Terry Dimock:
We're here today with Sébastien Rhéaume, Managing Director at AlphaFixe Capital, to talk about our new strategy, the NBI Canadian Core Plus Bond Fund. Hi, Sébastien.
Sébastien Rhéaume:
Hi Terry.
Terry Dimock:
So, first of all, why launch this strategy now?
Sébastien Rhéaume:
Yeah, so I guess it has a lot to do with the very strong conviction that we have at AlphaFixe that the inflationary environment that we're going to be witnessing in the next few years is going to be fundamentally different from the one we witnessed in the last 10 or 15 years. And I guess what I'm trying to say is that in the last 10-15 years, the target of 2% was kind of the high end, so we had an issue of reaching the 2% target. We had to continuously stimulate the economy to try to get there. And I think that going forward, that 2% is most likely going to become a floor. And that has some important implications with regards to capital markets and more importantly, with regards to the fixed income. So, I do think that we will be seeing a lot more volatility in terms of inflation, which automatically translates into increased volatility in terms of the fixed income markets also.
Terry Dimock:
So, what are the attributes of the strategy to navigate this environment?
Sébastien Rhéaume:
So, what we are trying to do is we want to capture that volatility. So, we want that to become a source of value add. And the goal to achieve that, what we've done is we've expanded the boundaries by which we could position risks. So, for example, on the duration side, we could be plus or minus five years. So, if interest rates are very low like they were in 2020, and 2021, we could position the portfolio with a very short duration to maximize the expectation of positive returns in a rising interest environment. If credit becomes extremely cheap as it is right now, we could overweight the portfolio on the credit side. So, it's really meant to be a product that's going to be able to capitalize on, like I said, that incremental volatility and maximize the chances of having a positive return.
Terry Dimock:
So as an investor, how would you position the strategy in a diversified portfolio?
Sébastien Rhéaume:
So, because of that latitude, I think it becomes a core holding because what you're doing is we as a manager will be taking advantage of the opportunities wherever they are, like I said, either interest rates or credit. So, I think it becomes a core holding and it kind of removes a little bit the alternative to say the investment advisor must decide kind of where he wants to be positioned. So, this product is going to move its position according to the different economic environment that we're going to be in. core holding, and as I said, we'll capitalize on the volatility that we expect going forward.
Terry Dimock:
And again, for the advisor, how would this complement the other strategies that AlphaFixe manages?
Sébastien Rhéaume:
So, it's really, I would view it as, you know, this strategy is going to be a combination of all the existing strategies we have with BNI. So, you know, as I said, if interest rates are really low, it's going to be positioned with very, very conservative duration, very short duration. And if interest rates go higher, then we're going to move the duration. Same thing on the credit side. So, this product could look very similar to an NSSB today, very, you know, lower interest rate, lower duration. very heavy on the credit side. But if that economic environment changes and suddenly we have higher interest rates where the duration is going to migrate more towards the six, seven years duration, which is closer to the other two products that we manage with you. So, view it as a combination of the different products that we manage and really an expression of our best ideas in terms of where we think we can maximize the likelihood of having positive returns.
Terry Dimock:
That's great. Thank you, Sebastien, for being with us today.
Sébastien Rhéaume:
My pleasure. Thank you, Terry.
