Amplus Q3 2025 Commentary – Navigating the Curve with Discipline
Last Friday, both my son and daughter participated in the annual cross-country run organized by their schools’ district. The month leading up to the race involved early morning training sessions held three times a week. I was very impressed by their commitment and training regimen. All said, they both finished in the first quartile of their respective races. As a parent, I am always looking for ways to help them improve in the activities they show interest in. Google becomes my best friend. When searching: ‘the secret to success in cross country running’, I quickly got the following AI-generated response:
The “secret” to success in cross country is a combination of consistent, varied training that includes long runs and hill work, proper nutrition and rest, specific race tactics like smart starts and corner surges, and the mental strength to push through discomfort and trust the process. There’s no single trick, but rather a holistic approach to physical preparation, tactical execution, and mental resilience.
As I re-read the answer a few times, I drew many parallels with the Amplus Credit Income Fund (ACIF) approach of successful investing. The goal of ACIF has always been to consistently produce small daily ‘wins’ throughout the course of the year, regardless of what the market throws our way. The portfolio is always stress-tested to be better prepared for different parts of the economic cycle, trusting that our process and the five core money-making strategies provide a well-balanced return profile for our investors. The ability of tactically increasing exposures to any strategy allows us to ‘win’ the race in the ‘long-run’ for our investors.
AMPLUS STRATEGIES
We are pleased to report that ACIF achieved +1.83% for Q3 2025 and +4.84% YTD. Here are some major contributors to the performance seen last quarter:
- ACIF held a credit duration of ~2.75 years, near the Fund’s historical low. Both Canada and USD IG corporate indices were 9bps tighter during Q3, with weakness in August shortly lived.
- Investments in high-coupon callable bonds continue to bear fruit, as they get extended past their first call date.
- Credit selection in names with asymmetric return profiles such as First National (take-out), Carrefour Laval 1st mortgage debt (mispriced), Rogers Communications (debt tender), Amgen (called trac)
- Owning high reset short-dated securities that are ripe to be taken out by the issuer at the first call date. They are providing Amplus with a good yield and more importantly a buffer in case of a sell-off. These include Canadian bank 2080 AT1 securities and high-reset preferred shares. In both cases, we have already seen some of these securities get redeemed by the issuers.
- Profitably trading interest rates. The market provided us with a gift in early August 2025, as it priced minimal chance of additional cuts for the rest of 2025. We chose to add interest-rate exposure during that time. Since then, rates have rallied 30bps.
- We continue to see a drag in performance from some of our credit hedges as volatility remains low. We see these hedges as prudent given where we stand in the credit cycle.
- New issue trading has been very profitable this quarter as we saw record corporate bond issuance for August and September in Canada and record issuance the U.S. for September.
HISTORICAL ISSUANCE FOR THE MONTH OF SEPTEMBER
MONTHLY CAD IG CORPORATE BOND ISSUANCE
Forward Outlook
Entering Q4 2025, we see a lot of risks that seem to be ignored by the market now. The U.S. government is currently shut down. Due to this, macroeconomic releases have been delayed which allows the market to avoid economic data surprises. This has caused volatility and credit spreads to trade even lower than normal. We are shocked that this is viewed as a risk-on catalyst. Ultimately, this may cause higher unemployment and more financial stress to the system.
Additionally, as Q3 earnings get released, we will start to fully see the impact of tariffs and its toll on consumers and inflation. We will be spending a lot of time digesting any comments made on profitability now and going forward.
Geopolitical tensions continue to be elevated while many countries are dealing with their own political reform.
With that said, we believe that all markets present actionable investment opportunities.
Looking at historicals, many of the BBB sector spreads, including Power Generation, Energy Infrastructure and Telecoms are currently in the top percentile, meaning that spreads have been wider 99% of the time. This is more apparent in 30-year debt, as there has been a technical imbalance of supply and demand in this part of the credit curve. With that said, spreads trading at tights levels for extended period of time isn’t new to the marketplace, and while many are aware of the current market valuations, new bond offerings are still seeing robust order books, often over 3-5x covered. This is why it’s so important to have many different sub-strategies to generate alpha for our investors. Cross-currency opportunities become that much more beneficial given our deep access to U.S. markets. We have been able to find many opportunities in which we are buying credits cheap in one currency relative to another, providing a larger margin of safety despite overall credit spread levels. Welltower, one of the largest senior housing and medical property REITs in North America with a pristine balance sheet of ~3x leverage or 5+ turns of leverage lower than many Canadian REITs, issued 10-year debt in U.S. markets at levels that were similar to their orphan 2027 bond in Canada. Curve-adjusted, we saw their 2027 CAD$ bonds as 50bp+ cheap to comparable USD debt. Compared to domestic REIT names, you were getting paid similar spread levels to own Welltower with materially less leverage on their balance sheet.
Another name that recently issued in U.S. markets was Transurban Group (TCLAU), an Australian-based toll-road operator with assets in Australia, Canada and the United States. They also have an orphan 3-year bond in Canada that was trading at similar credit spread levels to the newly issued 10-year deal priced in USD markets. We also saw TCLAU senior debt trading about 30bps cheap to ETR 407 highway’s lower-rated sub-debt.
Without reinventing the wheel, in late 2024, we took advantage of mispriced opportunities heading into central bank cuts to end the year. The same opportunity exists now in 2025. One of the most important components in generating profits, regardless of the underlying investment, involves efficient cost of funding. Any savings from a funding perspective automatically adds basis points to the bottom line. As both the Bank of Canada and the Fed continue their easing cycles, our anticipated yield pick-up is set to increase as borrowing costs decrease. We see an investment window of 1-6 month returns in buying short-dated securities coupled with better funding during that time frame.
FUNDING SPREAD
As previously discussed, corporate bond issuance has been robust given the record issuance in September and we expect that to continue. The M&A trend is notably higher with a significant number of deals announced both in Canada and the US. We expect many of these deals to be partly funded by debt. Some notable M&A transactions we are expecting include: Norfolk Southern, Baker Hughes, Kraft Heinz, Lowe’s, First National, Cenovus. We also see the uptick in AI capex spend to be funded by debt, and these bigger bond offerings should come at sizeable concessions. Most recently, Oracle issued debt two weeks ago with a multi-tranche deal, that came at a nice concession and traded 3-5bps tighter immediately in secondary markets.
The Amplus team has taken this period of subdued volatility to prudently increase our hedging overlay while actively managing interest rate exposure across the yield curve. We are patiently awaiting what the market gives us every day to redeploy capital into the best risk-adjusted investment opportunities available. In the long run, we see this as the proper steps to achieve outsized, consistent and compounding returns for our investors in this never-ending cross-country race.
Disclaimer:
This Commentary expresses the views of the author as of the date indicated and such views are subject to change without notice. Wealhouse has no duty or obligation to update the information contained herein. This Commentary is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Wealhouse believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.
