Its performance in March lifts the fund into a more positive state
Mutual fund PenderFund Capital Management has released its report which showed how its bonds fared during the first quarter of 2024.
The fund found that its strong performance in March had managed to make it reach a more positive territory during the quarter as its class F units were up by 1.5%. This showed a 1% relative outperformance during the quarter compared to the 0.5% benchmark return for the FTSE Canada Universe Bond Index.
The fund said that Q1 2024 can be characterized by the areas of strength in credit. There was a tailwind seen due to its exposure to opportunities that were not as widely acknowledged. Its selected below investment-grade bonds that were directly held by the fund had also contributed to the positive performance seen in the quarter.
Its BBB and High Yield spreads were currently tight compared to the previous years. While there were a lot of opportunities in credit, spreads were seen to be generally expensive. The fund had a lower exposure to credit compared to the previous periods where spreads gave a more attractive compensation. PenderFund currently has a 22% weight when it comes to non-investment grade holdings that were achieved through holding corporate bond fund units as well as individual non-IG bonds.
Since the high seen in October 2023, the term premium has moderated but it continues to be in a positive level and was still higher than the reading by the end of the previous year. Because of this, duration only saw little change compared to the end of the previous quarter. While there was recent growth as well as inflation numbers showed strength, the Personal Consumption Expenditure (PCE) inflation fell below 3% in the US.
Areas of the economy that showed weakness included commercial real-estate, credit card delinquencies, and retail sales. The report noted that it was possible that there was a lag effect from the interest rate hikes that has yet to show itself as the recent growth may be a result of the supply from higher immigration as well as more people entering the workforce compared to the demand.
The duration of the bond universe fund by the end of Q1 2024 was 4.76 years. Its yield to maturity was 5.39% and cash represented 4% of the portfolio by the end of the quarter.
