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High-quality equity sleeve supports CI Signature High Income Fund
3/25/2019 6:21:18 AM
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By Dave Paterson  | Wednesday, May 02, 2018


CI Signature High Income Fund is a tactical balanced offering managed by Eric Bushell and the Signature Global Asset Management team. It has long been one of my favourite balanced funds. However, in recent quarters, there has been some modest erosion in risk-adjusted returns, which I believe can be explained by the focus on quality and yield, which have been out of favour of late.

The fund invests in a mix of income-focused equities and fixed income, with a decided focus on corporate bonds. It has a tactical mandate and can invest anywhere in the world. At the end of March, it had 55% of its portfolio invested in the U.S., 27% invested in Canada, with the rest allocated globally.

The investment approach is somewhat style-agnostic, and involves an analysis of an investment candidate’s entire capital structure. This provides a very holistic view of the company, allowing the managers to be opportunistic and invest in the most attractive part of the company. In addition to the fundamental review, the management team focuses on many qualitative aspects of the company, such as management, disclosure, and governance. The team also develops a comprehensive outlook for economic growth, interest rates, capital market conditions, and geopolitical tensions, which helps identify the asset classes and sectors that are most likely to benefit.

In the equity sleeve, the focus is on higher-yielding instruments including REITs, and infrastructure, as well as more traditional dividend paying stocks. The underlying yield of the fund’s equity holdings was recently approximately 3.5%, which is well above the index and peer group.

While the stock selection process is bottom-up focused, the sector mix is consistent with a yield-focused portfolio, with overweights in real estate, utilities, and energy infrastructure plays. The managers like infrastructure as an asset class, because it quite often will have revenue streams that move up with inflation.

On the fixed-income side, the focus is on corporate bonds. The managers can invest in government bonds but will typically do so only when they are being very defensive. Given the outlook for rising interest rates, they expect credit spreads to tighten, particularly in high yield bonds, which is why they have taken a significant weight in the non-investment grade space. They also hold some floating-rate preferred shares and some floating-rate loans. This will help lessen the duration exposure of the portfolio, protecting against any further yield hikes.

As we head into the summer, we can expect continued global growth, but a continuation of the volatility that has characterized markets since the start of the year. If higher volatility continues, I would expect to see the fixed-income sleeve hit harder, given its larger exposure to high-yield bonds. However, the quality and yield focus of the equity sleeve should hold up better than many of the highly-levered, richly-valued names that have been responsible for much of the recent market moves. Over the long term, I expect the fund to continue to deliver average or better returns with lower levels of volatility.

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 of 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.

Notes and Disclaimer

© 2018 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain 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.


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