Fund in Focus: RBC Global Bond Fund
A defensive holding
North American interest rates are likely on hold for now. The U.S. Federal Reserve isn’t expected to raise rates, and has backed off its hawkish bias in the face of softer-than-expected monthly job creation numbers recently. In Canada, with sluggish GDP growth, the outlook for rates is about the same, but will depend on the overall strength of the economy and the outlook for inflation. Globally, other countries remain in an easing or stable rate environment.
Given this wide discrepancy in the outlook for rates, the RBC Global Bond Fund offering with its go-anywhere mandate can be helpful in generating returns. It invests in a well-diversified portfolio of fixed-income securities issued by governments and corporations around the world.
While the focus is on investment-grade bonds, the fund can also invest in high yield. At the end of April, it had an 88% weighting to government bonds, with only about 7% in high yield issues, and the rest in cash.
The fund is very diversified geographically and looks much different than its peers. About 25% is invested in the U.S., compared with more than 40% for the peer group. The next largest weights are Japan, Spain, and Italy, each of which are overweight compared with the peer group.
Credit quality remains very high, with about 73% in investment-grade issues with average credit quality rating of A. The balance is non-investment grade or unrated.
Performance has trailed the peer group largely because of the fund’s overweight exposure to government bonds, which have trailed corporates. However, government bonds will provide a better buffer against volatility in equity market selloffs. The fund has a duration of 7.7 years and a yield to maturity of approximately 2.4%.
The fund’s current tilt towards “peripheral” European countries (e.g., nearly 10% weighting to Italy) could expose it to larger swings if we see a repeat of the government crisis that occurred in Italy a year ago.
The fund has a reasonable MER of 1.58% for advisor-sold units, and 0.62% for the do-it-yourself units. All things considered, this remains a solid pick for those looking for a more defensive global bond fund.
RBC Global Bond Fund
Fund company: RBC Global Asset Management
Fund type: Global Fixed Income
FundGrade Rating: B
Risk level: Low
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Dagmara Fijalkowski, Soo Boo Cheah
Fund code: RBF765 (Front-end units)
Minimum investment: $500
Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.
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