Invesco Canada blog

Insights, commentary and investing expertise

Avi Hooper | March 17, 2020

Why we embrace “Core Plus”

Canadian fixed income investors benefit from the one of the highest credit quality bond markets globally.1 In addition to the incremental yield captured by owning Provincial and Municipal debt, the corporate bond market is made up of well-managed investment grade rated issuers. Unfortunately for investors who choose to own the broadly followed Canadian Aggregate bond index, corporate debt only makes up 28% of the total.1

From a sector perspective, over 40% of this allocation to corporate bonds is in financials, mostly Canadian bank debt. The narrowness of bond selection opportunities leaves total return opportunities limited.

An allocation to global fixed income markets, including government, corporate and structured debt across developed and emerging markets can provide investors with higher yields, the potential for price appreciation and, perhaps most importantly, overall diversification.

As in other asset markets, global bonds can provide plenty of total return differentiation across countries and sectors. The allocation across fixed income asset classes, as well as bond issue selection across the multitude of individual issuers globally, may provide a potentially optimal solution for individual investors seeking active fixed income management for their portfolios.

Since June 2018, we have evolved our domestic fixed income solutions into “core plus”2 approaches.

By investing 30% of the funds outside of Canadian fixed income, our funds have been able to leverage our global platform of credit analysts.

Invesco Canadian Core Plus Bond Fund currently represents a longer duration solution, benchmarked against the entire Canadian Bond Aggregate Universe. Invesco Canadian Short-Term Bond Fund is also managed in the same core plus style, but with less interest rate sensitivity, due to its focus on shorter maturity bonds.

 

 

 

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1 Source: FTSE Russell Debt Market Indices, February 28, 2020.

2 The funds are built with a “core” of investment-grade bonds to help provide income and preserve capital. The “plus” comes from other bonds, such as high-yield or emerging-markets debt, which provide potential for further yield, growth and diversification.

Important information

Yield is the income return on an investment.

Diversification does not guarantee a profit or eliminate the risk of loss.

Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the simplified prospectus before investing. Copies are available from your advisor or from Invesco Canada Ltd.

The opinions referenced above are those of the author as of March 11, 2020. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.