By Canada Life | Jan. 13, 2022

On the Portfolio Manager Connect Series, we were joined by Brian Giuliano, Vice-President, Portfolio Management at Brandywine Global Investment Management to talk more about the Canada Life™ Pathways Global Multi Sector Bond Fund.

We heard how their team’s multi-sector approach is designed for more consistent outcomes, making the success of a client’s portfolio less dependent on market ups and downs. In today’s low-rate world, investors need solutions that have the upside of return-seeking fixed income. But capturing that upside doesn’t necessarily mean higher risk: Brandywine’s margin-of-safety philosophy and disciplined process help to create strong downside protection.

Why Canada Life Pathways Global Multi Sector Bond?

This fund is an outcome-oriented fixed income solution that offers investors the upside potential of return-seeking fixed income, while maintaining the volatility and defensive characteristics of core-like bond exposures.

• They use a true multi-sector strategy that’s unbiased and flexible. Flexible investment guidelines allow for dynamic asset allocation across global fixed income sectors and securities offering compelling return potential and meaningful diversification. This also helps them manage interest rate and credit risks.
• Their global perspective provides diversification benefits, complementing any traditional or alternative global fixed income portfolio. An eye on the macroeconomic landscape worldwide helps them uncover value through multiple lenses, not just bottom-up security selection.
• Active duration management is a critical tool enabling the team to actively manage interest rate risk as the market environment changes. They’ve managed duration in their portfolios for more than 25 years, but in today’s low-rate environment, it’s also a source of return.
  

Brandywine’s ‘3-D’ approach to fixed income

• Dual approach combines both macro and fundamental research into a holistic process to deploy capital more efficiently across countries, sectors and among securities. This promotes more efficient asset allocation to help smooth returns, which typically results in consistent outcomes over time and the potential for compelling long-term performance.
• Macroeconomic analysis allows the team to more efficiently allocate capital and find value across global regions and sectors. It does this by identifying valuation anomalies and focusing research on the most compelling cross-sector opportunities. At the same time, it helps avoid regions or sectors deemed overvalued, that lack strong fundamentals, or have no identifiable catalyst to unlock value.
• Deep fundamental analysis focuses on the best opportunities. It evaluates sector- and issuer-specific criteria to identify securities trading at a discount to intrinsic value with a margin-of-safety to limit downside risk and preserve capital.
• Dynamic rotation adapts exposures within the portfolio to align with the market environment, which results in achieving multiple sources of potential alpha (excess return over the fund’s benchmark). This technique can help generate stronger, more consistent returns.
• Multiple sources of potential alpha include duration management, active sector selection, credit quality rotation, security selection and currency management.
• Downside protection through an active approach to macro-environment factors through the use of safe-haven duration, prudent quality rotation and portfolio hedges.
• Their margin-of-safety approach seeks to invest in securities that are trading below their intrinsic value.
  

Case study: strong downside protection leads to better risk-adjusted outcomes¹

The COVID-19 pandemic has brought enormous challenges and volatility in tandem with growth and recovery.  Active management and consistency are key, and Brandywine has been able to protect clients’ investments during extraordinarily difficult periods for bond investors. A look at two important fixed income benchmarks demonstrates the agility of their approach:

• As the pandemic took hold, credit became more difficult to access. This liquidity was key for businesses across sectors, with many needing to backstop operating costs or pay creditors despite rapidly declining revenues. On the other side, lending institutions were faced with evaluating credit risk amid this uncertainty.
• This was the second-worst quarter for the Bloomberg US Corporate High Yield Index since 1983.
• To protect clients’ investments, Brandywine defensively moved almost half of the fund’s assets into high-quality government bonds given the volatile market environment.

• Later, during the first quarter of 2021, interest rate volatility and risk caused a rapid sell-off of developed market government bonds.
• This sell-off can be clearly seen in the returns of the Bloomberg US Aggregate Bond Index, which had its fourth-worst quarter since 1976.
• To manage interest rate risk during this time, Brandywine lowered duration in the fund to as low as 1.5 years. This is compared to an average of 5 years during the next quarter when these risks lessened. In stark contrast to this period in 2020, the fund’s exposure to government bonds was roughly zero.
  

How was Brandywine able to overcome these challenging periods during the first year of the COVID-19 pandemic and initial recovery? 

Most importantly, they protected clients’ investments by playing defense during the difficult periods above. When volatility lessened after the first quarter of 2020, their flexible approach meant they were able to move from their heels onto their toes to find sources of return. When interest rate risk became a concern in fixed income markets, they were again able to move away from offense to safeguard the gains made during the period of recovery. 

The Canada Life Pathways Multi Sector Bond Fund offers investors a highly diversified, outcome-oriented fixed income solution that can compliment a variety of portfolios. Connect with your Canada Life Wealth Wholesaling team to learn more.

The views expressed in this commentary are current as of Sept. 1, 2021 and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice.

This fund is available through a segregated funds policy issued by Canada Life™ or as a mutual fund managed by Canada Life Investment Management Ltd. offered exclusively through Quadrus Investment Services Ltd., IPC Investment Corporation and IPC Securities Corporation. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. A description of the key features of the segregated fund policy is contained in the information folder. Any amount allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.

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