Navigating bond shoals with Navy SEAL principles

after each mission. The fund managers thoroughly analyze every investment after its conclusion, producing a closed-position report, which assesses decision-making, performance and volatility.

“We review the experience and ask ourselves honest questions such as, ‘Were we long and wrong? Should we have owned more? What did we miss?’” Mesman said. “Staying humble and learning from mistakes is critical and our process always included reviewing mistakes to train and get better.”

One of the funds managed by Mesman, an open-ended fund started in 2015 called Picton Mahoney Fortified Income Fund, returned 15 per cent in 2016 and 7.9 per cent last year. That compares with returns of 13 per cent and 6.7 per cent, respectively, of the fund’s benchmark. He also oversees an income opportunities fund, a tactical income fund and a special situations fund.

Mesman looks for opportunities in “core-plus” investmentgrade corporate bonds globally, often buying in times of stress like the recent bout of volatility in which he actively traded 40 per cent of his portfolio. He hedges interest-rate and foreign-exchange risk, while investing in “boring” credits with solid balance sheets and shorting bonds of companies he views as the weakest players in their market.

One example is a French cable and telecommunications empire which went on a bond-fuelled expansion in Europe and the U.S. Mesman expects more trouble for European telecom, media and technology companies that have taken on debt in recent years for mergers and acquisitions. Other examples of sectors that could see weakness include pharmaceuticals, healthcare, retail sales and homebuilding.

Mesman said he also made money buying bonds of Canadian alternative lender

last year after identifying the company’s troubles as a liquidity issue rather than a credit issue.

The credit cycle isn’t near its end just yet as defaults among high-yield issuers remain low and spreads tight, according to Mesman. But the market isn’t as strong as it used to be. It’s harder for issuers to sell new bonds and some credits are more sensitive to negative headlines than in the past.

“We’re likely going to be in the longest credit cycle in history because of the liquidity that went into the market through quantitative easing,” he said. “For now, it’s just expensiveness, rate sensitivity and single-name idiosyncratic risks that need to be navigated.”