Commentary —

Amplus Fund March 2022 Commentary

Andrew James Labbad

Andrew James Labbad

Sr Portfolio Manager


March has proved to be one of the most active months due to current market dynamics. Senior Portfolio Manager, Andrew James Labbad, dives into why we are excited to be buying credit and how the fund continues to outperform credit benchmarks.

“Golf is fluid. It’s always changing. It’s always evolving.” – Tiger Woods

Source: 1 AP Photo by Phelan M. Edenhack.

Believed by many to be the greatest golfer of all time, Tiger Woods made a comeback at the Masters 2022. The 46-year-old was already a winner for simply competing just fourteen months after a life-threatening car crash that forced doctors to consider amputating his leg. Following treatment and extensive rehab, Tiger adapted his body to play with the limitations of his reconstructed leg. Despite years of back injury and surgeries, he retrained his entire body and changed his swing, an extremely difficult feat for a golfer. His discipline, focus and willingness to adapt enabled him to make the cut at the Masters.

These principles transfer well into today’s volatile markets, as Amplus Credit Income Fund continues to reward our investors by adapting to challenges and rising to the top of our game. Being focused, assertive, disciplined, and pouncing on opportunities as they arise during a time when most investors are fearful and uncertain. As a record amount of CAD$ debt was issued in March, new bond deals issued at a discount, to account for lower appetite in a risk-off environment put downward pressure on bond markets. We took advantage of this opportunity and were active throughout, and with conviction we were able to see through the noise and purchase great assets on sale. We continue to benefit from our experience in trading wisely in any market environment, especially during periods of extreme volatility.


THE FUND

Amplus Credit Income Fund finished +1.15% in March after costs. 2022 year-to-date growth is +1.02%. Higher interest rates continue to negatively impact fixed income markets, with Canadian indices losing on average -7% so far this year. January 2022 and March 2022 represent the two largest monthly drawdowns for Canadian fixed income in over two decades.

With the ongoing war in Ukraine throwing fuel onto the fire of commodity prices, the rising risk of stagflation continued to put pressure on rates. Canadian credit spreads were 15bps wider by March 7th and rebounded to end the month 1bp wider overall.

March is one of the most active months for primary issuance. Current market dynamics had brought on higher-than-normal new issue concessions, causing existing debt to be repriced lower for companies issuing new bonds. The elephant in the room, Rogers Communications, finally came to market to fund their long-awaited Shaw acquisition, printing $4.25bn in Canada. It came at a healthy concession of 25bps. This was the turning point that shifted momentum in making credit spreads tighter. As tone remained positive, corporate issuers took full advantage and issued a record $28.5bn of overall debt. Positive momentum gained, new issue concessions were no longer repricing secondaries lower, fully benefitting investors participating in these deals.

The fund outperformed credit benchmarks for three main reasons:

  1. Amplus benefited from its overall positioning going into March being underweight credit, having a negative overall duration. Our hedges produced outsized returns
  2. Our timing in adding risk to the portfolio worked well for investors. We aggressively bought bonds around the Rogers debt deal, which was the turning point in risk sentiment
  3. RBC released positive research on North West Redwater, a credit we recently highlighted and loaded up on. The note echoed our shared belief that the issuer is due for a credit upgrade. Multiple buyers emerged and the demand repriced our bonds higher

GO FORWARD OUTLOOK

As interest rates continue to move higher, the market is now pricing in 10 hikes of 0.25% by this time next year. We view these hikes as priced into the market and not a future threat. We are slowly adding interest rate duration to the portfolio taking advantage of much more attractive all-in yields.

We continue to see tremendous value in credit versus other asset classes. This is the most excited we have been to buy credit in over a year.

Amplus

Amplus

Historic low rates and unprecedented quantitative easing from central banks have created ample opportunities of market spreads divergence globally. Amplus Credit Income Fund aims to maximize positive risk-adjusted returns in a rising market, while protecting investors from market risk in a downturn. By employing a diverse arsenal of investment strategies, Amplus is designed to capitalize on market inefficiencies and mispricing while minimizing interest rate exposures.

Amplus Credit Income Fund subscribes to a flexible investment style with primarily debt securities such as bonds, preferred shares, and convertible notes. We have the global relationships to invest in different currencies, taking advantage of the best value.

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