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Alternatives to Traditional Canadian Fixed Income

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  • 1. MANAGER OF MANAGERS Fixed Income Forum – June 2012 Alternatives to Traditional Canadian Fixed Income Jamie Colliver
  • 2. Traditional Fixed Income ALTERNATIVES TO TRADITIONAL FIXED INCOME• 40% of a typical plan – largely ignored• Liabilities - benchmarked to DEX-Universe• Liabilities in Canadian dollar - home bias• Volatility reducing anchor in a traditional portfolio• Most active managers unable to outperform the DEX-Universe - portfolios more passive• Yield curve dynamics – more return expected from a positive slope• Limited exposure to corporate credit – index weight• Slow to embrace structured debt including MBS – mostly policy related issues 2
  • 3. Post 2008 Fixed Income Realities ALTERNATIVES TO TRADITIONAL FIXED INCOME• Risk adjusted returns – Move away from asset returns to understanding and quantifying ―liabilities‖ – Identify sectors – Willing to take foreign currency exposure – What is ―risk free‖ – Liquidity• Bonds can generate alpha• Investment policy changes needed 3
  • 4. Fixed Income Today ALTERNATIVES TO TRADITIONAL FIXED INCOME• Increasing exposure to bonds – liability benchmarks emerging ―Many DB plans have moved to long bonds in order to better align assets and liabilities. If the liability duration is significantly different than that of long bonds and/or as the allocation to bonds increases, it becomes more important to provide liability cash flows to the managers to develop tailored benchmarks‖. From: Benefits Canada, Risk Adjustment, Richard Brown, Towers Watson – April 2012• Non-Canadian exposure• More ―out of benchmark‖ allocations• Total returns – more income• Proxy for equity• Sector allocations – ―disaggregate the agg‖• Return of the active manager 4
  • 5. Our Philosophy and Beliefs ALTERNATIVES TO TRADITIONAL FIXED INCOME• Proactive de-risking – dynamic (see chart on page 6)• Continued volatility – sovereign risks increasing• Expected return risk premiums – horizon, default, liquidity• Corporate balance sheets improving – focus on capital structure• More emphasis on diversification – non Canadian markets• Alternative Credit Strategies• Idiosyncratic, security selection key to unlocking relative value opportunities• Research based platforms supported by experienced sector/industry analysts 5
  • 6. The De-Risking Process ALTERNATIVES TO TRADITIONAL FIXED INCOME Source: Benefits Canada, Risk Adjustment, Richard Brown, Towers Watson – April 2012 6
  • 7. Industry Views ALTERNATIVES TO TRADITIONAL FIXED INCOME―The New York City fixed-income allocation also signifies an increasing awareness by public pensionplans and other institutional investors of the range and diversity of credit strategies. No longer arepension plans just investing in Treasuries.Credit managers have shown they can be just as different — and in some cases just as risky — astheir equity management counterparts. As a result, institutional investors are starting to look atmore creative ways to invest in the asset class‖. From: Pension and Investments, The scarcity of income – May 17, 2012―Aviva Investors, owned by insurer Aviva PLC, is slashing traditional equity strategies in favor offocusing on fixed income, real estate and multi-asset solutions‖. From: Pension and Investments, Money managers at risk retool, shutter some investment strategies – May 14, 2012― Where the governance budget allows, active bond managers with strong credit research capabilities(to anticipate upgrades, downgrades or defaults ) may provide opportunities to enhance returns‖. From: Benefits Canada, Risk Adjustment, Richard Brown, Towers Watson – April 2012 7
  • 8. ALTERNATIVES TO TRADITIONAL FIXED INCOME 8Canadian Government Bond 10 Year Note
  • 9. ALTERNATIVES TO TRADITIONAL FIXED INCOME 9U.S. Treasury 10 Year Note
  • 10. Opportunity Remains ALTERNATIVES TO TRADITIONAL FIXED INCOME Source: Principal Global Investors 10
  • 11. Opportunity Remains ALTERNATIVES TO TRADITIONAL FIXED INCOME Source: Principal Global Investors 11
  • 12. 12 ALTERNATIVES TO TRADITIONAL FIXED INCOMEIntegra Bond Fund
  • 13. Integra Canadian Fixed Income Plus Fund ALTERNATIVES TO TRADITIONAL FIXED INCOME 13
  • 14. Principal High Quality Canadian Fixed Income Plus Fund ALTERNATIVES TO TRADITIONAL FIXED INCOME 14
  • 15. Notes 15
  • 16. 16 MANAGER OF MANAGERS General Disclaimer Note 1 Integra Capital Limited has taken all reasonable care to ensure that the information contained in this material is accurate at the time of distribution, no representation or warranty, express or implied, is made as to the accuracy, reliability or completeness of such information. This document is published by Integra Capital Limited – Portfolio Manager, Exempt Market Dealer, Commodity Trading Manager and Investment Fund Manager Toll Free: 1-800-363-2480 URL: www.integra.com Email: contactus@integra.com Western Canada QUEBEC** ONTARIO* 74553 – 2768 W. Broadway 185 Dorval Ave. 2020 Winston Park Drive Vancouver, BC Suite 402 Suite 200 V6K 2G4 Dorval, Quebec Oakville, Ontario H9S 5J9 L6H 6X7 Tel: 1-877-237-0200 Tel: (514) 633-9676 Tel: (905) 829-1131 Fax: (905)829-2726 Fax: (514) 633-8355 Fax:(905) 829-2726 *Head Office **Branch Office

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