Philosophy

The Independence Canadian Bond Portfolio is managed with the belief that fixed income returns can be enhanced using an active management approach.  At the same time, fiduciary responsibility dictates that the portfolio be of high quality to preserve capital in down market cycles.  To achieve these goals, we utilize a disciplined but aggressive management style.  The account is a segregated portfolio.

Investment Style

• The portfolio is constructed with allowance for a wide band in average maturity, from 1 year to 20 years.  In general, most of the total return from a bond portfolio over time stems from the maturity structure.  The maturity choice depends on the manager's anticipation of where interest rates are headed. 
   
• The manager also seeks to generate value from "spread" trading.  There are two types of such trading.  The most lucrative involves yield curve spreads (the difference between short and long term rates).  Another form of spread trading involves yield spreads between different credits, which change during the business cycle.  In both forms, the manager makes a trade in anticipation of a movement in the chosen spread and reverses the trade later at a profit.
   
• We also expect to be active in the structured note market. Such notes might represent core positions in the portfolio when they offer a significant yield/risk advantage over similarly-dated bonds or allow us to "bottom line" our expectations in a more efficient way.

Security Selection and Restrictions

• The portfolio will comprise between 25-100% in federal, provincial and municipal bonds and between 0-75% in corporate debt issues, including structured notes. 
   
• Corporate securities will be of investment grade quality (at least BBB or equivalent).
   
• Investments in preferred shares and income trusts are permitted up to 25% of the portfolio.

Present Market Strategy

In the current environment, characterized by increases in short term rates and a flattening of the yield curve, our strategy is to "barbell" the portfolio, that is to concentrate assets at the very short end of the curve to take advantage of the rising rates, and at the longer end where rate developments may be more reflective of demographic conditions than of monetary policy.  Corporate bonds are generally expensive on a spread basis to Canada bonds, especially given our expectations of a weakening economy in the near future and associated widening yield spreads.  Therefore, investments in that area will be limited until better value surfaces.