Adam Fisch: We recently completed our annual west coast due diligence trip and one of the stops that we made was to PH&N. In the past we've covered several of their fixed income funds, including PH&N Bond, High Yield, and Total Return Bond. We had the chance to meet with a number of members of their fixed income team. Salman, could you talk a little bit about what our impressions were?
Salman Ahmed: Yes, the first team we met was the PH&N High Yield team. So we met Hanif Mamdani, who is the lead manager of the fund and he is also head of alternative strategies at RBC PH&N. We met him and the two analysts that work with him on the high yield fund and one of the changes that that fund has experienced in the past has been the increased allocation to the U.S.
Now, in the past almost 80% to 90% of the portfolio was in Canadian securities, but over time because of the large asset base, they had to push that – some of that weight into the U.S – and last year they removed the restriction of having at least 50% in Canada. So now the fund can be even more invested in the U.S. than the past. This is something that is caused by their large asset base, and it's difficult to get the kind of fills that PH&N is looking for, for good alpha generating opportunities in Canada. There is limited number of issuers, there is diversification opportunities, and just limited opportunity set in Canada compared to the U.S.
Fisch: We also got the chance to see their attribution and authorization tools in action, and we had a pretty favorable impression of those as well.
Ahmed: Yes. It's very difficult to find good attribution tools in the fixed income space. Because there are so many different moving parts in fixed income, it's really difficult to drill down and find exactly what was causing the returns. So because of that, fixed income managers in Canada have more often than not cited an inability to find good attribution softwares. PH&N has gotten around that by building a software in-house, and it's something that we got a chance to see a demonstration of, and it allows the team to go really granular into the strategy. It allows them to drill down even down to the single issuers in each one of the strategies to see what kind of alpha that issue is generating. The optimization also allows them to better optimize that portfolio for a specific alpha or tracking error that they are looking for when building a strategy. So it's definitely something that gives them a leg up and a definite competitive advantage compared to most other Canadian fixed income managers and something that, like you said, we viewed very favourably, and it was great to see that tool in action.
Fisch: We'll be updating our fund reports over the next few months to reflect our impressions from our trip. For more details visit our website www.morningstar.ca.
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