Geof Marshall, the lead manager of the $1.7-billion CI Signature Diversified Yield embraces the fund's income-seeking strategy of having "no constraints, no limits." At times, says Marshall, "you want to hide and you don't want to be tied to one specific asset class. You really want multiple levers to be able to pull."
Right now, though, Marshall views high-yield securities as one of the best investments for yield-seekers. As vice-president, portfolio management, at CI Investments Inc. in Toronto, he specializes in these issues and in leveraged loans. He has been responsible for the high-yield component of CI Signature Diversified Yield since the fund's inception in November 2009.
Marshall also manages the high-yield holdings of the $7.4-billion CI Signature High Income, a geographically constrained mandate that must hold at least 50% in Canadian content. By comparison, the unconstrained CI Signature Diversified Yield currently holds a much higher 66% in foreign securities.
Overall, CI Signature Diversified Yield is currently weighted 39.5% in high-yield bonds, making them the fund's largest asset class. These bonds are rated double B-plus or lower or are unrated. Next is the 35.9% held in equities, followed by 11.8% in investment-grade fixed income, with the remainder in cash.
Marshall says trends in interest rates are almost irrelevant to high-yield bonds. "It's what's happening with the underlying credit quality of the companies. That's why it's more driven by each company."
Thirty years ago, says Marshall, high-yield securities were known as "junk" bonds. But times have changed considerably. "The market has grown from being this backward little market where companies went to die, to a trillion-dollar market in the States."
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High-yield bonds, says Marshall, appeal to investors who are worried about equity volatility. "As long as we have a little bit of economic growth, particularly in the U.S., then we're OK," he says. "Credit investing doesn't need a lot of growth."
Although the high-yield-bond space is perceived by some investors as riskier than stocks, bond holders always get paid before equity holders in the event of a default. Historically, the high-yield-bond market defaults on average about 4% a year, says Marshall. "You can actually outperform as a manager just by avoiding those defaults. It's harder to outperform any other way, without taking on a lot of risk."
For his equity holdings, Marshall favours good-quality companies that are in the top three of their industry or business niche. Those companies tend to be well managed low-cost producers with pricing power and competitive products.
Currently, CI Signature Diversified Yield holds about 100 equity positions and approximately 300 high-yield bonds across about 170 different companies. The fund tends to not own more than 10% of any one bond issue at one time, because Marshall prefers to have liquidity, "to be able to get out of the way if I see a situation deteriorating."
Turnover in the portfolio on the high-yield-bond side is "about 20% to 25% a year," says Marshall, and there is no hard goal on how long a stock will be held.
Marshall cites MGM Resorts International MGM, whose bonds the fund has owned for a number of years, as an example of a high-quality high-yield issuer. "They're the number-one operator of resort and casinos on the Las Vegas strip," say Marshall, "and that's really the premier gaming destination globally."
Despite the company's dicey situation in 2008, where it had too much leverage, it was able to address its financial needs by borrowing against some of its properties. Today, says Marshall, "they're a top-tier operator, have a good management team, with some of the best assets in the space."
Marshall, 41, is a graduate of the University of Western Ontario, where he earned a BA in political science in 1996. By the following year, he was employed on a full-time basis in 1997 at investment counsellor Elliott & Page Ltd., working in client service and marketing.
Marshall received the CFA designation in 1999. He moved in 2000 to the high-yield-bond desk at Manulife Financial, Elliott & Page's parent. He joined CI in 2006.
Both of the funds that Marshall co-manages are considered "quasi pension plans." Over the last 20 years, he adds, the holdings have diversified beyond traditional fixed income and equities. The trend, he says, is towards high-yield fixed income, infrastructure companies (a group that includes utilities, telecommunications and cable companies with hard assets) and real estate investment trusts (REITs).
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