Amplus Credit Income Fund 2025 Year End Commentary — Compounding through Consistency

My colleagues and I recently had the chance to meet one of my favourite authors – Morgan Housel. I was fortunate enough to take a picture with him and get a signed copy of his most recently published book, “The Art of Spending Money”. Over the holidays, I had a chance to read it – it’s definitely one I’d recommend. At one point in the book, he refers to blue whales, the largest mammals to have ever lived on earth, and reminds us that they thrived not by hunting large prey.  We like this analogy as it does a good job of re-enforcing one of our core principles when investing.

Blue whales feed almost entirely on krill: tiny, abundant organisms consumed steadily, efficiently, and over very long periods of time. Their size is not the result of dramatic wins, aggression, or bursts of effort. It is the outcome of a simple process repeated without interruption.

This ties very well with our core principle: Compounding, which does not reward intensity; it rewards endurance. The most durable outcomes are rarely built through singular moments of brilliance or outsized risk, but through strategies that can be executed consistently across cycles, drawdowns, and changing regimes. Avoiding unnecessary energy loss—friction, excess, forced decisions—matters as much as capturing opportunity.

2025 can be summarized as a year with a lot of volatility caused by one man and ending with one man. Given the uncertainty, new political regime and market moving impact of any sudden tweet, we felt that the best approach was to act like ‘blue whales’, taking each day as a new day to generate incremental repeatable gains, without interruption given the strong risk-adjusted investments, and by having dry powder available to opportunistically add risk. As such, we are pleased to share that Amplus Credit Income Fund (ACIF) finished the year at +6.52%, while Q4 ended +1.60%. Since inception of July 2020, the fund is now up +90.5% after all costs, of which the continued major contribution to these returns come from the power of compounding re-invested capital over time.

Our approach remains intentionally unglamorous. We prioritize repeatability over optimization, risk control overreach, and processes that can persist through adverse environments. The objective is not to be impressive in any given quarter, but to remain in a position where time continues to work in our favour.

The chart below displays this well: highlighting our annualized risk-adjusted returns versus our peer group:

Performance and Year-End Review

For Q4 2025, ACIF held a credit duration of ~2.6 years, near the Fund’s historical low. Canada saw IG corporate spreads finish 5bps tighter, whereas USD spreads closed 4bps wider. In other words, Canada outperformed by an average of 9bps. A large part of this differential came with GOOGL, META, AMZN and VZ coming to USD markets throughout the quarter with mega-sized bond deals to fund their large AI capex needs. These deals required larger than normal concessions. We opportunistically purchased all these bond issues, and remained invested, while waiting for supply to digest, which allowed the deals to perform nicely into December. Furthermore, our continued overweight to the Canadian market helped deliver outsized returns for our investors. As such, given the recent outperformance, we do see compelling reasons to shift some of our investments into USD. Currently, we see funding more attractive for Canadian banks in CAD markets, which would likely cause elevated supply to hit domestically, and prevent spreads from compressing that much further from current levels.

We highlighted in our last commentary the benefit of five distinctive ways of generating positive returns for our investors. Currently, most of the heavy lifting is coming from the running yield of the fund, in part thanks to my colleague Michael’s strong ability in keeping our funding as low as possible. Amplus is yielding ~5.5% for our investors which accrues daily, despite having a portfolio which is ~50% underweight the Canadian IG corporate indices. For context, the average 5-year BBB-rated bond is yielding ~3.7% with double the sensitivity to credit moves compared to Amplus.

Our largest conviction investments have strong risk-adjusted return profiles. They have embedded optionality creating a larger margin of safety that truly benefits our investors as long as they remain outstanding. In other words, our portfolio hasn’t felt the same volatility that fixed-income, credit and equities have felt, given the defensive nature of the fund and maturity profile of these securities. In our most recent commentary, we alluded to how certain securities are punitive to keep outstanding for the issuers, which ultimately benefits us. We are also aware that bankers are likely pitching many issuers about the merits of refinancing early these very same securities. And to their success, over the last quarter, we have seen a big wave of our bonds being taken out early, including Capital Power 26s, Bell Canada 26s, US$ Quebecor 27s, Cenovus 27s, US$ Meg Energy 29s, Telus 26s, Altagas 26s, Sienna 26s and all the AT1/prefs that we discussed previously. As much as we are sad to see these securities being bought-back early by the issuing companies, we benefitted from the interest-rate sell-off following a strong Canadian jobs number in December to redeploy into a higher-yielding environment. We believe this theme will persist in 2026.

What’s even more interesting is that Canadian corporate spreads performed very well despite the record amount of bond supply in 2025. We ended the year with $154bn, including a record 31 high-yield deals, a record amount of hybrid issuance, and 39 new issuers tapping the Canadian market. A couple of conclusions can be made. First, there is clearly a substantial amount of dry powder on the sidelines that needs to be invested, having caused investors to pay by-and-large negative concessions throughout the year on many of these deals.

