More on Bonds

09/22/2006 12:00 am EST

Focus:

Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

Relying on his years of expertise and keen analysis of investments north of the border, Canadian investment pro Gordon Pape zeroes in on a long-term bond fund that sports excellent credit quality, handsome distributions, and great long-term performance.

 

"Altamira Bond Fund (CA:AIS502) focuses on fixed-income securities with maturity dates of more than five years. Its history is one of strong outperformance in a falling interest rate environment and underperformance when rates are on the upswing. So it's no surprise that the one-year gain of 0.51% to July 31 was below average for the Canadian Bond category. What is more interesting is that in the past 30 days the fund has gained 2.4%, which is a big move for a bond fund.

 

"Over the long term, this fund has compiled an impressive record. The ten-year average annual compound rate of return of just over 8% is more than two percentage points better than the category average and more than half a point above the Scotia Capital Universe Bond Total Return Index-this despite the fund's 1.58% management expense ratio.

 

"Numbers like that reflect very skillful management and during the years when Altamira was an independent company, Robert Marcus was the man who guided it through a series of strong years. Now Altamira is owned by National Bank and most of its funds are run by folks from Natcan Investment Management, a subsidiary. Eric Girard and Marc-Andre Lewis are now in charge but they have only been at the helm since the start of this year. They may turn out to be a great team but so far they're untested in this role. That's my main concern about the fund at this time.

 

"The mandate is on target and the fund is heavily weighted to the very long end of the bond market with all of the top ten holdings having maturity dates of 2023 or later. Credit quality is excellent. All the bonds in the top ten are federal or provincial issues except two. The exceptions are US Treasury bonds maturing in 2023 and Asian Development Bank bonds maturing in 2027. 76% of the bonds are government issues with 21% from corporate issuers. The fund pays quarterly distributions of about 16c a unit. The trailing 12-month cash yield to June 30 was 3.39%.

 

"If the bond market develops as I expect, this fund will produce some very handsome returns over the next year. It's a no-load entry. I am adding Altamira Bond to the IWB Recommended List with the caution that it is best suited to more aggressive bond investors. The NAV as of Sept. 19 was $18.67."

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