Many of the bond funds available to Canadian investors are heavily weighted toward North American fixed income securities. In contrast, the NEI Global Total Return Bond Fund adds diversification and value informed by the portfolio management team at Europe’s biggest asset manager, Amundi.

The fund largely protected capital even in 2022 — a challenging year — thanks in part to the team’s efforts to manage volatility by holding a portfolio of securities from different geographic regions and fixed income categories.

“We’ve got a 10-year history of Amundi managing this fund for us,” says Will Benton, Vice-President, Manager Research and Oversight at NEI Investments. “They’ve been an extremely good partner, [bringing a] differentiated perspective to our platform [in general and] offering a different view of global fixed income markets in particular.”

NEI’s partnership with Amundi, which also manages the NEI Global Dividend RS Fund, started following a rigorous selection process that applies to all teams under consideration for portfolio management roles in NEI’s platform. In this case, NEI began with a proprietary, back-tested quantitative screen that provided a preliminary evaluation of all global fixed income managers located around the world.

The narrowed-down list of managers expected to outperform going forward was then subjected to a qualitative due diligence process. NEI met with each firm’s portfolio management team to discuss their strategies and assess alignment with the fund NEI wanted to launch. Benton says this stage also helped NEI zero in on what it wanted to accomplish in a specific area of the market.

The next step was an internal analysis of returns and holdings to identify three to five finalist managers. Then, during on-site visits, NEI’s research team looked beyond the investment process to review all relevant operational teams, including compliance, trading, business continuity, and cybersecurity. Finally, to help remove bias from decision-making, everyone on the research team calculated an independent score for each finalist across about 30 metrics.

“We don’t always take the highest-scoring manager — that’s not a requirement. But the score is there to inform our view. If there are some interesting nuances or things that maybe didn’t show up in the score, we can incorporate those into our final decision,” says Benton.

With Amundi, an important element in the selection process was alignment with NEI in responsible investing leadership. “That’s a big part of what they do as a firm, and it’s also a big part of what we do as a firm.”

A global talent pool

One of NEI’s defining features is open architecture: a model that aims to find and engage the best talent globally. That’s especially critical for mandates where there simply isn’t an ecosystem for a type of expertise or research in Canada.

In the case of the NEI Global Total Return Bond Fund, Benton explains, “we’re finding who we think, globally, is the best at global fixed income to plug into our [platform]. It’s harder to do if you need to find that talent domestically or import that talent and manage that team and build it up.”

Open architecture also gives Benton’s team freedom and flexibility to make changes if a manager is not delivering on expectations or failing to align with client and advisor interests. As he points out, it’s much more difficult to execute tactical, timely changes with an internal team.

Another significant advantage of partnering with global managers is that it allows global expertise to spread across NEI’s entire platform of investment solutions.

For example, NEI regularly leverages findings from Amundi’s broad research capabilities, as well as its distribution knowledge in retail channels across Europe. As one of the top 10 asset managers globally,^[1] Amundi has sizable teams managing a wide array of products and market sectors. The insights those teams generate benefit NEI’s products beyond Amundi’s mandates.

Size matters in fixed income

NEI regularly cultivates partnerships with smaller, boutique portfolio managers that offer a unique angle on a specific area of the markets — but for the NEI Global Total Return Bond Fund, it was important to find a firm with scale.

“For this mandate, size is really important,” Benton says. “The strategy is to be able to have different levers to pull in terms of allocation — so, emerging markets debt, currencies, global [interest] rates, corporate versus government [bonds]. [With Amundi,] you’re getting basically full teams in all of these areas.”

That means that although the fund has a tight portfolio management team — led by Grégoire Pesquès and Reine Bitar — it can access, as just one example, the best ideas from one of the biggest emerging markets debt teams in the world.

Looking back at the past 10 years, Benton says all levers have added value for investors in the NEI Global Total Return Bond Fund. In individual years, one or more of them may have underperformed or overperformed, but across a decade, the fund has demonstrated the benefits of an approach that diversifies beyond North America and invests across different global fixed income categories to generate more consistent, less volatile returns.

^[1] https://about.amundi.com/article/we-join-global-top-10-asset-management-brands