The Manager's Commentary - April 2010

“…ask not what your country can do for you – ask what you can do for your country.”
John F Kennedy

This may be a grandiose quote to open the monthly commentary of a corporate bond fund. However, in our opinion, it accurately sums up where the mindset of many western countries citizens will be headed over the next several years. As western governments grasp the realities of slower growth and increased debt loads, brought about by the mother of all recessions, they will be forced to cut expenditures and increase taxes. People will indeed be wondering what my country is doing for me.

With the recent market volatility brought about by the prospect of a Greek sovereign default, spreads of both high yield and investment grade corporate bonds have begun to widen. High yield, which tightened through the month of April to approximately 550 basis points over Treasuries, has recently widened to a 650 basis point premium. Investment grade, which had been slowly tightening from approximately 200 basis points at the beginning of February to 150 basis points in April, has moved very quickly back to February levels.

We feel that the risk trade has gone a tad too far and, as a result, we have reduced a couple of positions that have performed very well for us but would require further cash flow growth to justify their valuations.

Currently a little more than 25% of the fund is in cash and cash equivalents. This gives us the flexibility to move on opportunities as they may present themselves and, with the recent turn of events, seed the fund with attractive bond investments.

Matt Shandro
April 30th, 2010