Fourth Quarter 2023 Commentary | Tactical Sovereign Bond Fund

Market Commentary

For the fourth quarter (“Q4”) 2023, the Tactical Sovereign Bond Fund (“Fund”) gained +1.4%¹ vs a gain of +6.3% for the S&P Canadian Sovereign Bond Total Return Index (“benchmark”). Over 2023, the Fund gained 5.3% vs 4.8% for the benchmark.

Effective Duration2 of the Fund at the end of Q4 was 0.1 years.

The fourth quarter of 2024 started with a continuation of the theme from the third quarter (“Q3”). Large, anticipated supply of Treasuries from new Government issuance coupled with above-trend growth and sticky core inflation kept long Treasury bond yields elevated, with the 10-year yield rising above 5.00% on an intraday basis in October.

By November, the markets started to price in aggressive interest rate cuts by the Federal Reserve (“the Fed”) in 2024, pushing U.S. bond yields down and prices up. However, as recently as December 1, 2023, Federal Reserve Chair Powell pushed back on market expectations for aggressive interest rate cuts ahead, stating, “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease.”

Against the backdrop of a stronger-than-expected November employment report, with major stock indices near all-time highs, the Fed, on December 13, surprisingly predicted three, 25 basis points cuts in 2024 – this sent stock and bond prices soaring.

This change in stance is highly stimulative and runs counter to the Federal Reserve’s mission to bring down inflation to its target of 2%. Globally, even though their respective economies have been underperforming the U.S., other central banks, including the European Central Bank, Bank of England and the Bank of Canada, have made no mention of anticipated rate cuts in their communications.

Lacking any fundamental support, the fall in long-term yields may prove to be short-lived given the strong Q3 U.S. Gross Domestic Product (“GDP”) figures, sticky core inflation and near all-time highs in major stock indices.

While protecting capital remains a key tenet of the Fund’s strategy, the Fund benefits from its ability to opportunistically take advantage of changing market dynamics in bond and currency markets.

1Series F, total return CAD terms
2Duration is a measure of the sensitivity of the price of a bond to a change in interest rates. A fixed income security (or fund) with a higher (longer) duration would indicate a higher sensitivity to interest rates and thus, higher interest rate risk.

Company 1 Year 3 Year Since Reorganization3
(August 27, 2018)
5 Year Since Inception
(July 25, 2016)
Caldwell Tactical Sovereign Bond Fund Series F 5.1% -0.2% 0.8% 1.1% 0.2%
S&P Canadian Sovereign Bond Total Return Index 4.8% -2.3% 0.9% 0.6% 0.3%

3The Fund, following a security holder vote, changed its fundamental investment objective August 27, 2018 and also reclassified former Series I units to the current Series F. For more information refer to the Simplified Prospectus of the Fund.

The information contained herein provides general information about the Fund at a point in time. Investors are strongly encouraged to consult with a financial advisor and review the Simplified Prospectus and Fund Facts documents carefully prior to making investment decisions about the Fund. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Rates of returns, unless otherwise indicated, are the historical annual compounded returns including changes in unit value and reinvestment of all distributions and do 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.

Publication date: January 22, 2024.

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