A Strategy for all Seasons
While it may not be as clear as leaves falling off trees in Fall, seasonality still exists in the bond market, and patterns can be observed from one quarter to another. While the core of our team’s investment process is analyzing economic fundamentals and market technicals, we nevertheless find seasonality in rate movements to be a complement to our investment process. Looking at historical data, it’s not overly difficult to spot relevant rate patterns across time, and these patterns can be useful in helping us determine ideal positioning.
For example, we are expecting rates to stay low and range bond for some time thanks to all the QE programs put in place by the Bank of Canada, but in terms of specifics (i.e. will they be higher by 7 bps than today or lower by 4?) that we don’t know for certain. That said, we know that over the past 25 years, rates have declined, on average, by 17 and 7 basis points in the third and fourth quarter, respectively. We thus factored-in this information and slightly lengthened our duration at the end of the summer in case history repeats itself.
Seasonality like this could be considered an affront to the Efficient Market Hypothesis, but the fact is that at the end of the year, some asset managers might make fast and significant changes to their portfolios, topping them off to make it seem like their portfolios are perfectly within their IPS guidelines. This might cause demand/supply imbalances, particularly in less liquid markets, and active managers can take advantage. To be clear, the aforementioned numbers aren’t huge and one shouldn’t bet the farm on them, but seasonality is nonetheless worth watching and integrating in our process.
Disclosures
This information is prepared by Fiera Capital Corporation (“Fiera Capital”) and is intended for use by residents of Canada only. The information and opinions expressed herein are provided for informational purposes only, are subject to change and should not be relied upon as the basis of any investment or disposition decisions. Past performance is no guarantee of future results. All investments pose the risk of loss and there is no guarantee that any of the benefits expressed herein will be achieved or realized. Valuations and returns are computed and stated in Canadian dollars, unless otherwise noted.
The information provided herein does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information. Any opinions expressed herein reflect a judgment at the date of publication and are subject to change. Although statements of fact and data contained in this presentation have been obtained from, and are based upon, sources that we believe to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. No liability will be accepted for any direct, indirect or consequential loss or damage of any kind arising out of the use of all or any of this material.
Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any funds or accounts managed by any Fiera Capital entity. Each entity of Fiera Capital only provides investment advisory services or offers investment funds in the jurisdictions where such member and/or the relevant product is registered or authorized to provide such services pursuant to an exemption from such registration.
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