For over three decades we have applied the same investment philosophy and process to all our passive investment strategies. Our passive fixed income investment approach employs stratified sampling to build portfolios that match the key characteristics of their benchmarks to deliver index-like returns. Stratified sampling is used because the over-the-counter nature of the Canadian Fixed Income market limits the availability and liquidity of certain bonds.

Stratified sampling techniques are effective in building indexed fixed income portfolios because bonds that are not necessarily liquid or available at a reasonable cost can be substituted with other bonds that have similar characteristics such as term, industry and credit rating. Representative bonds are chosen primarily based on liquidity characteristics and available supply. 

Effective Trading:

Effective trading is a critical aspect of a successful indexing strategy. Within the strict constraints established in the management process, the portfolio management team focuses on a wide range of specialized trading strategies, ensuring low-cost trading across all portfolios. We work closely with a wide array of counterparties seeking to ensure competitive pricing and access to liquidity. Furthermore, we have invested heavily in technology to help ensure we have connectivity to a broad range of trading systems, venues and crossing networks to maximize the opportunities for quality execution. 

Investment Process:

Our process is designed to ensure that we capture the movements of the index in the portfolio. We monitor upcoming changes to index composition (both before and after the event) and devise strategies to realign our portfolios in the most efficient fashion possible – balancing the need to minimize costs and market impact with the necessity of ensuring that portfolios track their benchmarks.

Understanding the Benchmark:

Effectively tracking benchmarks requires expertise in understanding the rules and guidelines of each index provider surrounding index inclusions, exclusions, rebalancing and other changes. To that end, we conduct and remain abreast of research on upcoming and forecasted changes.

Portfolio Construction and Maintenance:

We only invest in securities currently present in the benchmark with the objective of seeking to minimize tracking error in all periods. Our stratified sampling technique matches key attributes at all levels to ensure broad and deep index representation that aims to reduce risk. The key attributes considered are duration, yield and sector weight. 

Understanding Risk:

We have implemented effective risk management practices, investment, financial, regulatory and operational risk is all managed and monitored on a real-time basis. Our clients value that we have a dedicated Risk Management Group that works independent of the Investment Management team.