The Manager's Commentary - November 2010

The month of November saw both the US Investment Grade (IG) and High Yield (HY) corporate bond markets finish in the red; -0.86% and -1.12% respectively. The Pender Corporate Bond Fund outperformed these and its Canadian benchmarks by a margin of over one percent by staying very short duration.

While the posted duration of the fund is approximately three years, the actual duration of the fund can be shorter. Case in point, the sixth largest position in the fund at the end of November, at 3.24%, was Sun Healthcare’s 9.125% bonds due April 2015. This bond had a stated duration of 3.7 years at the end of November. Given the weighting in the fund and its duration, the Sun Healthcare bond would have contributed 0.12 years to the funds overall duration. However, this bond was called by the company on Dec. 6th, meaning that the actual duration of the bond was in fact 0.02 years for a real contribution to the funds duration of a de minimis 0.00006 years. More importantly, the Sun Healthcare investment generated a 15% internal rate of return.

We don’t want to give investors the impression that every bond in the fund is going to be tendered or called before maturity. However, as we’ve stated in the past, we are in constant pursuit of investments like Sun Healthcare, which possess a catalyst towards the return of capital and an adequate return.

Matthew Shandro
November 30, 2010