Sun Life Core Advantage Credit Private Pool
(ETF series trades as SLCA on the TSX)
From the portfolio manager – Inside the Fund
What differentiates Sun Life Core Advantage Credit Private Pool (SLCA)?
Randall Malcolm, CFA
Senior Managing Director, Portfolio Manager, Canadian Public Fixed Income, SLC Management
I think there's a couple of differences here. The first would probably be the history, and the second would be the efficiency of the way that we run it. When we think about the history of this fund, a lot of strategies in the fund were originally strategies that Sun Life had used for decades, our largest client, in order to manage their own money. So, it really comes from an investor background and not really just an investor, but a regulated investor. So all the investment processes around this fund are really very well refined, but the fund was really designed around the strategies that invest Sun Life’s own money, so there's a real appreciation for getting a maximum of return, from a minimum of risk. And what we look at, really here, from an efficiency perspective, is getting that risk reward trade off, and how we do that is really moving outside both the country and public fixed income. So, we're investing in public fixed income, we're looking beyond just Canada, which is a relatively small market. And in private fixed income, we're looking internationally as well. So both within Canada and internationally, for the best opportunities that we can find globally in both, which gives you a very efficient portfolio. A lot of other strategies will kind of move their risk around in order to earn excess returns. We don't have to take a lot of risk relative to our benchmark if we can take risk efficiently.
How has the fund acted in periods of market uncertainty and volatility?
In periods of volatility, you’re going to get, you’re going to get a pure fixed income return from this portfolio, which is fantastic, because usually in those periods, you know, fixed income outperforms. So you should get some strong performance from that, but you also can get your income, you can provide a fixed income. So it can really do what any fixed income portfolio can do. But when we think beyond that, when you have times of volatility, uncertainty, you really want to have your money invested safely. And at that point, really, what we have is, on the public side, we have a full credit team of 35 plus credit analysts that cover sectors globally. They’re not only putting together a list of security or issuers that we can invest in, but they’re also monitoring those issuers. On the private debt side, what we have is a really strong underwriting process. And that underwriting process is really resilient to changes in the economy. So, really, what we’re trying to offer here is a little bit of extra return as well. Which, when the rest of your portfolio really hurts, that little bit of extra active return that we should be able to get into this portfolio can also cushion you. Relative to an index investment, it’s a little bit of a bonus, when the rest of your portfolio is low, to have some active return, that kind of compensates you a little bit for the rest of your portfolio.
What’s your approach to managing “private fixed income?”
Well, I think there's three things there. I think our origination process, our allocation process, and our perspective are a little bit different than most of our competitors in the industry. When we're originating private debt, or originating private debt, as we've done for a long time. Sun Life is investing its own money in private debt. And so those processes have really been developed from an investor's perspective. When it comes to allocation of private debt, private debt can take two to three months, at least to underwrite and complete a deal. Sometimes longer. So when we originally underwrite the private debt, you don't really know where it's going to be eventually going. Most of our deals, through our allocation process, wind up being split between Sun Life and some of our private debt funds. At the same level, the debt is at the same level. It’s not at different levels, so it creates a very unique alignment. The third point, perspective, is really interesting. Because with perspective, we're a Canadian investor, just like many people in the funds would be. When we look at private debt, we look at it from the perspective of, first, does it make sense in its own market? If it makes sense in its own market, does it make sense when we hedge it back into Canadian dollars? Our perspective is Canadian dollars. What we tend to do is we tend to hedge both currency and rates, and what we really tend to trap is that credit component. That's our competitive advantage. You know, underwriting private debt, that's the component that's going to add value to the fund, but it adds value partly because we take away some of those risks that we don't feel we’re compensated for in terms of currency and rates. So that perspective is unique.
What makes the portfolio resilient during periods of economic stress?
In periods of economic stress, this can be a period of also great opportunities. COVID would be a great example of that recently, where we did see credit spreads move out really significantly. And really, what happens during these periods is we really lean into our people and our processes. When we think about public credit, we leaned in heavily on our public credit group to tell us what was happening in various sectors. What was happening within their sector? What were the names that were most effective? What names should we avoid? But not only what names to avoid, everyone's looking to avoid names in those situations. We're also looking for the opportunities that present themselves as well, because we want to also move our money into those opportunities. On the private debt side, we also lean into that group. Their underwriting process has been invested in over the years. We have decades of experience in underwriting private debt to make sure that we can ride through the resiliency. And when we look at the PM team, overall, the portfolio management team really has to work here, too. We've got a very experienced portfolio, management team, myself, Trevor Forbes, Melissa Boulrice. We have over 50 years of experience between us, and we really, we really look for those opportunities, and we're the ones that have the broad perspective, but we're also the ones that are looking to our public debt group, to find us those opportunities that we can get some excess returns, and avoid the pitfalls that come with those times.
How does managing Sun Life’s general account influence the Fund?
A lot of the strategies we're using to add value within the SLGI Credit Private Pool are the same strategies that Sun Life, our largest client, has used over the past decades, in order to manage its own money, to add value, and to promote its competitive advantage. These are strategies like private debt, investing outside of Canada, both public and private debt, and inflation hedging. These are all strategies that we use within the fund to varying degrees, and the strategies come from the history that we have with them. And when we think about that history, the history is not only in the investments and how we do them, but it's also the process around the investments. A lot of that investment process, that team, it's the same team that manages, manages Sun Life's money. And it's the same processes, and those processes really come from Sun Life's history, but not only engaging in this product, but of oversight, from our regulator as well. So there's many things within these, within these strategies, that we have done for decades, and we'll continue to do, because we have the processes and people to do them.
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