Dynamic Funds has expanded its lineup of liquid alternatives with the launch of the Dynamic Credit Absolute Return II Fund, which it has described as “a credit-driven solution that is managed using investment strategies beyond the reach of a traditional mutual fund.”
“[O]ur liquid alternatives are a natural evolution for us, as Dynamic has a long history of providing both traditional mutual funds and hedge funds to Canadian investors," said Neal Kerr, president and CEO, Dynamic Funds.
The new fund seeks to maximize absolute returns over a complete market cycle, as well as mitigate interest-rate risk while maintaining a weighted averaged investment grade credit rating of BBB- or better. Managing the fund is the head of Dynamic's Specialized Credit team, Marc-André Gaudreau; aside from having over 20 years of industry experience, he is also able to draw from his ongoing record in managing a similar investment strategy that was launched in January 2014.
The fund is said to rely on three risk-managed alternative strategies:
- Leveraged investment-grade corporate credit – the fund possesses the flexibility to use leverage to impact the returns of high-quality, liquid, short-term investment-grade corporate bonds. To minimize interest-rate sensitivity, the strategy requires shorting government bonds of equivalent maturity;
- Long/short credit opportunities – by investing in credit securities with attractive valuations as determined through a bottom-up selection process, the fund seeks to provide growth and income. The fund may also engage in short selling of securities with expensive valuations, deteriorating credit profiles, weak covenants, and poor structural protections; and
- Credit arbitrage – a market-neutral strategy that takes long and short positions of the same (or similar) corporate issuer in different markets. Periods of heightened volatility often give rise to valuation dislocations within corporate capital structures, which the strategy seeks to capitalize on.
The Dynamic Credit Absolute Return II Fund also pursues continuous risk management through a well-diversified, highly liquid portfolio; ensuring that gross leverage does not exceed 300% and that there is no foreign currency risk; evaluating risk exposures on both the individual-security and aggregate-portfolio basis; and the use of proprietary risk management tools.
“This low correlation, absolute return strategy will help meet clients' evolving needs, particularly in today's challenging environment of low interest rates and heightened market volatility,” Kerr said.
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