Income Fund

September 30, 2021

Market Context

  • The Canadian bond market fell 0.5% in the quarter (interest less capital depreciation).
  • Bond yields trended lower until the last week of September, when they surged after central banks signaled a shift towards less monetary stimulus.
  • Canadian stocks gained 0.2%, led by consumer staples and industrial stocks.

Portfolio Specifics

  • In the face of rising interest rates, the fund has performed well. Its bond holdings (73% of total assets) held up relatively well in the quarter and the stocks (27%) were up, as has been the case throughout the year. So far in 2021, the fund has a 1.7% return.
  • Corporate bonds continue to make up the largest part of the portfolio with an emphasis on banks and telecoms. Business investment and corporate profits have been strong, helping to support this asset class.
  • Provincial bonds are also an important component, with Government of Ontario bonds carrying the greatest weight.
  • The fund’s investments in real return bonds (those that pay a return that is adjusted for inflation) have done well as inflation has picked up. We took some profits in these securities as inflation edged towards our manager’s (Connor, Clark & Lunn) target.
  • High yield bonds (5% of the fund) have also been positive contributors. The fund holds a wide range of U.S. and Canadian issuers with an emphasis on those that will benefit from the reopening of the economy. Notable holdings include Sprint Corp, Aramark, American Airlines, LiveNation, and Enbridge.
  • A key to the fund’s design is its allocation to dividend-paying stocks. They provide inflation protection and help enhance the long-term return. This has certainly been the case this year as stocks have given the fund a much-needed boost. Our manager focuses primarily on proven dividend growers (as opposed to companies with the highest yields). The largest holdings are in banks, REITs (real estate), industrials, telecoms, and utilities.
  • The fund paid a distribution of $0.045/unit at the end of September.

Positioning

  • Our manager believes the world economy is on a strong growth path, despite setbacks due to the pandemic’s fourth wave. They also feel that inflation may be more persistent than central banks and many investors expect. In this context, corporate bonds (including high yield) continue to make up the largest part of the portfolio.
  • Dividend stocks also comprise a sizable component and remain an important source of diversification and yield. CC&L has a current bias towards high-quality large cap stocks.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Important information about the Steadyhand funds is contained in our Simplified Prospectus. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.