CSIF · 130/30 Canadian Fixed Income
Calterra Strategic Income Fund
Steady income from corporate credit, with deliberately low interest-rate risk. The fund is built to ride on one judgment rather than two, whether borrowers can pay.
Chris Bolton, CFA · Portfolio Manager, Fixed Income
- Structure
- 130/30 Canadian fixed income
- Fee
- 0.55% Series FS
- Distributions
- Monthly
- Fundserv
- CAL101 FS · CAL103 A
The idea
Credit risk, not rate risk
Two things decide what a corporate bond returns: whether the company pays, and what interest rates do to its price along the way. This fund keeps the first risk and works to remove the second. It holds corporate bonds, chosen by credit work on each borrower, and sells government bonds of similar maturity short. Matching the maturities is meant to cancel most of the rate risk and leave the difference in yield between the two, which is the part credit research can actually earn.
A bank makes its living a similar way, borrowing at the government’s rate, lending at a company’s, and being right about who pays it back. The fund’s income comes from the bonds’ own interest payments rather than from a view on rates, and its remaining sensitivity to rate moves is kept small. The fund will pay distributions monthly.
This describes how the fund is built, not how it will perform. There is no assurance it will meet its objectives.
The mechanics
The same $130/$30, in bonds
For every $100 invested, about $130 is held in corporate bonds and $30 of government bonds are sold short against them. The holdings are deliberately spread out, typically 35 to 60 positions across industries, issuers and maturities. Most of the fund sits in the lower rungs of investment grade, the rating agencies’ safer tier, with room for up to half in lower-rated bonds that pay more. After the short position, the fund’s net exposure stays near the $100 you put in.
Honest expectations
Where this fund can struggle
There are markets this fund is not built for. The hardest is a scare that panics investors into dumping corporate bonds of any quality and then crowding into government bonds, which is the position this fund runs in reverse. A swift drop in interest rates works against it too, since the fund has given up the price gains a conventional bond fund would collect. What those markets mostly move is price, not the income. The coupons keep arriving, and a bond that reaches maturity repays in full so long as the borrower stays sound.
- Benchmark
- 50% Morningstar® Canada Core Bond · 50% Morningstar® Canada 1-5 Yr Core Bond
- Access
- Priced daily · CAD · Fundserv
- Series FS
- 0.55% management fee
0.81% MER (est.)1 - Series A
- 1.80% management fee
2.06% MER (est.)1 - Performance fee
- None2
Next
Everything here is a summary of a longer document.
The offering memorandum sets out CSIF’s objectives, its credit and interest-rate limits, its fees and its risks in full, and an investment is made on that document. It will be available when the fund opens, directly or through your advisor.