Our approach to Canadian Fixed Income
As part of our heritage, we have long standing experience in managing insurance assets within a set of high investment constraints. This focus has allowed us to successfully develop an investment process that maximizes portfolio efficiency while offering strong portfolio resilience, providing our clients with capital preservation while still capturing the upside potential.
Portfolio construction
We look to maximize portfolio efficiency, a portfolio’s return potential for a given set of risk constraints. By maximizing efficiency, it is possible to exploit the structural inefficiencies of an index (or market) and leverage broad idiosyncratic mispricing with minimal risk. While this focus on efficiency may appear intuitive, it can allow investors to uncover and take advantage of many non-intuitive positioning opportunities.
Connected thinking
We have an established investment team in Canada, complemented by robust global credit investment resources, who assess investment opportunities and risks from a Canadian perspective. Our common investment language, based on a framework of macro economic factors, fundamentals, valuations and thematics (“MFVT”) ensures that we capture the most efficient & reliant opportunities, both market and credit, within our portfolios.
Resilience targeting
Staying honest to fixed income’s purpose. Resilience targeting is about choosing the ‘efficient’ portfolio that best leverages our central investment thesis but will not be materially affected should the thesis fail to deliver. This helps build strong downside protection and positive asymmetry in expected returns for the portfolio.
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Higher for longer: A new era for fixed income
James Vokins and Chris Higham from our credit team believe the path of inflation will remain the central question for investors in 2023. Fixed-income investors should remain cautious until that path is more certain, but fundamental analysis can still uncover attractive opportunities.
Strategies in focus
Our longstanding team of portfolio managers follow a consistent approach across our range of Canadian fixed income capabilities, including our pooled funds and separate managed strategies.
Aviva Investors Canadian Core
This strategy aims to provide enhanced and consistent long-term returns that are less reliant on market directionality with lower volatility and improved downside protection. Our investment objective is to outperform the FTSE TMX Canadian Bond Universe by 30bps over a full market cycle, focusing on the local Canadian Investment-Grade Market.
Aviva Investors Canadian Core Plus
This strategy aims to provide enhanced and consistent long-term returns that are less reliant on market directionality with lower volatility, improved downside protection and better issuer diversification through global investments. Our investment objective is to outperform the FTSE TMX Canadian Bond Universe by 100bps over a full market cycle. High Yield exposure is limited to a maximum of 20% of the portfolio.
Aviva Investors Canadian Core Plus Climate Transition
This strategy aims to provide investors with a dual outcome of outperforming the FTSE TMX Canadian Bond Universe by 80bps over a full market cycle, while allocating to those companies that are doing the most to support solutions, or managing the risks and opportunities, associated with climate
Key risks
Fixed income investments have a reputation for safety but are not without risks. The risks below are illustrative. Other risks also exist. For further information, please contact our investment team.
Interest rate risk
Changes in interest rates are one of the most important factors that could affect the value of an investment. Rising interest rates tend to cause the prices of fixed income securities to fall. Callable fixed income debt securities are likely to be called when interest rates are falling because the issuer can refinance at a lower rate. This strategy will make the use of bond futures or forwards to minimize unintended interest rate risk when making an allocation to non-Canadian dollar securities.
Foreign exchange risk
All exposures to fluctuations in foreign currency movement against the Canadian dollar will be substantially hedged by use of currency forwards.
Credit risk
The credit rating or financial condition of an issuer may affect the value of a fixed income debt security. Generally, the lower the quality rating of a security, the greater the expected risk that the issuer will fail to pay interest fully and return principal in a timely manner. Adverse economic conditions or changing circumstances may weaken the capacity of the issuer to pay interest and repay principal and may cause a security to lose some or all of its value.
Liquidity risk
All investments carry liquidity risk, that is the risk that a security will not be able to be sold in a timely and cost- effective manner. An investment may be less liquid if it is not widely traded and such investments may experience significant deviations in pricing from their fundamental intrinsic value. As all bond market securities, Canadian fixed income instruments are subject to liquidity risk. Liquidity in the government of Canada and provincial bond market is relatively high, while liquidity in the Canadian investment-grade corporate bond market is moderate. Liquidity in the global high-yield bond market is poor to moderate. Liquidity risk will vary with changes in market tone and macro risk.
