Income Fund

December 31, 2022

Market Context

  • The Canadian bond market fell 11.7% in 2022 (interest less capital depreciation).
  • Interest rates rose significantly over the year, with the 10-year Government of Canada bond yield climbing from 1.4% to 3.3%.
  • Canadian stocks fell 5.8%. Technology, healthcare, and real estate stocks were especially hard hit, while the energy sector helped prop up the market.

Portfolio Specifics

  • The fund declined 9.9% in 2022. The bond component (75% of the portfolio) fell 11%, while our stock holdings (25%) fared better, dropping a little over 4%.
  • Interest rates rose at the sharpest pace in a generation, leading to significant declines in bond prices (when rates rise, prices fall). The Bank of Canada raised its key short-term lending rate seven times in 2022, from 0.25% to 4.25%. Longer-term bond yields also moved materially higher, but to a lesser extent as the economic outlook worsened over the year. Our fixed income investments lost ground, although they held up better than the broader market as a result of our interest rate positioning and security selection, which favoured defensive companies such as banks and utilities.
  • Our manager, CC&L, expects a modest recession next year. Canada’s high savings rate and stimulus measures should prevent a severe downturn, yet if inflation doesn’t subside and interest rate hikes are prolonged, the situation could be worse. We have reduced our overall credit exposure (corporate and provincial bonds) and trimmed some better performing investments (telecoms and infrastructure), reflecting our outlook. As well, the fund’s duration, which is a measure of the sensitivity of bond prices to changes in interest rates, is shorter than normal as a defensive measure.
  • While it was a tough period for bonds, prevailing yields are more attractive than they were at the beginning of the year and the fund is generating a higher income stream (current pre-fee yield is 4.1%), which will benefit investors going forward.
  • The equity portion of the portfolio (25%) held up well in a down market. Our strategy was conservative, with investments focused on companies with resilient earnings and sustainable dividend growth. Top performers included Element Fleet Management, Saputo, and Loblaw Companies. We remain cautious, but are keeping an eye open for opportunities to add to quality, deeply discounted companies. We recently added to our position in auto parts maker Magna International, for example.
  • The fund paid distributions totaling $0.28/unit in 2022.


  • Our manager believes a recession is likely in 2023, driven by higher interest rates and decades-high inflation. We have reduced our overall credit exposure as a result, with a focus on stable, defensive companies.
  • Stocks make up 25% of the fund and remain an important source of diversification.

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