December 31, 2025
Commentary
The monthly commentary discusses recent developments across the Ninepoint Diversified Bond, Ninepoint Alternative Credit Opportunities and Ninepoint Credit Income Opportunities Funds.
Despite all the rhetoric coming out of Washington, 2025 turned out to be a great year for risky assets. Global equities finished the year close to all-time highs, and corporate credit spreads rallied across the developed world. However, things were hardly clear as we progressed through the year, particularly in the first half, with volatility picking up and equities drawing down as much as 8% in a single day in April. We were very well prepared for “Liberation Day”, but, in hindsight, resisted taking advantage of the drawdown to add credit risk. At that time, we thought that the President was just getting started on his aggressive trade policies.
In our view, fixed income’s role in portfolios is to offer stability and reasonable returns, hitting singles and doubles, not swinging for the fences. This is particularly salient as we navigated a period like April 2025. Figure 1 above shows the total return of our funds throughout the year, along with the iShares Canadian Bond Index ETF for comparison. The difference in return, volatility and drawdowns is striking. How can index (and closet-index) products can still attract so much capital - delivering low returns with higher volatility? There are so many levers that active bond managers can pull to manage risk and improve outcomes through the cycle. In many ways, index products are poorly suited for this new economic environment.
This becomes obvious when looking at Table 1 below, which shows the full-year changes in benchmark interest rates and credit indices. Despite the Bank of Canada and Fed both cutting rates (actually, the BoC cut by more than the Fed), bond yields in Canada went up across the curve in a steepening fashion (we call this a bear-steepener), while rates in the U.S. bull-steepened. This resulted in a mediocre year for Canadian bond indices and a great year for the U.S. indices. Positioning along the yield curve and across fixed income markets, is of paramount importance, and 2025 was no exception.
Similarly, in credit markets, the Canadian Investment Grade (IG) market was on fire; despite record issuance, spreads tightened by 15 basis points to their tightest level since 2006, whereas the U.S. market was more discerning, rallying only 3 basis points on the year, with much wider dispersion across sectors. Finally, the Canadian dollar, after weakening materially since late 2024 and early 2025, rallied and closed the year up 4.59% versus the U.S. greenback, highlighting the importance of hedging USD positions.
How did these market moves affect our portfolios, given our defensive positioning? We’ll answer that in Table 2 below, where we decompose (thanks to our portfolio management system, Blackrock’s Aladdin) our three funds’ total after fee return (F-class) into 5 components:
1. Carry: The income generated by our positions, inclusive of roll down.
2. Interest Rates: The mark-to-market of our positions that is the result of changes in interest rates.
3. Credit Spreads: The mark-to-market of our positions that is the result of changes in credit spreads.
4. FX: the net impact of foreign exchange changes, inclusive of hedges and the cost of hedges.
5. Other: all fees and expenses, borrowing costs, trading expenses, gains and losses on securities other than fixed income. This is a catch all category that includes positives and negatives, and will not match the funds’ MER or TER.
The results are not overly surprising. As we always say, yield (or carry) is the first line of defence in fixed income portfolio management.
The Ninepoint Diversified Bond Fund returned 425 basis points net, mostly driven by the interest carry of the securities we have selected. We had also anticipated and positioned for declines in U.S. rates, which added to performance (the interest rates component added 71 basis points). Credit spreads rallied, and more so in the securities we owned than in the market in general, resulting in a 92 basis points tailwind. FX was a net detractor, despite hedges, of 33 basis points, while the “other expenses” bucket detracted 139 basis points. As mentioned above, this includes fees and fund expenses, but also any other gain or loss that cannot be attributed to the fixed income factors mentioned already.
The Ninepoint Alternative Credit Opportunities Fund returned 434 basis points net, again mostly driven by the carry of the securities we have selected. This strategy, by design, doesn’t take large positions in rates and therefore saw little cost or benefit from interest rates in 2025. But, this fund has more credit exposure and benefited as credit compression was a 204 basis points tailwind. FX was a net detractor, despite hedges, of 40 basis points (more US exposure in this fund), while the “other expenses” bucket detracted 211 basis points. As mentioned above, this includes fees and fund expenses, including security borrowing costs, which can be meaningful due to the leverage in the fund. It also includes any other gain or loss that cannot be attributed to the fixed income factors mentioned already, but there are a few in this fund.
The Ninepoint Credit Income Opportunities Fund returned 465 basis points net, mostly driven by the carry of the portfolio. This strategy, by design, doesn’t take large positions in rates and therefore saw little cost or benefit from interest rates in 2025. But, this fund has more credit exposure and benefited as credit compression was a 167 basis points tailwind. FX was a net detractor, despite hedges, of 41 basis points, while the “other expenses” bucket detracted 144 basis points. This is meaningfully less than for the Alternative Credit Opportunities Fund, mainly due to mark-to-market gains on certain convertible securities that aren’t allocated to any fixed income category.
Conclusion
As we start 2026 with solid income potential across the portfolios (5.2-6.6% yield-to-maturities), and very defensive positioning in both rates (<2.5yrs duration) and credit risk (2 to 3.1 years credit duration), we believe in our ability to generate higher income without significant volatility. Unlike last year, we’ve eliminated our shorts on High Yield as a credit hedge, but have migrated to low-cost derivative credit hedges. This should help performance while maintaining ballast, should things get volatile.
We pride ourselves on the low realized volatility of our mandates and strive to offer the appropriate balance of risk and return that delivers stability to our clients, even if that sometimes means leaving something on the table. When market events happen, our clients know they can count on our funds to help maintain their principal and potentially act as an anchor in their portfolios.
Mark, Etienne & Nick
As always, please feel free to reach out to your product specialist if you have any questions.
Ninepoint Diversified Bond Fund
NINEPOINT DIVERSIFIED BOND FUND - COMPOUNDED RETURNS¹ AS OF DECEMBER 31, 2025 (SERIES F NPP118) | INCEPTION DATE: AUGUST 5, 2010
1M |
YTD |
3M |
6M |
1YR |
3YR |
5YR |
10YR |
15YR |
Inception |
|
|---|---|---|---|---|---|---|---|---|---|---|
Fund |
-0.14% |
4.25% |
0.65% |
2.12% |
4.25% |
6.03% |
1.46% |
2.97% |
3.45% |
3.57% |
Ninepoint Alternative Credit Opportunities Fund
NINEPOINT ALTERNATIVE CREDIT OPPORTUNITIES FUND - COMPOUNDED RETURNS¹ AS OF DECEMBER 31, 2025 (SERIES F NPP931) | INCEPTION DATE: APRIL 30, 2021
1M |
YTD |
3M |
6M |
1YR |
3YR |
Inception |
|
|---|---|---|---|---|---|---|---|
Fund |
-0.07% |
4.34% |
0.54% |
2.61% |
4.34% |
7.45% |
2.87% |
Ninepoint Credit Income Opportunities Fund
NINEPOINT CREDIT INCOME OPPORTUNITIES FUND - COMPOUNDED RETURNS¹ AS OF DECEMBER 31, 2025 (SERIES F NPP507) | INCEPTION DATE: JULY 1, 2015
1M |
YTD |
3M |
6M |
1YR |
3YR |
5YR |
10YR |
Inception |
|
|---|---|---|---|---|---|---|---|---|---|
Fund |
0.17% |
4.65% |
0.65% |
2.84% |
4.65% |
7.42% |
4.05% |
5.31% |
4.96% |
