Ninepoint Fixed Income Strategy

September 2020 Commentary

Monthly commentary discusses recent developments across both the Diversified Bond and Credit Income Opportunities Funds.


After months of relentless rallying, we finally saw some volatility in equities and credit. Prices have fluctuated wildly, mostly on US fiscal stimulus headlines. We remain of the opinion that additional fiscal stimulus ahead of the Presidential election is somewhat unlikely, as the gap between what Democrats and Republicans want is still too wide. What happens in the lame duck session remains to be seen, but depending on the result of the election, we might have to wait for January 2021 for a new fiscal package to be approved. Already, some of the economic data from August such as retail sales are showing signs of weakness (late July is when the last enhanced unemployment benefits were disbursed). With the Covid pandemic entering its second wave and social distancing measures remaining in effect, the lapse of fiscal support might expose the true damage of the recession.

Another important development is the increased odds of a Democratic sweep in November (i.e. Democrats winning the White House and control of both houses). As of the time of writing, Trump is lagging in the polls (Figure 1) in most swing states and several Republican senate races are also very close. From the market’s perspective, the best-case scenario would be one where Biden wins the White House, but the senate remains Republican. This would bring back some sort of normalcy to the Oval Office, but prevent Democrats from enacting their full agenda, particularly on the fiscal side (i.e. more spending, coupled with higher taxes on corporations and the wealthy). One way or another, if Joe Biden wins the presidency, the deregulation that took place during the Trump presidency will be mostly reversed. In the event of a sweep, higher taxes and re-regulation is a clear negative for US companies, but for now market participants do not seem overly concerned with the policy implications of the election, focusing instead on the immediate concern of whether Trump will vacate the White House peacefully.

The pandemic and civil unrest in the US has made 2020 a truly unusual year, and with about three weeks to election day, a lot can still change. With Trump lagging in the polls, we expect his behaviour to become increasingly erratic (e.g. the First Debate and his comments about white supremacists). Our biggest concern heading into November is how disruptive Trump and his supporters could be, even if the election result are a clear defeat.

Across the pond, Brexit is making the headlines again. By the end of 2020, unless there is a trade agreement, the UK and the rest of the EU will revert to WTO trading rules. Negotiations have lagged, bogged down by two issues: fishing rights and state aid to companies. We know from experience that Boris Johnson likes playing games of chicken with the EU, but that he has typically been the one that flinches. With the pandemic already hitting the UK and EU economies, it seems like the logical thing to do would be to find a compromise on those issues and move on. Unfortunately, Johnson seems intent on playing yet another game of chicken into the end of the year.


While US equities sold off by about 10% in September, the reaction of credit markets was initially more muted. To be fair, credit didn’t witness the same extravagance as stocks in the previous month (Figure 2). Investment grade spreads have widened modestly, but mostly in the second half of the month, as equities bottomed. We continue to see new issues being extremely oversubscribed and secondary markets conditions are characterized by better buying. In other words, investors are flush with cash and so far, the buy the dip mentality is alive and well. Although we did take profits on some of our investment grade positions there has been no change in stance at our end.  We continue to add to our liquidity, keeping some powder dry to deploy at more attractive spreads. Until then, we continue to buy short dated corporate bonds, commercial paper and called securities.

Diversified Bond Fund (DBF)

September was a more modest month for the DBF, returning 34bps; while credit spreads widened modestly, our various hedges provided us a positive return. We did not make any material changes to the portfolio in September, but astute readers will notice our government bond and high yield weights going up slightly. This increase doesn’t reflect a big change in positioning bias, its more of a cash management strategy. We have been buying short-term called high yield bonds as a cash replacement strategy (often with yields around 3%) along with 2-year government bonds for increased liquidity.

Credit Income Opportunities Fund (Credit Opps)

With credit spreads widening in September, we are happy with the Credit Opps staying flat (+1 bps to be exact). Since August, we have been steadily reducing risk in the portfolio, harvesting profits, selling down credit and taking a more cautious stance. As of month-end, leverage is now 1.15x (from 1.33x in August and 1.67x in June).


Our defensive stance going into September paid off, and we remain well positioned to weather more volatility, should it arise. Unfortunately, credit has not got cheap enough to entice us to start putting more money to work. Until then, we will continue to look for idiosyncratic opportunities and wait for the volatility.

Until next month,

Mark & Etienne
Ninepoint Partners

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 September 30, 2020 1 All Ninepoint Credit Income Opportunities Fund returns and fund details are a) based on Class F units; b) net of fees; c) annualized if period is greater than one year; d) as at September 30, 2020. 

The Risks associated worth investing in a Fund depend on the securities and assets in which the Funds invests, based upon the Fund's particular objectives. There is no assurance that any Fund will achieve its investment objective, and its net asset value, yield and investment return will fluctuate from time to time with market conditions. There is no guarantee that the full amount of your original investment in a Fund will be returned to you. The Funds are not insured by the Canada Deposit Insurance Corporation or any other government deposit insurer. Please read a Fund's prospectus or offering memorandum before investing.

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 September 30, 2020 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.

The opinions, estimates and projections (“information”) contained within this report are solely those of Ninepoint Partners LP and are subject to change without notice. Ninepoint Partners makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, Ninepoint Partners assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. Ninepoint Partners is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Ninepoint Partners LP. Any reference to a particular company is for illustrative purposes only and should not to be considered as investment advice or a recommendation to buy or sell nor should it be considered as an indication of how the portfolio of any investment fund managed by Ninepoint Partners LP is or will be invested. Ninepoint Partners LP and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. Ninepoint Partners LP and/or its affiliates may hold short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, Ninepoint Partners LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.

Ninepoint Partners LP: Toll Free: 1.866.299.9906. DEALER SERVICES: CIBC Mellon GSSC Record Keeping Services: Toll Free: 1.877.358.0540

Historical Commentary