Connor, Clark & Lunn Capital Markets Inc. has filed a preliminary prospectus for a new fund that will invest in capital securities of the largest banks and insurance companies in the Canada and the United States.

The North American Financials Capital Securities Trust will provide unitholders with exposure to an actively managed portfolio consisting primarily of investment grade capital securities of the six largest Canadian banks, large Canadian insurance companies and U.S. financial institutions with a minimum issuer rating of “A” by S&P.

Connor, Clark & Lunn said an attractive opportunity currently exists to invest in capital securities. Canadian banks are particularly attractive, the company said, since they have been recognized as well capitalized and conservatively run financial institutions.

In addition, the company noted that the recent volume of issuance by Canadian and U.S. financial institutions of preferred shares and common shares to strengthen their balance sheets has increased their capital levels to historical highs.

“Investors in capital securities of certain large financial institutions will benefit from banks reducing risk with less leveraged balance sheets,” the company said, adding, “these stronger financial institutions are better positioned to sustain any unexpected slowdowns or other problems in the U.S. economy.”

The banks’ strong capital levels will also help them take advantage of the significant business opportunities created by difficulties faced by smaller financial institutions, according to Connor, Clark & Lunn.

The company added that the yields offered by capital securities remain elevated by historical standards and offer attractive risk-return characteristics relative to government bonds, non-financial corporate bonds and to equities.

Connor, Clark & Lunn filed the preliminary prospectus with the securities regulatory authorities of all the Canadian provinces and territories for an initial public offering of Class A units and Class F units of the fund.

The fund’s investment objectives are to provide unitholders with attractive tax-advantaged quarterly cash distributions, and return to unitholders at least the original issue price of the units upon termination of the fund on Nov. 30, 2014.

Annual distributions are initially targeted to be $1.50 per unit consisting primarily of returns of capital, representing a yield on the unit issue price of 6% per annum.

Connor, Clark & Lunn Investment Management Ltd. will act as portfolio manager to the fund. It will be managed using an investment approach similar to the investment approach employed by Canadian Banc Capital Securities Trust, the company said.