Morningstar Magazine - June/July 2018 - 38
Dispatches
a single security. The normal limit for mutual
funds is 10%.
The nearly no-holds-barred nature of this fund
has been approved by regulators with the
expectation that Mackenzie's investment objective
is one of prudent diversification and risk
management. The fund's managers aim to
generate positive total returns over a market cycle,
regardless of market conditions.
The investment case for funds such as Mackenzie's
new offering, and hedge funds of a similar nature
that are generally available only to accredited
investors and institutional accounts, is that they
have relatively low correlations with the
equity and fixed-income markets, thus providing
additional portfolio diversification. How the
returns will play out for investors in Mackenzie
Multi-Strategy Absolute Return remains to be
seen, of course. But the combination of investment
strategies-credit absolute return, global macro,
long-short equity, and equity market-neutral-
suggests that the managers will hedge their bets
to a considerable degree.
The regulators did set some limits: They have
imposed restrictions on distribution channels. The
fund will be available only to dealers that are
regulated by the Investment Industry Regulatory
Organization of Canada. The regulators declined
to allow Mackenzie to distribute the fund
through Mutual Fund Dealers Association dealers,
presumably because the MFDA's proficiency
and educational requirements are regarded as
less stringent.
Though there are long-term strategic allocations
to each strategy, the Mackenzie asset-allocation
team will make tactical shifts over the short
to medium term, based on its market outlook and
risk assessment. The team is headed by Alain
Bergeron, who will serve as lead manager of the
new fund. The team will also be responsible
for the portion of the fund allocated to global
macro strategies. Mackenzie's systematicstrategies team, headed by Richard Weed, will be
responsible for the fund's 130/30 long-short equity
and market-neutral strategies. Mackenzie's
fixed-income team, headed by Steven Locke, will be
responsible for the fund's credit-related strategies.
38
Morningstar June/July 2018
Unlike many hedge funds that are sold via offering
memorandum to large accounts, the Mackenzie
fund will not charge a performance fee. The fund's
management fee is 2.25% for Series A, which
pays dealers a trailer commission of 1% a year and
allows them to charge a front-end load. An
administration fee of 0.28% annually covers most
expenses. There is no deferred-sales-charge
option, a compensation model generally frowned
upon by regulators. Other options include
Series F, for fee-based accounts in which investors
pay their advisors directly. This series charges a
management fee of 1.15%, and the administration
fee is 0.15%.
Rudy Luukko, is editor, investment and personal finance,
with Morningstar Canada.
Morningstar Manager
Checkup
GREATER EUROPE
United Kingdom
Morningstar's analysts recently re-evaluated three
strong fixed-income funds, and reaffirmed their
Morningstar Medalist status: BGF Fixed Income
Global Opportunities, AXA Global High Yield Bonds,
and Royal London UK Government Bond are
very different strategies, but each has merit for
appropriate investors.
years. The managers implement macro themes and
determine broad asset allocations while relying
mostly on the firm's sector teams for individual
security selection.
In a category of risk-takers, this fund's disciplined
and risk-focused process stands out. Combined
with an experienced and deep team, the fund
retains its Morningstar Analyst Rating of Silver.
Comanagers Carl "Pepper" Whitbeck and James
Gledhill have managed AXA Global High Yield
Bonds since July 2012. Both managers boast more
than a decade's experience in high-yield
investing and have credit research backgrounds,
which we deem valuable. Gledhill manages
the fund's European high-yield exposure, while
Whitbeck leads on the U.S. high-yield portion.
They employ a differentiated approach compared
to peers. The fund uses largely a buy-andhold approach that aims to add value by cashing
in coupons rather than betting on a potential
rise in bond prices. Thus, the managers are willing
to invest a significant portion of the portfolio
in lower-rated securities such as CCC bonds,
holding them until maturity. That said, more than
half of the portfolio's CCC stake is typically
invested in maturities below three years, which
helps alleviate risk.
Overall, we are confident in the team's ability to
effectively execute the process and add
value over a full market cycle. We maintain the
fund's Bronze rating.
BGF Fixed Income Global Opportunities has been
run by a four-person management team
led by Rick Rieder. The team has used the fund's
flexibility to its advantage across a variety of
market environments, including both weak
and strong credit markets as well as periods of
rising and falling interest rates.
Gilt market veterans Paul Rayner and Craig Inches,
who have worked together at Royal London
for nearly a decade, run Royal London UK
Government Bond Fund. Inches has been the lead
manager since he joined the team in 2009 from
Scottish Widows Investment Partnership.
The fund's investable universe is wide. It spreads
risk across sectors, regions, and issuers,
and takes many small bets rather than a few large
ones. The managers play it safe, especially
when it comes to duration. The fund's duration
can officially range between minus two
and plus seven years, but they've generally kept
it within a tighter range of zero to three
The investment process here combines macroeconomic research with detailed analysis
of the main drivers of developed government bond
markets, including the shape of the yield
curve, market sentiment, and technical analysis.
Both bond selection and allocation decisions
across the U.K. and major developed markets'
government and inflation-linked bond markets are
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