Ninepoint Fixed Income Strategy

August 2021 Commentary

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


As usual, August was a very typical end of summer month. New issue activity came to a halt, volumes were low and the news flow slowed down meaningfully. Credit spreads continue to be stable; equities made all time highs while rates (10y) stabilized, albeit at very low levels. However, since June/July, economic data has kept on surprising to the downside (Figure 1 below shows the G10 Economic Surprise Index); Canada had negative GDP growth in Q2, payrolls in the US disappointed in August, PMIs in China have rolled over and are in contraction territory, just to name a few. Given the enormity of money that has been thrown at the world economy by governments and central banks, this backdrop is rather disappointing to those that were hoping for a quick snap back to “normal” from this pandemic.

With the fiscal impulse winding down at the same time as the Delta variant is aggressively hitting developed economies, we are starting to get a better sense of what the new “normal” might look like. And in the medium term, it appears that the virus is here to stay. As long as large pockets of the world remain unvaccinated, it is highly likely that new variants of the virus will continue to surface, generating new waves and temporarily disrupting activity, particularly in areas with low levels of vaccination. This means that the current health measures, social distancing, self isolation, work from home and limits on capacity will likely be with us for quite a while longer, with important implications for the supply side of the economy.

This health crisis, from an economics perspective, is essentially a large negative supply shock; businesses, schools, non-profits, and governments all had to make meaningful adjustments to how they produce and deliver their goods and services to consumers. And those adjustments cost both time (labour) and capital, hence, all else equal, reducing overall supply to the economy. With demand still strong, businesses are now scrambling to re-hire and increase supply. Since demand never meaningfully waned during the recession, thanks to generous handouts from governments, we are now in a situation where demand far outstrips supply, creating price pressures.

In both the US and Canada, exceptionally generous unemployment benefits are set to expire in early September and October, respectively. Only then will we get a glimpse of what true labour supply might look like in the new normal. The most recent Fed Beige Book puts it in concisely:

".... all Districts noted extensive labor shortages that were constraining employment and, in many cases, impeding business activity."

If the pandemic is to remain part of our lives for the foreseeable future, with all the extra costs and lower productivity that this entails for the supply side of the economy, then the current Central Banks’ “transitory inflation” narrative could have to be revisited, with hawkish implications for monetary policy.

This is the most important policy question for us at this juncture: will the supply side of the economy respond dynamically to the changing and increasing demand, despite the headwinds from the continuing pandemic (longer economic cycle), or will inflation prove to be more persistent in face of continued labour shortages and rising wages, forcing Central Banks to tighten monetary policy much earlier and more aggressively than they would otherwise (short economic cycle). We look forward with anticipation to the incremental data this Fall, which should help provide some clarity as to which scenario is most likely to play out.

Diversified Bond Fund (DBF)

Following a strong month in July, performance moderated in August, with the fund returning 12bps. After making new yearly lows at the beginning of the month, interest rates rose modestly, a small headwind to performance. Credit spreads also drifted slightly wider during the month, but generically finished flat. There were no material changes to the portfolio.

Alternative Credit Opportunities Fund (NACO)

It was another good month for NACO, performing in line with the longer running Credit Opps. The preferred shares weighting continued to decline as they get called, we continue to replace those with LRCNs and Hybrids. We modestly increased our allocation to securities deemed illiquid, increasing a position in a Canadian private label residential mortgage-backed security. Otherwise, there were no meaningful changes to the portfolio.

Credit Income Opportunities Fund (Credit Opps)

The Credit Opps fund did relatively well in August, returning 38bps. Similar to the other funds, preferred shares continue to get called and we expect to replace them with HY bonds. Portfolio characteristics have been mostly stable, and we expect it will remain this way for the foreseeable future.


September is usually a very busy month for new issues, so we have raised a bit of cash, making sure we have some dry powder in store.

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 August 31, 2021 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 August 31, 2021. 

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 August 31, 2021 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