Investment and Retirement

Improved SSQ Celestia GIF portfolios

Corporate bonds, which include high yield bonds, are increasingly popular with investors. With regard to portfolio construction, there are many advantages to replacing a portion of "Universe" Canadian bonds with North American corporate bonds, which include high yield bonds.

On June 30, 2017, the SSQ CI Signature Corporate Bond GIF will be added to three of the four SSQ Celestia GIF portfolios. The weighting of the other bond funds will be readjusted in order to maintain the same total weighting in bonds.

 

WHY ADD CORPORATE BONDS TO CELESTIA PORTFOLIOS?

The addition of the SSQ CI Signature Corporate Bond GIF to the Celestia Portfolio series aligns perfectly with the "income" bias of this series.

Decreasing the allocation of Canadian Universe bond funds in favour of the SSQ CI Signature Corporate Bond GIF in three of the four Celestia profiles has a number of advantages:

 

1. Better performance and risk/return relationship expected

Historically, the corporate bond index that reflects the target mix of the SSQ CI Signature Corporate Bond GIF obtained a higher return and a superior risk/return relationship as measured by the Sharpe ratio.

2. Better diversification

Given the low-to-medium correlation of this asset class to other asset classes that make up SSQ Celestia GIFs, the addition of this fund improves the diversification of the portfolio. In addition, it allows for better sector diversification of the bond portion of Celestia SSQ GIFs because the corporate sector of the benchmark index for Canadian Universe bond funds is highly concentrated in the financial services sector.

3. Higher current yield

The corporate securities that make up the SSQ CI Signature Corporate Bond GIF have a higher current yield because of their higher risk profile and higher interest rates in the U.S.

4. Better protection should interest rates go up

The securities in this fund have a shorter duration than Canadian Universe bonds so they are much less sensitive to rising interest rates, which limits the risk of loss if such an increase were to occur. This is very important given that interest rates are at historically low levels and are expected to rise to reach an equilibrium level.

5. Expertise of an excellent asset class specialist

The fund is managed by a team of experts with extensive experience in the management of foreign government bonds and corporate bonds. These experts are led by Eric Bushell, chief investment officer of CI Signature, who was named Fund Manager of the Decade by Morningstar Canada in 2010.

6. High value-added potential

The active tactical management approach in terms of asset allocation, sector selection, security selection and currency hedging allows the manager to seize numerous market opportunities.

 

HOW WAS THE WEIGHTING DETERMINED?

To define portfolio allocation, each SSQ Celestia GIF was modelled so as to optimize the return potential and the expected risk/return relationship while respecting the level of risk of each profile. Since the aggressive profile contains only 10% bonds, its allocation remained unchanged because the impact on the portfolio of the addition of the SSQ CI Signature Corporate Bond GIF would have been very negligible.

Allocation of SSQ Celestia GIFs (%): Before and After

 

As these changes show, the SSQ fund development team is always proactive when it comes to your clients!

All investment objectives and applicable fees remain unchanged.