Income Fund

March 31, 2021

Market Context

  • The Canadian bond market fell 5.0% in the quarter (interest less capital depreciation).
  • Bond yields rose sharply, particularly longer-term maturities, with the 10-year Government of Canada bond yield rising from 0.7% to 1.5%.
  • Canadian stocks gained 8.1%. Energy and financial stocks were areas of strength.

Portfolio Specifics

  • Investors are increasingly looking toward a post-COVID world and markets are anticipating a robust economic recovery. Indeed, growth expectations around the world are being revised sharply upwards, which paradoxically, resulted in a tough quarter for fixed income. Yields rose significantly, with bonds that have maturity dates in the 10- to 20-year range seeing the greatest yield increases (remember: when yields rise, bond prices fall). The portfolio was impacted by this, but held up better than the broad market.
  • Corporate bonds performed better than their government counterparts. This benefited the fund, as it continues to have roughly a third of its assets invested in these securities. Banks and industrial bonds remain key areas of investment, and our manager (Connor, Clark & Lunn) is also finding some opportunities in more economically-cyclical sectors, notably Greater Toronto Airport Authority. Overall, businesses are in a strong position to expand and invest, and consumer spending is well supported as households have built up savings and reduced debt, thanks in part to government stimulus packages. This points to a supportive investing environment for corporate bonds.
  • High yield bonds were among the top performers in the quarter (although returns were still modestly negative). Roughly 4% of the fund is invested in this asset class. Focus remains on higher-quality issuers and those with strong liquidity.
  • The fund’s dividend stocks (29% of the portfolio) performed well, gaining 8% overall, which helped dampen the fund’s decline. Key sectors of investment include banks, real estate, industrials, telecoms and utilities. Focus remains on stocks that are proven dividend growers operating in stable growth industries. The fund avoided any dividend cuts last year (and thus far in 2021). In fact, two-thirds of our investments increased their dividend, which speaks to the quality of holdings.
  • The fund paid a distribution of $0.045/unit at the end of March.


  • CC&L feels that low interest rates and accommodative policies will remain in place for a long time, which is supportive of a healthy weighting in corporate bonds.
  • Stocks make up 29% of the fund and remain an important source of diversification and yield. The manager has a current bias towards high-quality large cap stocks.

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