The Canso fixed income approach concentrates on security selection. We believe that fundamental analysis and security selection will add substantial value compared to a more “passive” approach.
Traditional “core” bond management combines corporate bonds with government bonds in an “active” bond mandate. The corporate bonds usually selected are a limited number of higher investment grade issues, which form a portion of the overall bond portfolio at a weight that is typically higher than the corporate bond weight in the market index. Alternatively, a smaller portion of the bond portfolio is allocated to “high yield” management, which is exclusively invested in lower quality bonds.
The Canso approach allocates a dedicated portion of the client’s bond portfolio to corporate bonds and manages these as its own universe. The result is a diversified and well-structured portfolio of corporate bonds, with each selected on its own individual merits. The credit range of the portfolio includes all investment grade bonds (AAA to BBB) and below investment grade issues, when permitted by the client’s mandate. We believe this latitude frees us from the necessity of trying to mimic index holdings and allows us to accept risks in the portfolios when we are appropriately compensated. Given the risk/return tradeoff, we do not distinguish among bonds on credit rating, but rather on fundamentals. We are opportunistic in our process, moving between bonds as their valuations change; buying unpopular bonds cheaply and selling overvalued, highly sought after bonds into strength. We would rather buy an out-of-favour and cheap “A” bond than a highly sought after and overpriced junk bond.