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SVB Failure Highlights the Benefits of Remaining Liquid & Nimble

March 13, 2023 |Commentary

By: Andrew Labbad Managing Partner, Portfolio Manager

As we look back on how quickly and aggressively risk has turned over the last three trading sessions, especially in credit, our defensive positioning in credit and our natural bias of being long rates has benefited Amplus investors. We repeatedly highlighted the benefits of being long front-end rates as a premium-free natural hedge in a risk-off event. 

Given our disciplined process, we saw the risk/reward trade-offs being ever so greater in owning more bonds outright. Over the last month, we chose to increase our rate risk exposures by about 70%, having 1.7yrs duration as of early last week. We currently have zero direct exposure to regional banks in both Canada and the U.S.

In the last 48 trading hours, we have pared back our rate exposures after a 70bp+ move lower, sold our tail risk hedges at a gain, and reduced even further our credit risk exposures namely in banks, as our priority is to remain nimble and liquid in times like these.

As of today, we are happy to share that we have weathered this past week very well and currently have positive returns for the month. Having the ability and flexibility of hedging the portfolio in many ways, ultimately benefits our investors. Despite the moves, we are interested in seeing where new bonds deals will be clearing, and so we are patiently waiting for the right moment to add credit risk to the portfolio. 

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.

Amplus

Amplus, an innovative and flexible fixed-income strategy, is the place to be during good times and bad. It aims to protect investors during a downturn and maximize returns in a rising market. We invest in high-quality companies that are raising debt to invest in the growth of their businesses. We support their mission by purchasing bonds, preferred shares, and convertible notes, increasing our investment when the time is right. A small and agile fund combined with active trading, we can take full advantage of market volatility. Because Wealhouse’s goal is to make as much money for our investors as possible, we do not have layers of bureaucracy that hinder time-sensitive trades. During a sell-off, we can buy quickly. And during a market rally, we can sell just as fast.

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