If your clients prefer domestic securities, help them understand why it’s important to diversify.
“It’s natural to have a home bias if your bills are in Canadian dollars,” says John Braive, vice-chairman of Global Fixed Income at CIBC Asset Management, and manager of the Renaissance Canadian Bond Fund. People’s mortgages, gas bills and automobile costs are all in Canadian dollars, he notes, and “when you retire, you need Canadian dollars.” With the loonie trading below 72 cents, clients may be extra-sensitive to this concern.
However, investors can diversify their portfolios by looking for opportunities in corporate credit, high-yield credit and government bonds outside of Canada, says Braive. “The majority of high-yield issuance in trading is in the U.S. market. So we have very large exposure in the high-yield portion of our portfolios to that market, and we’re very active there. The type of deals we see there are across a broad range of industries and credit ratings.”
In fact, the U.S. market is on a tear this year, he adds. “[It’s] going to be a record year for issuance in investment-grade securities, and there are a lot of opportunities that have come up in the last couple of years.”
Outside of the U.S., Braive is invested in Australia and Mexico. “At certain times, they become attractive vis-a-vis our Canadian yields for governments.”
But, before investing in international, investment-grade securities, investors have to consider currency trends. “You have to look at [the] exposure of your currency, because an adverse move in currency could take away all potential gains you have in [a] fund. That’s why we use a hedging strategy.” Braive also works with teams that keep track of global yields and currency movements, and he consults these teams when making trades.
Also, be aware that one company could issue differently rated bonds. “You could have actual investment-grade-rated securities. But then, if you move down into the credit quality of the company, you could [also] have single-B-rated securities because they’re subordinate to the higher credit ratings.”