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• Overview
• Manager
• Performance
• Holdings
• Commentary

January 2012

Market Overview

• The Bank of Canada left its key short-term lending rate unchanged in 2011 at 1.0%. It has stood at this level since September, 2010.
  
• Factors that continue to keep short-term rates close to historic lows include: an uncertain global economic outlook, household deleveraging, and a strong Canadian dollar (which is a challenge for exporters).
  
• The Bank expects inflation to remain under control and possibly decline as a result of reduced pressures from food and energy prices.

Portfolio Specifics (2011)

• The fund moved out of Government of Canada T-Bills in the spring in favour of provincial T-Bills, which are currently offering a yield advantage of 10-15 basis points (0.10 to 0.15%). These securities make up 31% of the portfolio.
  
• The manager, CC&L, increased the fund’s holdings in Bankers’ Acceptances (BA’s) and corporate paper throughout the year. These securities comprise 69% of the portfolio (up from 44% at the end of 2010). This component of the fund is well diversified, with debt holdings from issuers such as HSBC, Royal Bank, GE, Telus and Enbridge.
  
• Corporate paper continues to yield 50-55 basis points more than Canada T-Bills. Through a focus on high-quality credit names, CC&L has provided additional yield for the portfolio without unnecessary risk.
  
• The yield curve was very flat in the summer and fall (i.e. there was little difference in the yield of 3-month and 1-year T-Bills), and the term of the portfolio was kept relatively short as there was no yield advantage in extending the term.
  
• The pre-fee yield of the fund at the end of December was 0.9%.

Notable Transactions (Fourth Quarter)

• There was little change to the structure of the portfolio in the quarter.
  
• The weighting of corporate paper was slightly increased as a portion of the proceeds from maturing T-Bills were invested in these notes.

Positioning

• The manager expects that their emphasis will remain on provincial T-Bills and high-quality corporate securities.
  
• CC&L has structured the portfolio with an average term to maturity that is relatively short. They expect to maintain this positioning until the market starts to anticipate future rate hikes by the Bank of Canada.
• Short-term interest rates are still very low and we have maintained a reduced fee on the fund (0.20%) to help provide a reasonable yield for unitholders.