PIM: Diversified Income Portfolio

Paul Borisoff - Mar 05, 2018

PIM: Diversified Income Portfolio – March 2nd, 2018


The Diversified Income Portfolio* was down 1.7% in February – leaving the portfolio down 1.8% in 2018.   In comparison our benchmark was down 1.3% in February – and is now down 2.8% year-to-date.  Over the most recent 12-month rolling period the portfolio is up 4.3% compared to our benchmark which is up 0.6%.


* These returns are reported as a composite, time-weighted, rate-of-return (gross of fees, net of transaction charges) for all accounts in this mandate.  Long-Term Returns/Benchmark Numbers will be reported in our Quarterly Updates.


The first two months of 2018 have been difficult for most “income” investors. While the Canadian bond market (FTSE/TMX Canada Universe Bond Index) was up 0.2% in February – it is still down 0.7% in 2018.  The S&P/TSX Composite High Dividend Index (40% of our benchmark) was down 3.4% in February though – leaving it down 6.0% in 2018.  Over the last twelve months the FTSE/TMX Canada Universe Bond Index is up 1.0% while the S&P/TSX Composite High Dividend Index is down 0.2%.    


While the bond market appears to have stabilized for the time-being, many “high-yield” Canadian equity names (including many that we own in the portfolio) have been selling-off in recent weeks to levels that are starting to look extremely oversold to us (many now close to 52-week or multi-year lows).  While yields could continue to climb a little over the next year (putting negative pressure on bond prices) we are not expecting them to move up significantly higher over the next few months due to mounting concerns related to trade issues, high debt levels – and a host of other concerns.  We would not be surprised if the Canadian bond market delivers returns over the next year or so – similar to the last twelve months.  However, many high-yielding companies such as Enbridge which closed the month at $40.82 (6.6% yield), and American Hotel Income Properties REIT at $8.77 (9.4% yield) which are also growing now offer return expectations of 30%+ over the next twelve-months based on current analyst price targets (Bloomberg) – and our own expectations – providing a very attractive risk/return opportunity over the next year based on current valuations. 


Note, our convertible debenture positions and third-party specialty manager positions have been very stable in aggregate in early 2018 (i.e. our largest position – the Picton Mahoney Income Opportunity Fund–is up over 1.5% in 2018).


Recent Portfolio Changes:

In addition to Enbridge which we last added to at $43.69 in early February, we bought a new 0.8% position in Timbercreek Financial (TF-TSX) at $9.30 (7.4% yield) via a financing transaction announced in late January.  Timbercreek is a leading Canadian non-bank commercial real-estate lender offering “short-duration” and customized financing solutions.   These shares closed the month at $9.25 – holding in much better than the Canadian “High Dividend” universe (our first $0.0575 dividend payment is expected on March 15th).  Timbercreek’s market capitalization is now over $700 million – and the current consensus 12-month price target is $9.88 (Bloomberg).



At month-end the portfolio’s cash position was sitting at ~5.3% and our convertible debenture exposure was approximately 33.9%.  Total Cash and Fixed Income exposure including our four 3rd party specialty fixed income manager positions was ~65.8% at month-end.   Note, taking into consideration the pending cash takeover of our Pure Industrial REIT position our Total Cash and Fixed Income exposure is now ~69.0%.

We continue to strongly believe that the portfolio’s composition and flexibility offers a substantially improved risk/reward trade-off compared to an “income portfolio” relying only on government bonds and pure stock market exposure to drive returns and income. 


Please do not hesitate to contact me if you have any questions or concerns.




Paul J. Borisoff

Senior Vice President

Portfolio Manager, Senior Investment Advisor