Betting on bonds
Searching for yield requires diversification
MANAGER PROFILE
Manager Dan Janis, Manulife Asset Management
Fund Manulife Strategic Income Fund
Description Multi-sector global tactical asset allocation with dynamic currency management AUM $2.1-billion
Performance 1-year: 2.47%; 3-year: 6.68%; 5-year: 8.52% (as of June 30, 2012)
MER 2.15%
Dan Janis isn’t finding very much value in highquality assets because of current economic conditions these days, so the lead portfolio manager of the Manulife Strategic Income Fund is taking advantage of some yield and total return plays.
For example, Janis continues to see opportunities in the U.S. high-yield bond market, since yields are roughly 600 basis points higher than treasuries and there’s a little room for capital appreciation.
High-yield bonds accounted for about 34% of the fund at the end of June, up from 30% at the end of 2011.
“In the high-yield bucket, you have to diversify dramatically and make sure the companies you buy have strong covenants,” Janis said. “We still think this area makes sense, but we’ve pruned some of the weaker names as high yield has performed well.”
As spreads narrow to around 500 bps, the manager expects some of the money in high yield will move to bank loans and emerging market corporate bonds. But Janis is more focused on emerging market government bonds from the likes of Singapore, Korea and Malaysia, which comprise roughly 10% of the portfolio.
“We’re seeing the emergence of the middle-class in some of these countries,” Janis said. “There is a transformation from export-led to domestic demand-led economies, which eventually probably requires currencies that are on a stronger path.”
In terms of the fund’s currency exposure, Janis wants his bond holdings in Asia, excluding Japan, to be unhedged.
For commodity currencies, such as those of Australia, New Zealand and Norway, the manager takes a tactical approach, but is also currently unhedged.
He typically hedges exposure to developed market currencies such as the euro, British pound, Japanese yen and Swiss franc back to Canadian dollars, for which the portfolio’s exposure is currently at the high end of its 60%-to85% range.