The investment objective is to generate stable and consistent income while minimizing long term volatility. The portfolio will be focused on the broadly syndicated U.S. loan market where higher yields are earned from corporate borrowers that are generally non-investment grade rated. Repayment priority and security over assets help mitigate credit loss while floating-rate coupons reduce interest rate risk. The manager will attempt to generate alpha by constructing a highly diversified portfolio and applying astute credit selection to avoid default loss. Currency hedging, concentration limits and commodity sector avoidance further limit volatility.
What is the investment objective of the KJH Senior Loan Fund?
What does the KJH Senior Loan Fund invest in?
The Fund predominantly invests directly in senior loans that are first priority, secured, term loans with floating-rate coupons issued by well-known companies. The Fund generates income primarily from interest coupon payments on the loans, while downside risk management and protection come from the first-priority (or lien) over all of the corporate issuer’s (the borrower’s) assets, meaning the loan holder has the right to sell assets of the company in order to get their money back. In addition, the fact that these loans have floating-rate coupons (the coupon payments move up and down with the level of interest rates) assist in mitigating interest rate risk.
Why this asset mix?
As yields on middle-market debt come down, investors have turned to senior loan funds to generate higher returns. However, in Canada the banks dominate the senior loan space by bulk-buying and syndicating Canadian dollar senior loans to other banks; rendering the asset class inaccessible to the retail investor universe. This results in Canadian investors being underexposed to the asset class.
What is the role of the KJH Senior Loan Fund in a portfolio?
Historical data demonstrates that exposure to senior floating rate loans in a fixed income portfolio typically improves the risk-adjusted return due to reduced interest rate risk as well as the lack of correlation to other assets.
The Fund is available to clients of Harbourfront Wealth Management Inc. (“Harbourfront”), as outlined in the fund regulation documents. Harbourfront is an affiliate of Willoughby Asset Management Inc. (the “Fund Manager”), the principal selling agent of The Fund and receives fees for its advisory services as detailed in the Fund Regulation document. Investors may purchase The Fund through Harbourfront or other third-party selling agents retained by the Fund Manager. The Fund Manager is responsible for the KJH Senior Loan Fund (“The Fund”) regulatory compliance, fund operations, business and administrative matters. The Portfolio Managers (“The PMs”) for The Fund, are part of a wealth management team at Harbourfront called KJH Investors. The PMs are responsible for investment decisions for The Fund, including but not limited to, investment strategy, portfolio construction, security selection, asset allocation, performance reporting and benchmark selection.
This information transmitted is intended to provide general guidance on matters of interest for the personal use of the reader who accepts full responsibility for its use, and is not to be considered a definitive analysis of the law and factual situation of any particular individual or entity. As such, it should not be used as a substitute for consultation with a professional accounting, tax, legal or other professional advisor. Laws and regulations are continually changing and their application and impact can vary widely based on the specific facts involved and will vary based on the particular situation of an individual or entity. Prior to making any decision or taking any action, you should consult with a professional advisor. The comments and information pertaining to The Fund are not to be construed as a public offering of securities in any jurisdiction of Canada. The offering of units of The Fund is made pursuant to the Fund Regulation document and only to investors who qualify as accredited investors as defined under National Instrument 45-106. Important information about The Fund is contained in the Fund Regulation document available through the Fund Manager. Management fees, performance fees and expenses all may be associated with investments in The Fund. Investments in The Fund are not guaranteed, the values change frequently and past performance may not be repeated. Unit values and investment returns will fluctuate and there is no assurance that The Fund can maintain a specific net asset value. Harbourfront has relationships with related and /or connected issuers, which may include the securities or funds discussed in this document and are disclosed in the Harbourfront Relationship Disclosure document and the Statement of Policies Regarding Related and Connected Issuers, which can be accessed at harbourfrontwealth.com.