Brian Eby, lead manager of the $60-million Steadyhand Income 
, thinks that in a low-rate environment it makes sense to hold a blend of equities and fixed-income vehicles in an income-focused portfolio.
"We're conscious that the investors are absolute-return-oriented," says Eby, "so that is what we think about first and foremost. In the current environment, we're really trying to find that middle ground for investors who want something a little bit more attractive than a traditional bond portfolio."
Eby is a director, portfolio manager and head of the fixed-income team at Connor, Clark & Lunn Investment Management Ltd. in Vancouver. Of the firm's $21 billion in total assets under management, about $6.5 billion fall under the fixed-income umbrella.
The fixed-income team of nine people is organized into three groups. There's an interest-rate research group that looks at the macroeconomic picture, and one devoted to credit research. The third group is responsible for portfolio construction, risk management and implementation.
As is typical, Steadyhand Income currently holds just under 75% in bonds, with the balance in equities. The roughly 100 fixed-income securities currently in the portfolio are mostly corporate bonds, predominantly with credit ratings of single A or higher.
The holding period for corporate bonds is around two years on average, and is similar for the equities. The portfolio turnover of government-bond holdings would typically be three to five times per year, due to tactical shifts that Eby and his colleagues make in their interest-rate and yield-curve management.
Under Eby's tenure, the Morningstar 5-star rated Steadyhand Income, launched in February 2007, has outpaced its peers over the past several years. Its annualized three-year return is 13.8%, compared with the median 8.1% in the Canadian Fixed Income Balanced category, as of Jan. 31. "Our interest-rate view, certainly over the last two or three years," says Eby, "has generally been pretty correct and has contributed to the returns."
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Eby, 49, draws on close to three decades of industry experience. After earning a business commerce degree from McMaster University in 1985, he joined Wood Gundy Inc. as a bond trader in London, England. Pursing further studies, he received an MBA from McMaster in 1987. That year he joined Scotia Capital Markets Inc. in Toronto as a bond trader.
In 1988, as a vice-president and deputy representative of the firm, Eby was sent to Tokyo, during the period when Canada was experiencing a huge deficit and Japan was Scotia's largest client in the bond market. Returning to Toronto in 1990, he became a director, fixed income, in the institutional sales and debt underwriting department. In 1994, he was director, fixed income, in proprietary trading. He received the CFA designation in 1995.
Then in 1998, he moved to Connor, Clark & Lunn as a portfolio manager, fixed income. In 2002, he became co-leader of the fixed-income team, then in 2007 he was appointed head of portfolio management and strategy, fixed income.
Steadyhand Income's equity picks are made by an eight-member equity team that focuses on dividend-paying stocks and real estate investment trusts (REITs). While Eby does not make stock picks, daily 8 a.m. meetings on the fund's strategy keep him well versed on the equity positions.
Connor, Clark's equity team employs a growth at a reasonable price (GARP) approach, with a conservative tilt. About 29% of Steadyhand Income's equity holdings are invested in REITs. According to Eby, real estate is the equity sector that is considered the most similar to traditional fixed income. It is interest-sensitive with fairly stable payouts.
The dividend-paying stocks fall into two categories. One consists of companies that pay reasonably high and sustainable yields. The others are companies that -- in the opinion of the CC&L team -- are on track to achieve consistent dividend growth.
An example of Steadyhand Income's holdings is Brookfield Infrastructure Partners LP BIP.UN, which owns and operates utilities and infrastructure assets around the world. "They've increased their dividend three times over the last 18 months," says Eby, "and we see a path toward continuance in dividend increases."
In positioning the fund for the future, "we still think there are lots of opportunities on the equity side, in terms of dividend-paying stocks," Eby says. "But with the bond market, we're worried that over the next couple of years we're likely to see interest rates move higher. And so on that side, we've been shortening the duration of the portfolio to become a little bit more interest-rate defensive."
