The fixed-income investment team at Vancouver-based Phillips Hager & North Investment Management Ltd. (PH&N) refuses to commit to a single investment strategy. Rather, the team employs multiple strategies within each of its funds — an approach that diversifies exposure to both risks and opportunities, and which has helped the team outperform its competitors.
In the 10 years ended Sept. 30, 2012, the flagship PH&N Bond Fund achieved average annual returns of 6%, com- pared with average annual returns of 5% for the Canadian fixed-income fund category. That kind of performance is one important reason the team has won the 2012 Morningstar Fixed-Income Fund Manager of the Year award.
“It’s important for us not to get stuck on doing the same thing — doing one thing only,” says William John, head of the fixed-income team at PH&N, a division of Toronto- based RBC Global Asset Management Inc. “We use multiple strategies and combine them to make good, balanced risk/reward profiles in the funds.”
The team, which manages assets of more than $75 bil- lion in 35 funds, is composed of 33
whom has a specific realm of expertise. The team works together to identify investment opportunities.
“It’s a very collaborative approach,” says John. “It’s not realistic to have everyone do everything. We want to use the specializations and all the capabilities that the team members have.”
The investment-selection process begins at a high level, with an assessment of the risk and return prospects in each broad category of the fixed-income landscape. The PH&N team then drills down into specific sectors, companies and securities to find the strongest opportunities in each category.
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Technology plays a big role in this process. The PH&N team has developed internal software that quantitatively measures the risk associated with individual securities as well as for entire portfolios. “Trying to combine multiple strategies into a balanced client portfolio,” John says, “is difficult to do without strong technology.”
Quality is top of mind during investment selection, and John attributes his team’s success, in large part, to this discipline. Although John admits it can be tempting to embrace higher-yielding securities – especially in the current environment of low interest rates – he says it’s critical to avoid forfeiting quality in the quest for yield.
“We, as investors, try and stay disciplined in times like this,” he says. “The quality is important. You can move down in quality and get higher yields, but there are consequences to that — and that’s higher risk of loss of capital.”
The PH&N fixed-income team takes a cautious approach in its pursuit of higher rates of return. “We’re a bit conservative in how we do it,” John says. “We want to do it with very high-quality securities. What we want to avoid is an indiscriminate grab for yield.”
From the Canadian Investment Guide 2013.