WEBVTT

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I'm Jenipher Nevin, and today
I'm joined with Brian Carney,

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a portfolio manager at Canso
Investment Counsel. Now, Brian,

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let's talk fixed income.

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Word on the street is active portfolio
management is dead and ETFs are the way

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to go. What do you have to say to this?

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Canso was founded in 1997 based on the
premise that the financial markets are

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inefficient,

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and nothing we've seen or experienced
since then would lead us to believe

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otherwise.

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And it's our belief only an active manager
can take advantage of inefficiencies

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in the financial markets.

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Could you give us an example
of an inefficiency in the
market and how Canso has

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reacted versus that of an ETF?

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There's been a great example recently.
In November, General Electric (GE),

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which is the most analyzed
company in the world,

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had an earnings call, and they made some
announcements. And following that call,

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credit spreads on GE Securities
widened between 250 and

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350 basis points, which is an
extraordinary move in any market.

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And Canso's response was to
buy more GE Securities in the

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marketplace. An ETF,

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which might have experienced
withdrawals during that period,

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would've been selling GE
at exactly the wrong time.

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So would you say that GE could now
be classified as a fallen angel

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security?

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So GE is not a fallen angel, but it
definitely has fallen from grace.

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A fallen angel means a company that's
downgraded from investment grade,

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so BBB- and higher to
non-investment grade,

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so BB+ and lower.

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So GE is not technically a fallen angel,

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but its credit spreads would suggest
it's trading like a median high-yield

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company.

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What will happen if the security
drops below investment grade?

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So if General Electric does fall
below investment grade-it's BBB now,

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so we're not saying it will anytime
soon-but there are investors out there in

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the marketplace that can't hold
non-investment grade-rated securities.

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So there would be selling
in the marketplace,

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and that could further
pressure GE spreads.

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And Brian,

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what else is going on in the market
currently that has contributed to the drop

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in GE's price?

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In addition to specific
credit factors surrounding GE,

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all of that happened when the equity
market was going through a fairly dramatic

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and extreme sell-off.

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So the equity market during this
period is also down about 10%,

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so that has contributed to
the widening of GE spreads.

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Well, thank you, Brian,
for your time today.

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To read more on GE and
our other market insights,

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go to cansofunds.com and read the
latest edition of the Corporate Bond

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Newsletter.