
by Jeff Herrold, Dax Letham, and Ian Clare of J. Zechner Associates, the
investment process is a mix of top-down economic analysis combined with
rigorous, bottom-up credit analysis.
The economic analysis provides an overview of the expected economic and
interest rate framework, and also helps provide insight into different
industries. This approach helps set the stage for the bottom-up fundamental
credit analysis, which involves understanding the financial health of the
business, assessing its various risks, and management.
Given the potential illiquidity of the preferred market, knowing the
valuation of each company is critical. This also helps the team assess the
relative attractiveness of the preferred compared with a fixed income
The portfolio is diversified, with the maximum position weight being capped
at 5%. There is also diversification across sectors and preferred type
(i.e., perpetuals, floaters, resets.) They are active in their approach and
will position the portfolio to best benefit.
Top holdings as of Jan. 31 included preferred shares of AltaGas,
TransCanada Corp., CIBC, National Bank, and Pembina Pipeline. The top 10
holdings of the fund together comprise 46% of total holdings.
Absolute performance has been less than exciting, with the Series A fund
delivering a 3-year average annual compounded rate of return of 2.75% to
Feb. 28, compared with 2.82% for the S&P/TSX Preferred Share Total
Return Index. However, given the inefficiency in the preferred market, I
believe you want to choose active management over passive index exposure.
And given the Zechner team and its process, the fund’s small asset base,
and its 1.60% MER, this is a very attractive option for the long-term.
Natixis Canadian Preferred Share Class CG Series A
Preferred Share Fixed Income
Market Capitalization Weighted
J. Zechner Associates: Jeff Herrold, Dax Letham, Ian Clare, since 2012
NXG5321 (Front-end load)
Dave Paterson, CFA, is the Director of Research, Investment Funds for
D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due
diligence on a variety of investment products. He is also the publisher
Dave Paterson’s Top Funds Report,
offering regular commentary and in-depth analysis of Canada’s top
investment funds. He uses a unique analytical approach to identify
funds with strong, risk-adjusted returns, and regularly publishes his
insights and analyses in Fund Library.
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before investing. Mutual funds are not guaranteed and are not covered by
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its net asset value per security at a constant amount or that the full
amount of your investment in the fund will be returned to you. Fund values
change frequently and past performance may not be repeated. No guarantee of
performance is made or implied. This article is for information purposes
only and is not intended as personalized investment advice.