Month: October 2017

Financial firm rolls out new fund under performance-based fee model

Businessman and businesswoman discussing at office with laptop on desk.

Businessman and businesswoman discussing at office with laptop on desk.

Financial firm rolls out new fund under performance-based fee model Investors seeking for yield away from a bond or guaranteed investment contract (GIC) now have another option, thanks to Transcend Private Client’s new offering, the Multi-Strategy High Yield Fixed Income Fund.

The group’s new fixed-income fund will follow its recently launched Pay-for-Performance fee model, where clients pay a nominal amount unless performance results are above the industry benchmark.

Transcend CEO Chris Ambridge said the fund affords investors with a more secure avenue for alternative investments. Additionally, the new fixed-income fund is expected to spur better yields than what bonds and GICs can potentially make.

“We are offering Canadians a reliable fund with low risk, based on our company philosophy that you only pay if the results are better than the benchmark,” he stressed.

Aside from being Canadian-centric, the fund will also be diversified in terms of assets through active management. It will invest in corporate bonds, convertible bonds, preferred shares, income trusts, REITs, mortgages, secured real estate and infrastructure projects, as well as alternative investment strategies and hedge funds.

Ambridge said investors who subscribe to the fund will not incur additional costs above basic management expenses. This will be the case until the fund outperforms the benchmark, which is 50% of both the FTSE Short Bond Index and the FTSE Mid Bond Index.

“We have very open conversations with advisors and investors on our track-record, why our company fee model defies the norm and why our service beats the competition,” he said.

Transcend launches new fund under pay-for-performance fee model (P&T)

Clients who invest in Multi-Strategy High Yield Fixed Income pay a nominal amount unless the fund outperforms its benchmark

Toronto-based Transcend Private Client Corp., a subsidiary of Provisus Wealth Management Ltd., has launched a new fixed-income fund, Multi-Strategy High Yield Fixed
Income, which will follow the pay-for-performance fee model introduced to the Transcend platform in September 2016.

Under the pay-for-performance fee model, clients only pay a nominal amount unless performance results are above the industry benchmark.

“This fund offers investors a secure alternative investment that yields better results than a bond or GIC,” says Chris Ambridge, CEO of Transcend, in a statement. “We are offering Canadians a reliable fund with low risk, based on our company philosophy that you only pay if the results are better than the benchmark.”

The fund will be “Canadian-centric,” the firm says, and diversified in terms of assets through active management. The fund will be comprised of corporate bonds, convertible bonds, preferred shares, income trusts, real estate investment trusts, secured real estate and infrastructure projects, as well as alternative investment strategies and hedge funds.

The investment strategy will be focused on a short to mid-term structure, similar to a five-year GIC, the firm adds.

Investors using the fund will not be required to pay anything above basic management costs unless the fund outperforms the benchmark, which is 50% of the FTSE short bond index and 50% of the FTSE mid bond index.

Transcend launches fixed income fund

Transcend has launched the Multi-Strategy High Yield Fixed Income Fund, which allows clients to pay a nominal fee unless performance results are above the industry benchmark.

Investors using the fund won’t pay anything above basic management costs until the fund outperforms the benchmark. In this case, the benchmark is 50% of the FTSE Short Bond Index and 50% of the FTSE Mid Bond Index.

The fund will be Canadian-centric and actively managed. It will consist of corporate bonds, convertible bonds, preferred shares, income trusts, REITs, mortgages, secured real estate and infrastructure projects, as well as alternative investment strategies and hedge funds. The investment strategy will be focused on a short- to mid-term structure, similar to a five-year GIC.

Retirement Income on Steroids

Short term interest rates are near 60 year lows which makes it hard for fixed income investors to earn a decent income. Couple this with the fact that the average investor has an aversion to investing in long term bonds because of the belief that higher interest rates are on the horizon and it becomes nearly impossible to earn much more than money market rates. So what are the options for clients looking for good yields while being able to take advantage of higher returns in the future?

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With over $300 billion in assets, Guaranteed Investment Certificates (GICs) account for a huge share of fixed income sales in Canada. This is due to the advantages that many investors feel GICs offer over bonds: a predictable and guaranteed income stream, the principal value won’t decline and no fees mean every penny earned is theirs to keep. For these benefits clients are subjected to returns that can be low and, after inflation, the returns are actually negative. This is not a great situation as people are living longer. Sometimes the safety investors are seeking becomes just another form of risk.

After GICs, bonds are the next popular vehicle in adding returns to an investor’s portfolio as they have very different characteristics but do offer distinct advantages. Interest rate changes affect bond values so that as rates fall, bond prices increase and as rates rise, prices fall. However, if held to maturity bonds repay the full principal. Another essential difference is liquidity. Bonds can be bought or sold at any time with price determined by each bond’s individual characteristics and current market conditions. While bond returns are impacted by the cost of purchasing and managing the portfolio, this can be offset by the higher returns bonds can achieve. They offer the distinct possibility of higher yields and capital gains.

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Taking it one step further and incorporating other types of fixed income vehicles into the mix can be quite rewarding for conservative investors. For example, constructing an optimized High Yield Fixed Income portfolio consisting 15% of a 10 year Corporate Bond Ladder, 7.5% REITs, 20% High Yield Bonds, 15% High Yield ETFs, 20% Mortgages and 22.5% Fixed Income Hedge Funds leads to a very attractive alternative. Certainly the degree of risk investors assume with this type of portfolio are higher, but so is the potential for greater returns. The real question is, is it worth it?

Given current low interest rates this may be a good time to consider these strategies. Current 5 year GIC rates (based upon the average rates of the Schedule A chartered banks) are 1.6%. Using bonds with a similar term structure (represented by 50% FTSE Short-Bond Index and 50% FTSE Mid-Bond Index) shows how an all bond portfolio would perform. While the returns for the outlined High Yield Fixed Income portfolio is clearly superior. As the chart above shows, over the past 10 years the one year rolling performance of these two portfolios consistently produce higher returns when compared to 5 year GICs (outperforming 83.3% and 88.1% of the time, respectively). The data to the left shows these advantages both on a quarterly and annual basis; while doing so with very low correlation to GICs of 0.22 and -0.24 respectively.

With today’s very low yields and increasing interest rates, investor returns on GICs after inflation, fees and taxes are minimal. So unless investors are comfortable with only safe harbour investments and unconcerned with the less than stellar returns going forward, the only realistic solution is to explore other options. The decision to be safe is making many investors less safe and creating a whole new level of risk, running out of money. With this situation bearing down on many investors, the proposed High Yield Fixed Income structure is a solution that plays it safe, but still generates meaningful returns.

Market Data

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This report may contain forward looking statements. Forward looking statements are not guarantees of future performance as actual events and results could differ materially from those expressed or implied. The information in this publication does not constitute investment advice by Provisus Wealth Management Limited and is provided for informational purposes only and therefore is not an offer to buy or sell securities. Past performance may not be indicative of future results.

While every effort has been made to ensure the correctness of the numbers and data presented, Provisus Wealth Management does not warrant the accuracy of the data in this publication. This publication is for informational purposes only