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Veteran business journalist and investigative reporter Olev Edur takes you behind the performance numbers for close-up look at the people, processes, and portfolios that make investment funds tick.

By Olev Edur  | Thursday, August 04, 2016


What with all the crazy stuff going on globally these days, most investors want a secure haven for their core savings. But with real, inflation-adjusted interest rates at or below zero in many countries, investors are looking for more than traditional fixed-income assets in order to avoid losing money. Enter the CI Portfolio Series Income Fund – a fund comprising several other CI funds, including a touch of conservative equities to bolster overall returns. The mix is a consistent winner for the fund, with four consecutive annual FundGrade A+™ Awards to its credit.

“This fund is suitable for people who don’t want a lot of volatility, but want more than fixed income returns,” says Alfred Lam, senior vice-president and portfolio manager at CI Investment Consulting in Toronto. “This fund is not modeled on benchmarks, and there aren’t allocation parameters. We concentrate on risk budgeting to minimize the downside, while providing positive returns that beat inflation over a three- or four-year time frame.

“We don’t want to have two years of 10% returns and then a -10% return,” Lam adds. “We try to narrow that outcome range so that it’s highly consistent. We are using engineering to make sure we have the right asset mix for that time horizon.”

And indeed, the fund has been delivering as consistently as promised, with 10-, 5- and 3-year average annual compound returns of 5.3%, 5.9%, and 6.2% respectively through periods ended June 30, 2016. While the one-year return through June has slipped to 3.1%, Lam says this was to be expected. “Bonds are down dramatically,” he notes. Still, the fund achieved a monthly FundGrade™ A-Grade rating for June.


As for the how and wherefore of that “engineering,” Lam says other fund managers may take a technical or one-dimensional approach, buying whatever assets are producing good returns at the time without looking at the correlations between asset classes. But his team takes a multi-dimensional approach to allocations, in order to get better risk-adjusted returns.

“So, for example, if you look at high-yield bonds, 25% of these are energy-related, and high-yield bond volatility today is primarily being generated by the energy sector,” Lam explains. “There is a strong correlation between the U.S. dollar and oil, and we own a lot of U.S. dollars and a lot of high-yield bonds. The two combine to offset each other and generate more predictable returns.”

And how does Lam respond to events like Brexit? “We have no crystal ball, and it’s difficult to know what the outcome can be, so we don’t try to predict,” he says. “We take a more reliable approach that’s very valuation-driven. While the outcome of Brexit was quite unpredictable, it did change valuations. Before Brexit, bond yields were rising, so we added some bonds, and we will make a handsome return.

“To use an analogy, we don’t go to Walmart and try to predict what’s going to be on sale next week,” Lam adds. It’s the same as trying to predict the market. When there’s a sale, we buy what’s on sale. We proactively react.”

“We’ve been very consistent with our engineering and risk budgeting process,” Lam continues. “We also manage the portfolio on a ‘look-through’ basis, taking an aggregate view of our holdings. We look at our actual exposures to cash, to Canadian and U.S. holdings, to high-yields, sectors, currency – we look at the sum of all our holdings to make sure we don’t have too much risk in any areas. And we look at the correlations. We are active managers on an ongoing and dynamic basis, and try to optimize our holdings over that three- to four-year time frame.”

Olev Edur is an experienced financial and business journalist and a frequent contributor to the Fund Library.

Notes and Disclaimers

© 2016 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without written permission is prohibited.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual 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. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.

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