Celebrating 3 Years of Performance
Portfolio Manager Matt Cardillo discusses how MDAF has delivered on its objectives, its evolution and what's in the future for the fund.
Male: So the Mackenzie Diversified Alternatives Fund, or MDAF, has a very simple but effective objective. The idea here is to use this fund which invests in less correlated alternative or non-traditional asset classes in a way that it complements traditional balanced funds. So traditional balanced funds make up the biggest part of Canadian investor portfolios. They’re composed of two asset classes, really: Traditional equities and traditional bonds. By virtue of being invested in balanced funds, most Canadian investors are heavily exposed to two-risk premium: The interest rate risk premium for the bonds and the equity market risk premium for the traditional equities.
So the idea here with MDAF is to not invest in those things—Canadians have plenty of that already—but invest in those other asset classes that they do not hold, stuff like options, stuff like micro-cap equity, stuff like stressed credit which would be bonds that are trading well below par, etc.
So MDAF has worked. It has succeeded in meeting that objective. So, over the three years that the fund has been around, it has generated a higher sharp ratio than a traditional balanced portfolio. Therefore, when it is combined with a traditional balanced portfolio, it’s raised the sharp on that overall investor portfolio. It’s also generated a lower correlation coefficient of the return of MDAF versus a traditional balanced portfolio. So it succeeded on both of those missions, and we’ve done this all the while, you know, in a mutual fund structure with daily liquidity and at a very attractive fee level.
So one example of a unique asset class that’s found inside MDAF is stress credit. Stress credit is a fantastic asset for this current interest rate environment because this is a part of the bond market that trades on credit risk more than interest rate risk. So it’s less important what the Bank of Canada is doing with interest rates.
Now, this sleeve is managed exclusively for MDAF by the Mackenzie Fixed Income Team, and their credit analysts have done a fantastic job of picking bonds with high coupons that are likely to recover some value, so, you know, realize some capital appreciation as well.
Another example of a unique asset class found inside MDAF is private debt. So private debt is nice, again, for the current interest rate cycle because it has zero correlation, or very low correlation, to traditional bonds. So this is again, like stress credit, a segment of the fixed income markets where there is less interest rate risk, and so therefore, it’s proper or, you know, advantageous in a rising interest rate environment.
You know, diversification is very important to Canadian investors. We’ve been able to provide that with MDAF and the asset classes, the alternative asset classes it invests in—you know, that infrastructure, that real estate, that private debt. And so, really, I mean, the objective going forward is the same as the objective that we’ve had the entire time and that is to complement traditional balanced portfolios in Canada.
Diversification is very important and we’ve been very happy to provide diversification by MDAF to Canadian investors.