a subsidiary of Purpose Investment Inc.

Redwood Unconstrained Bond Fund: What Have You Done For Me Lately?

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Since inception, the Redwood Unconstrained Bond Fund has provided solid returns and been an important hedge to the potential for rising rates.

We wanted to address short-term performance and continue to communicate to investors why we feel so strongly, that this fund should be part of your fixed income portfolios.  We are happy to address any questions you or your clients may have.

Performance

Since Inception:  +6.48% (A Class, May 2013)
YTD 2014: –0.72%
May 2013-August 2013 – Fund +3.05%; Dex Universe Bond –3.85%

Why Own This Fund?

  • The fund’s mandate has an excellent long-term track record, returning an annualized 11.77% since its inception in August 1998.*
  • The Fund provides an important hedge to fixed income portfolios, having a track record of generating stellar returns in periods of rising rates.**
  • Since Inception the Fund has been among the top performers in Canadian fixed income.***

Why is the fund negative Year-To-Date?

  • A unique trait of the Redwood Unconstrained Bond Fund, is the manager’s ability to manage the duration to a negative level.  The fund has ranged from +3.2 to -3 years duration this year.
  • For much of the year, the fund has been positioned with a negative duration, in anticipation of higher rates.
  • Since January, yields have tightened, from 3.05% to 2.53% today.  That’s over 50bps of tightening on the 10 year
  • Treasury yields continue to trend lower despite economic expansion (average Q1 PMI 52.3,) solid jobs growth (average 190k/month) and the Fed continuing to taper bond purchases.
  • Returns, given the fund’s defensive positioning, with short-term high quality corporates and significant cash and liquidity, were unable to make up for the loss generated by the tightening of longer term treasuries.

Why continue to hold the fund?

  • Reams’ believes that we could see a summer like we did last year, where yields move higher, quickly, in the face of economic data and Fed talk.
  • The fund has low correlation to all traditional fixed income products, including broad bond indices, providing very important diversification over yield-seeking strategies.
  • Fixed income markets are volatile, Reams are uniquely positioned to take advantage of opportunities that present themselves.

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