That’s a really good question.
And it’s really tough to pinpoint one single item. The way we see it is that there are basically three key elements.
The first one is the people. You can’t make any compromise on people. You have to have the best people, especially in this environment. I’m not ashamed to say that I think we have one of the strongest fixed income teams in Canada.
The second element is getting that team to focus on a relatively narrow subset of the capital markets. What we do at Alpha Fixes is only fixed income. We take smart people and get them to focus on a specific part of the capital markets, which increases the likelihood that they’ll be able to beat the markets.
The last element is having an investment process that provides flexibility, especially in today’s markets, where different events are happening at different moments. If you have a rigid investment process, it becomes more difficult to capture alpha. With a more flexible investment process, you should be able to do better in this environment.
Because we have a flexible process, we’re able to deploy risk where the best opportunities are. For example, back in 2022, interest rates were very low. Ten-year rates were at 0.5%, which was an anomaly for us. As a fixed income manager, you reduce duration and reduce sensitivity to higher rates.
Fast forward a year or a year and a half later, ten-year rates in Canada are closer to 4%. It’s a fundamentally different environment. You want to have a different positioning in terms of duration. Being able to deploy duration either on the short side or the long side makes a lot of sense.
There’s also another important aspect on the credit side, including provincials and corporates. In an environment where credit spreads are quite wide, you want to increase sensitivity. But in an environment like today, where everything is expensive—just like the stock market—you probably want to be a bit more defensive.
Again, flexibility in the investment process allows us to deploy risk where we think we have the best chance of adding alpha in the portfolios.
There are many interesting things, but on a more personal note, on the weekends I actually trade my Bloomberg screens for chainsaws, tractors, or whatever is required to prepare for the next maple sugar season.
I own a maple farm with my brother. We’ve owned it for four or five years. It takes a lot of my free time, but it allows me to work in a completely different environment and come back ready to face the challenges when the market opens again on Monday.