HISTORICAL INFLOWS TO FIXED INCOME

Second, issuers have opportunistically taken advantage of the most distorted segment of the Canadian credit market, the long-end. 30-year credit is trading at exceptionally tight levels, arguably more expensive than USD markets for the first time in my career. This is being caused by liability management exercises from certain issuers. The market saw a record number of early tenders mainly in 20-30 year bonds causing a structural imbalance for the marginal buyer. We saw Telus, Bell and Rogers prioritize their balance sheet and tender for $5.5bn of debt (84% being 20-30 year debt). The goal was to limit any further credit rating pressure after being downgraded and/or put on negative outlook by the agencies for having elevated leverage. The following chart really highlights the growth of the Canadian bond market over the last ten years, having grown by 66% over that timeframe. We think this theme continues as global issuers will now be included in all CAD IG indices going forward, and hybrid supply continues to take away from the preferred share market.

GROWTH IN CANADIAN BONDS OUTSTANDING

As for the USD market, we drew some parallels with the most amount of supply since 2020, ending with $1.7 trillion of issuance.

Outlook for 2026:

As we enter 2026, technical factors continue to dominate North American credit markets more than any meaningful deterioration in fundamentals. Across both Canada and the United States, significant capital remains sidelined, and a sizable group of managers are still underweight spread products. In this setup, initial spread widening tends to be absorbed rather than reinforced. We expect any early weakness to be viewed as an opportunity to rebuild exposure, not a prompt to reduce risk. Consequently, isolated shocks are unlikely to result in sustained selloffs. The real risk lies in path dependency: a sequence of drawdowns occurring close enough together to shift behaviour from “get to market weight” to “opportunistically add at wider levels.”

Canada is unlikely to be the source of a material move wider in credit. A more plausible sequence is a repricing in USD credit markets first, with global risk appetite resetting via liquid benchmarks, dealer balance sheet constraints and additional supply being repriced wider. Canadian credit would then respond as a secondary effect rather than a catalyst.

As highlighted earlier, Canadian spreads screen relatively rich against USD comps, which may allow for more domestic supply, while the incremental demand within global portfolios becomes more selective. Even under those conditions, we expect only modest spread widening, unless a strong enough sell-off exhausts the first-round of dip-buying.

An important nuance heading into 2026 is that interest rate curves have steepened significantly. When looking at 2yr and 30yr Canadian government rates: the yield differential has gone from being inverted -1.5% in summer 2023, reversing course and reaching +0.4% in early 2025, and currently sitting at +1.25%, which is the higher end of the 10-year average. This may be one of the additional reasons why investors have extended their duration purchases, and why credit curves are historically flat.

HISTORICAL CANADIAN GOVERNMENT 2s30s YIELD DIFFERENTIAL

The risk-reward in owning any credit longer than 2 years, is much harder to justify at this point in the credit cycle. Most credit curves are currently 5-7bps of additional premium per year in the belly of the credit curve: 2-10 year credits. Historically it sits at generally 10bps of additional premium per year. The credit performance chart shown below using a generic BBB-rated credit really highlights the credit curve impacts over the last 12 months with significant credit curve flattening: 2yr bonds are 18bps tighter, 5yr bonds are 22bps tighter, 10yr bonds are 24bps tighter and 30yr bonds are 40bps tighter. This reinforces our advantage of deploying capital with leverage into the cheapest and most compelling parts of the credit curve as we see fit, while still generating outsized returns.

CREDIT PERFORMANCE EXAMPLE OF BBB-RATED CREDITS

Record USD Supply on the Way

Estimates are showing roughly 12% supply growth in 2026, taking total issuance to a record ~$2 trillion, with a materially longer duration profile. This headline figure is comprised of approximately $1.2 trillion in refinancings, $200 billion in organic market growth, $300 billion tied to AI-related capex, and $300 billion driven by M&A activity.

While AI capex–related issuance has arguably been well dissected by the market, the potential M&A wave has received far less attention. A $300 billion year for M&A-related issuance would more than double 2025 levels and exceed the prior record of $230 billion set in 2015 by roughly 30%. This backdrop should create a fertile environment for both investing and trading opportunities in what could be a particularly active, debt-financed M&A cycle.

M&A ISSUANCES ($MM)

ANNOUNCED U.S. STRATEGIC M&A VOLUMES

Turning to AI and hyperscalers, we previously highlighted the supply-driven dislocation in USD investment grade markets last November, when sizable bond offerings from Google, Amazon, Meta, and Verizon cleared at double-digit concessions. Importantly, this understates the true impact of AI, as it excludes the second-order, debt-funded supply from utilities, pipelines, power generation, and energy issuers supporting the AI buildout. Estimates suggest that approximately 30% of net IG supply in 2025 was AI-related. We expect this dynamic to persist, creating attractive opportunities to redeploy capital into large, benchmark transactions that are likely to come at wider-than-normal concessions.

AI-RELATED NET SUPPLY

To conclude, the Amplus team has taken this period of subdued volatility to prudently review the portfolio and collaborate research with our colleagues across different asset classes and sectors in order to best prepare for opportunities ahead. We are patiently awaiting what the market gives us every day to redeploy capital into the best risk-adjusted investment opportunities available while actively managing interest rate exposure. In the long run, just as the blue whale thrives due to its process, these proper steps should achieve outsized, consistent and compounding returns for our investors in this large pool of investments.