Canada’s big banks continue to blow past analysts’ forecasts, but most expect a tougher year ahead.Moe Doiron/The Globe and Mail
Fixed-income specialist Marret Asset Management is a big name on Bay Street, and its acquisition by industry darling CI Financial Corp. only boosts its profile.
But the new partnership, which involves CI buying 65 per cent of Marret for an undisclosed amount, isn't as lucrative as you might think. Despite its prominence, Marret is struggling.
Take its once flagship High Yield Strategies Fund. In June 2012, head portfolio manager Barry Allan had to cut the distribution to 5 cents per month from 6.7 cents, while sounding a dire warning that "yields in the marketplace have collapsed well below beyond what anybody reasonably expected."
When Marret first created the fund in 2009, returns on the high yield index were close to 14 per cent. By last June, they had fallen below 8 per cent -- and then dropped even further after that. From its peak value in 2011, the fund's publicly traded units have lost 27 per cent.
The performance has been so rough the Marret even released a lengthy explanation as to why the fund failed to meet expectations.
Marret's other portfolios are also struggling. From January to August its Investment Grade Bond Fund lost 2.7 per cent, while the fund's benchmark, the DEX Mid-Corporate Bond Index, fell just 0.5 per cent. (In the fixed-income world, a one per cent drop or gain means much more than a 1 per cent move in equities.) The fund's performance was also choppy in previous years, beating the benchmark in 2012, but vastly underperforming in 2011.
The same goes for the Marret Multi-Strategy Income Fund. In the first eight months of 2013, the portfolio couldn't beat the Toronto Stock Exchange, which returned just 3.9 per cent over the period. The fund vastly underperformed both the TSX and the S&P 500 in 2012.
Marret also hit a rough patch after the federal government hinted that it would end what are known as 'character conversion transactions.' These deals use derivatives to turn income into capital gains, which are taxed at a lower rate. The surprise move forced Marret to caps sales of its High Yield Fund, High Grade Hedge Fund and Resource Yield Fund.
(Tim Kiladze is a Globe and Mail Reporter.)
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Tim Kiladze