Investment Process

Fixed Income Portfolio Management

Philosophy

MCM's goal is to provide consistent long-term performance while maintaining a high quality, liquid bond portfolio. Our disciplined approach to fixed income combines interest rate anticipation with strategic sector selection, to produce above average returns with below average volatility. By employing a dual, or 50/50, approach and not limiting ourselves to one investment style, we believe that at any time in the economic cycle there is an opportunity to add value.

Process

The investment process begins at the Asset Allocation Committee level, where macro economic variables within the G7 countries are examined to determine global market trends in the various capital markets. This global perspective provides the fundamental basis for our long-term interest rate outlook. With our long-term rate outlook in hand, we then use quantitative models to perform a more detailed analysis of the factors influencing Canadian interest rate policies.

Interest Rate Anticipation

The objective of Interest Rate Anticipation is to capture longer-term bond market trends, thereby eliminating the necessity to make frequent or radical duration shifts within the portfolio. Our analysis provides an outlook for Canadian interest rates, from which duration and term structure decisions are made. This conservative approach lends itself to modest duration shifts averaging +/- one year around the Scotia McLeod Capital Markets Universe Bond Index.

Strategic Sector Selection

Augmenting duration and term-structure, is sector mix selection. Strategic sector selection not only provides incremental yield to the portfolio, but also serves to stabilize long-term returns - providing a cushion against unforeseen short-term capital losses. The decision making process in this area again relies on the use of quantitative models which assess the risk/reward characteristics of the different segments. Our fixed income team maintains direct communication with the dealer community, continually assessing and evaluating trading opportunities as they develop. MCM believes in quality, and as a result within the corporate sector we restrict ourselves to high-grade issues rated investment grade or better.