With a modest MER and an experienced management team at the helm, GBC Canadian Bond Fund has been one of the strongest performers over the past five years. For the five years ending September 30, it gained 5.3%, handily outpacing the FTSE TMX Canada Universe Bond Index (formerly DEX Universe Bond Index) and the majority of its peers.
The sponsor of the fund, Pembroke Private Wealth Management, has retained the services of Canso Investment Counsel Ltd. as subadvisor to the fund. The manager has built a concentrated portfolio of corporate and government bonds using an intensive credit analysis process to assess the creditworthiness of the issuer. The managers look for financial strength, management capability, and a favourable business environment. In addition to analyzing the issuer, the terms and conditions of the security are assessed. Only once they are fully comfortable with the bond, can they make an investment.
The portfolio is currently tilted towards corporate bonds, which make up two thirds of the fund. The managers have a great deal of flexibility, and can invest up to 49% outside of Canada. At the end of September, 21% of the portfolio was invested in foreign corporate bonds and 8% in foreign government bonds.
With its focus on corporates, the portfolio’s yield comes in at 2.8%. The duration, which is a measure of sensitivity to interest rates, is listed at 5.0 years, which is well below that of the broader bond market. As a refresher, the shorter the duration of a bond or bond fund, the less sensitive it is to movements in interest rates.
Considering the above, I believe these factors are likely to allow the fund to outperform most other Canadian bond funds in a flat to rising bond market. However, I expect traditional bond funds to struggle compared with bond funds that invest only in corporate or high yield bonds. Still, for those looking for a more traditional bond fund, this is a solid pick.
The drawback to this fund is that it has a high minimum initial investment of $10,000. It may also not be available through all dealers.
Fund company: Pembroke Private Wealth Management
Fund type: Canadian Fixed Income
Fundata FundGrade® Rating: A
Style: Credit Analysis
Risk level: Low
Load status: No load
RRSP/RRIF suitability: Good
Manager: Canso Investment Management
Fund code: GBC896 (no-load)
Minimum Investment: $10,000
See the Fundata FundCard for more details.
Dave Paterson, CFA, is the Director of Research, Investment Funds for .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 and Mutual Fund and ETF Update 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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