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Bonds: No Time to Die
Ryan Sheriff
As far as market cycles go, we are entering what is best described as the “tricky bit”. The crystal ball is never as clear as we would prefer. However, the investment team at Open Access works continuously to measure and map various market indicators to invest your savings correctly.
When markets hit a rough patch, we historically shifted your investments into defensive funds. Coming out of downturns, rotating to growth strategies made you money.
What is less clear, though, is what savers should do in a “stagflationary” environment. Today, economic growth is slowing down and financial conditions are getting less accommodative. This suggests trimming the sails a bit in anticipation of rougher waters ahead. Although, paradoxically, inflation is ramping up at the same time. Investors that traditionally found a safe harbour in cash and bond investments could be disappointed as a result. Case in point, while the global stock market struggled in September, the usually steady bond market did a poor job at hedging the downside. So, what are we to do when conservative investments start to become relatively risky! It is a question that Open Access has been working on for you throughout the year. To some, the answer is easy. If the fundamentals of “safe” investments like bonds have deteriorated, simply avoid investing in them. This view reflects the longstanding truth that the bond market is the Rodney Dangerfield of investments: it gets no respect.
Be that as it may, bonds still have an important role to play in a portfolio designed to achieve your goals. When it comes to compounding your savings over time, sidestepping deep declines is just as important as capturing growth. During inevitable market corrections to come, bond investments will likely continue to be effective diversifiers. Although, with the spectre of inflation looming and interest rates providing limited income, we recently took steps to improve the bond portion of your Open Access portfolio. In June, we selected one of the world’s preeminent asset managers, Pacific Investment Management Company (PIMCO), to manage some of your retirement funds. We did this to deliver more active investment management over the coming market cycles. Our investment team was impressed by the PIMCO Canadian Total Return Bond Fund’s track record of beating the broad bond index. Based on the expertise of the fund management team, and the array of active levers they can pull, we are confident that this outperformance is sustainable. We also added the Canadian version of PIMCO’s flagship strategy, their Monthly Income Fund. Managed out of the firm’s Newport Beach, California headquarters, this fund taps into the best analysis from one of the industry’s strongest bond managers. In a world that offers very little in the way of income, we like the fund’s ability to consistently generate annual income between 4-6%. While this is not necessarily impressive on its own, as a segment of your portfolio, we are optimistic that this strategy will add value.
PIMCO is also at the forefront of investing in environmental and socially conscious programmes. For the third year in a row, the company received an A+ rating from the United Nations Principles for Responsible Investment (UNPRI) assessment report. Since implementing these enhancements, we are pleased to see that both PIMCO strategies are showing positive results. These additions are just another way Open Access is striving to add value to you in all phases of the market cycle.