Company Background

Canso Investment Counsel Ltd. (Canso) is an independent firm wholly owned by its employees.  It was founded in June 1997 as a corporate bond specialty manager. In October 1997 the first two corporate bond mandates were funded for a major institutional investment company.  Since that time we have added institutional, pension plan and foundation clients as well as a number of private clients and our total assets under management has grown to over $45 billion, ending March 31, 2024.

Canso has a subsidiary, Canso Fund Management Ltd. (Canso Funds) which was founded in June 1997 and sponsored several mutual funds which were managed by Canso.  Canso Funds closed its mutual funds in June 2000 and created several pooled funds in September 2000.  These pooled funds are also managed by Canso. Additionally, another Canso affiliate, Lysander Funds Limited, is the fund manager for several mutual funds managed by Canso.

What Differentiates Canso

Canso is a specialty corporate bond portfolio manager with a team of 28 people across credit research, portfolio management and trading. Most firms have one or two credit analysts and rely on their equity analysts for supplementary research. Members of the Canso team have backgrounds in banking, lending, private placements, research, security analysis and trading,  and have spent their investment careers examining the credit risk of issuers. This gives them the experience to assess the downside risk and the potential loss in a downside scenario and to price the risk appropriately.

We are very attuned to the credit markets because we have a very experienced and robust credit team and because our entire focus is on fixed income management.  In our pre-2007 quarterly newsletters, we had been talking about the unrecognized risks in the sub-prime market and the potential for a market disruption based on financial overextension. When these events finally occurred in 2007 it was no surprise to us or to our clients.  We had structured our client portfolios to protect against these risks with no exposure to financial issuers and no asset backed commercial paper.  Many core fixed income managers had not expected these events and had high weights in US financial issuers which were most affected by the market downturn.  While we accept risk by investing in BBB rated issuers and below BBB securities where permitted, our clients realize that we do not take such risks with their money unless we fully understand the downside and are compensated for the risks assumed.

Bond Investment Philosophy

Our investment process at Canso is focused on fundamental research and security selection.  Cheap investments are not popular and buyers must do independent research to find undervalued securities.

Our mandates do not focus on term or yield curve decisions.  Our portfolios are built to maximize the credit spread and credit opportunity in the fund.  We tend to invest in the term cohort where the spread potential is the best. For example, in a general spread narrowing environment, we would tend to emphasize longer duration credits where the potential for upside is the highest.  On an individual name basis, we tend to be “bottom up”, focusing on security selection and then adjusting the portfolio to stay within our duration and term targets.

We do not rely on published credit ratings for our portfolio decision making.  Each issue is analyzed on a risk/return basis as we are only willing to assume risk if we are compensated for it.  This approach has allowed us to make money for our clients when markets are volatile and protect our clients from loss when markets are expensive.

Our portfolios are constructed to maximize yield at an acceptable level of credit risk. Once a position is established, it is held until it becomes overvalued or a better value security is discovered.  Our strategy is “buy and hold”, although we will take advantage of market opportunity.

The credit range permitted in our mandates ranges from AAA to BBB for Investment Grade and AAA to D for Broad Corporate and Corporate Value.  The Broad Corporate and Corporate Value mandates use a credit shift approach.  The Broad Corporate mandate permits up to 30% of the portfolio to be invested in securities rated below investment grade while the Corporate Value approach allows up to 100% to be invested in below BBB rated securities.  When credit spreads are very tight, as they were in 1997 and again in early 2007, we have a high quality bias in all our portfolios but when credit spreads are wide, as they were in 2002, we will be fully invested in below BBB rated securities up to the limits permitted.  We are willing to assume risk in our portfolios when compensated and as our results demonstrate, our credit shift approach has allowed us to add significant value to our clients’ portfolios.