Bill Gross, one of the world's most famous bond managers and known for his unconventional strategies and colourful commentary over more than four decades, will manage the newly launched NBI Unconstrained Fixed Income.
Sponsored by National Bank Investments, the fund's mandate gives Gross a great deal of flexibility, since it is not managed to be compared to any specific market index. Broadly defined, his mandate from National Bank is to maximize total return, consistent with preservation of capital.
Gross can invest anywhere in the world, including emerging markets, and in any sector. The duration of his portfolio (a measure of interest-rate risk) can range anywhere from long term to even negative.
The fund has many similarities with a U.S.-based mutual fund, Janus Global Unconstrained Bond, which Gross has managed since its inception in October 2014, shortly after he joined Denver-based Janus Capital Management LLC as a portfolio manager and strategist. A veteran of more than 45 years as a fixed-income manager, Gross founded the bond-investing giant PIMCO in 1971 and served as its managing director and chief investment officer before joining Janus two years ago.
In terms of delivering positive absolute returns, Janus Global Unconstrained Bond had a disappointing 2015, its first full calendar year, losing 0.7% in U.S.-dollar terms. But through the first 11 months of this year, it returned 4.8%.
The two-year-old U.S. fund and the new one for Canadian investors aren't directly comparable. National Bank's offering is a tamer version, since Gross won't have an entirely free hand on credit risk.
According to National Bank's prospectus, the fund will limit its exposure to high-yield bonds to 25% of assets. That differs from the Janus fund, whose average credit quality currently is BB, which is below investment grade.
Like its U.S. counterpart, the National Bank fund may invest in securities issued or guaranteed by governments or government-related entities, international and supranational entities, and corporations. In keeping with Gross's propensity to hold assets that you won't find represented in mainstream bond indexes, the fund's portfolio may also include convertible bonds, floating-rate notes or loans, mortgage-backed and other asset-backed securities, collateralized loan obligations, collateralized mortgage obligations (CMOs) and preferred shares.
Nor can the fund, which went on sale this week, be considered a pure fixed-income play. It is permitted to hold common shares, National Bank or third-party mutual funds and exchange-traded funds. Also in Gross's toolkit are derivatives such as options, futures and forward currency contracts.
The management fee is 1.25% for the no-load Investor Series and for the Advisor Series distributed through commissioned brokers and dealers, and 0.75% for the F Series designed for fee-based accounts. Also available are purchase options whose monthly distributions include return of capital as well as income.
What investors in the National Bank fund can expect from Gross, at least in the short term, is a risk-averse stance with respect to interest rates. The duration of the similar Janus fund in the U.S. is just 1.17 years, as reported by Morningstar.
In a post-U.S.-election commentary, Gross said he expects that higher government deficits resulting from lower taxes will raise interest rates and inflation. He added that this will potentially depress corporate earnings and lower price-earnings ratios. "There is no new Trump bull market in the offing," Gross wrote. "Be satisfied with 3-5% globally diversified returns."
:quality(80)/cloudfront-us-east-1.images.arcpublishing.com/morningstar/54RIEB5NTVG73FNGCTH6TGQMWU.png)
