To achieve its investment objective, the Fund will use a quantitative approach to select mutual funds and ETFs with desirable characteristics for the portfolio. When favorable, these funds or ETFs will be replicated with individual securities, to reduce fees and increase returns.
The Fund will invest only in investment products traded in Canada or the United States, though in some limited cases, the underlying of these mutual funds or ETFs will be outside Canada and the United States. The Fund can in this way have limited exposure to emerging markets.
The Fund will focus on the Canadian bond market universe, but may invest in other developed countries, such as United States and countries in the euro-zone. The Fund will invest in credit securities, such as corporate bonds, asset backed securities, callable bonds, commercial mortgage back securities, commercial paper and residential mortgage back securities. The Fund will also invest in government bonds and bond futures.
Further, the Fund may use currency futures, spots and forwards to hedge the currency exposure of the Fund.
The selection of mutual funds and ETFs whose strategies shall be replicated in the Fund will be based primarily on a bottom up approach. The Trading Advisor will first gain insight to potential investment by research and observation. Then the Trading Advisor will use a matrix approach to replicate the specific characteristics – in terms of the credit quality, duration and sector exposure – of the selected mutual fund or ETF within its own authorized instruments.