Monthly commentary discusses recent developments across both the Diversified Bond and Credit Income Opportunities Funds.
Macro & Credit
November saw a continuation of the trade related volatility, with several headlines and official comments sending very different signals. While the macroeconomic data has failed to find a direction one way or another (Figure 1), sentiment has turned very bullish in equities and credit on the expectation that a trade deal with China is all but certain (investor surveys point to about 75% odds of a deal).
Credit spreads are back at cycle lows and U.S. equity price-to-earnings multiples are flirting with their pre-tax reform highs. However, below the surface, earnings growth expectations for 2020 are weak (0% to be precise) and several lower quality credits are trading at distressed levels. Indeed, the excess spread required by investors in the riskiest category of high yield bonds (Rated CCC or lower) is back to levels not seen since 2016 (Figure 2).
Therefore, with the tariff deadline of December 15th approaching fast, inconclusive macro data and valuations high everywhere bar the riskiest corner of the credit markets, we maintain our overall cautious stance and prefer to wait for more information.
Diversified Bond Fund (DBF)
The fund returned 11bps in the month, driven by strong credit performance and our U.S. treasury positions. Detracting from performance was our European sovereign bonds (France and Germany), where yields were modestly higher on the back of better than feared data. There were no major changes in the portfolio in November.
Credit Income Opportunities Fund (Credit Opps)
The Credit Opps was up 26bps in November, driven by continued strength in credit and a modest contribution from duration (U.S. 10-year treasuries). There were no major changes in the fund in November, we are comfortable with the current fund positioning and prefer to wait for better opportunities to emerge before making meaningful portfolio construction changes.
We’d like to take this opportunity to thank our investors for their continued support and wish you and your family Happy Holidays and a prosperous 2020.
Until next year,
The Bond Team: Mark, Etienne and Chris
1 All Ninepoint Diversified Bond Fund returns and fund details are a) based on Series F units; b) net of fees; c) annualized if period is greater than one year; d) as at November 30, 2019 1 All Ninepoint Credit Income Opportunities Fund returns and fund details are a) based on Class A units (closed to subscriptions); b) net of fees; c) annualized if period is greater than one year; d) as at November 30, 2019.
The Ninepoint Diversified Bond Fund is generally exposed to the following risks. See the prospectus of the Fund for a description of these risks: Capital depletion risk (Series T, Series FT, Series PT, Series PFT, Series QT, and Series QFT shares only); Capital gains risk; Class risk; Concentration risk; Credit risk; Currency risk; Cybersecurity risk; Derivatives risk; Exchange traded funds risk; Foreign investment risk; Inflation risk; Interest rate risk; Liquidity risk; Regulatory risk; Securities lending, repurchase and reverse repurchase transactions risk; Series risk; Short selling risk; Specific issuer risk; Tax risk; Tracking risk.
The Ninepoint Credit Income Opportunities Fund is generally exposed to the following risks. See the offering memorandum of the Fund for a description of these risks: General Economic and Market Conditions; Assessment of the Market; Not a Public Mutual Fund; Limited Operating History for the Fund; Class Risk; Charges to the Fund; Changes in Investment Objective, Strategies and Restrictions; Unitholders not Entitled to Participate in Management; Dependence of the Manager on Key Personnel; Reliance on the Manager; Resale Restrictions; Illiquidity; Possible Effect of Redemptions; Liability of Unitholders; Potential Indemnification Obligations; Lack of Independent Experts Representing Unitholders; No Involvement of Unaffiliated Selling Agent; Valuation of the Fund’s Investments; Concentration; Foreign Investment Risk; Illiquidity of Underlying Investments; Tax; Litigation; Fixed Income Securities; Equity Securities; Idle Cash; Currency Risk; Suspension of Trading.
Ninepoint Credit Income Opportunities Fund is offered on a private placement basis pursuant to an offering memorandum and are only available to investors who meet certain eligibility or minimum purchase amount requirements under applicable securities legislation. The offering memorandum contains important information about the Funds, including their investment objective and strategies, purchase options, applicable management fees, performance fees, other charges and expenses, and should be read carefully before investing in the Funds. Performance data represents past performance of the Fund and is not indicative of future performance. Data based on performance history of less than five years may not give prospective investors enough information to base investment decisions on. Please contact your own personal advisor on your particular circumstance. This communication does not constitute an offer to sell or solicitation to purchase securities of the Fund.
Ninepoint Partners LP is the investment manager to the Ninepoint Funds (collectively, the “Funds”). Commissions, trailing commissions, management fees, performance fees (if any), other charges and expenses all may be associated with mutual fund investments. Please read the prospectus carefully before investing. The indicated rate of return for series F units of the Fund for the period ended November 30, 2019 is based on the historical annual compounded total return including changes in unit value and reinvestment of all distributions and does not take into account sales, redemption, distribution or optional charges or income taxes payable by any unitholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The information contained herein does not constitute an offer or solicitation by anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should contact their financial advisor to determine whether securities of the Fund may be lawfully sold in their jurisdiction.
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