Canadian Fixed Income team
Sunil Shah
Head of Canadian Fixed Income & Senior Portfolio Manager
Jane Xie
Portfolio Manager
Trevor Li
Portfolio Manager
Nayeem Islam
Portfolio Manager
Aviva Investors Fixed Income Views
Disclaimer: These views are authored by various individuals within Aviva Investors.
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Bond Voyage: A journey into fixed income
16 Sep. 2024
This month, we discuss the books that inspired our investment teams over the summer.
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Standing tall: Three factors behind the resilience of emerging-market debt
13 Sep. 2024
In this article, we explore what’s behind emerging markets’ impressive performance in the face of global economic volatility, and investigate how EM debt investors can take advantage.
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An ABS renaissance? Why it may be time for insurers to reconsider asset-backed securities
2 Sep. 2024
Securitisation performs a vital role in capital markets and asset-backed securities have historically been a core holding for insurance companies. This article revisits the investment thesis for ABS and explores why the stage may be set for something of a renaissance.
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Bond Voyage: A journey into fixed income
9 Aug. 2024
In this summer edition of Bond Voyage, we discuss topical themes in liquidity, emerging-market debt, investment-grade credit and global sovereign bonds.
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Time to get active: Finding opportunities in emerging-market debt
30 Jul. 2024
Emerging markets have remained robust amid the economic and political uncertainties of 2024, but active management will be important if debt investors are to identify standout performers over the coming months.
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Riding the technical tailwinds: The outlook for investment-grade credit
25 Jul. 2024
Credit markets have had a comparatively easy ride so far in 2024, and investment-grade corporate spreads are now at some of their tightest levels for a long time. But investors must guard against complacency.
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Liquidity optimisation for insurers: Building a bespoke portfolio solution
9 Jul. 2024
In the third part of our liquidity optimisation series, we look at how bespoke liquidity portfolios that take into account the interplay between different assets can suit the needs of insurers.
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The difficult last mile: Inflation, Treasury supply and the outlook for global sovereign bonds
4 Jul. 2024
With the focus shifting from interest rate cuts to the likelihood of rates staying higher for longer, Steve Ryder and Daniel Bright assess the possible outcomes and implications of higher rates and monetary policy divergence in debt markets.
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Bond Voyage: A journey into fixed income
2 Jul. 2024
In a special European Championships edition of Bond Voyage, we discuss topical themes in liquidity, emerging-market debt, investment-grade credit and global sovereign bonds (with a little help from Cristiano Ronaldo and Kylian Mbappé).
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Bond Voyage: A journey into fixed income
10 Jun. 2024
This month, we discuss fiscal discipline in emerging markets, investment-grade credit portfolio construction, potential opportunities for sovereign investors in Canada and the merits of a developed-market focus in global high yield.
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Emerging-market debt turns the corner: The EM investment universe grows amid improved resilience
21 May 2024
Emerging-market debt analyst Carmen Altenkirch reports back from the recent International Monetary Fund (IMF)/World Bank meetings in Washington.
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Bond Voyage: A journey into fixed income
13 May 2024
This month, we discuss Spring meetings, the path for rates and sustainability-linked bonds.
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Bond Voyage: A journey into fixed income
9 Apr. 2024
In the April edition of our monthly series, we explore the latest developments in fixed-income markets.
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Bond Voyage: A journey into fixed income
11 Mar. 2024
In the latest instalment of our monthly series, our investment-grade, high-yield, emerging-market and global sovereign bond teams explore the key talking points in fixed income.
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Too hot, too cold, or just right? The outlook for investment-grade credit
21 Feb. 2024
Investment-grade credit has had an encouraging start to 2024 – but are these really “Goldilocks” conditions for the asset class? In their latest Q&A, James Vokins and Chris Higham from our credit team discuss opportunities and risks in this market.
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Bond Voyage: A journey into fixed income
7 Feb. 2024
In the latest instalment of our monthly series, our investment-grade, high-yield, emerging-market and global sovereign bond teams look ahead to the key themes that are likely to shape fixed-income markets in 2024.
Need more information?
For further information, please contact our investment sales team.