Since joining Beutel Goodman & Co. Ltd. in 1994, Bruce Corneil has taken the firm's fixed-income offerings to lofty heights, all the while flying below the radar of most investors and industry analysts.
Corneil's accomplishments include guiding the small but impressiveBeutel Goodman Long Term Bond to its perch as the top five-year performer to Nov. 30. The $30-million fund is one of only eight mutual funds in the Canadian Bond category to currently earn a five-star Morningstar Rating, out of 90 funds rated. Corneil also manages the fixed-income portion ofBeutel Goodman Balanced, as well asBeutel Goodman Corporate/Provincial Active Bond -- also a five-star fund -- andBeutel Goodman Income, which has landed in the first quartile for the three-, five- and 10-year periods to Nov. 30.
A native of London, Ont., Corneil started his investment-management career in 1973, when he joined Waterloo, Ont.-based Manulife Financial shortly after graduating with bachelor degrees in arts and education from Queen's University in Kingston, Ont. In 21 years with Manulife he eventually assumed responsibility for Canadian equities, bonds, private placements and mortgages -- "everything but real estate," he says.
Corneil joined Toronto-based Beutel Goodman in 1994 to work on the company's fixed-income desk in the United States. He later returned to Canada to oversee the fixed-income department. As senior vice-president, fixed income, he now leads the four-man team managing more than $5 billion in the company's bond portfolios, mainly for institutional clients.
In setting portfolio strategy, Corneil works alongside David Gregoris, another fixed-income specialist at Beutel Goodman. The duo's top-down approach starts by studying the economy and gauging possible reactions by policymakers at the Bank of Canada and the U.S. Federal Reserve, in order to anticipate the direction of interest rates. "We always reach a consensus," says Corneil of working with Gregoris.
That joint decision helps determine duration and yield curve exposure. Beutel Goodman Long Term Bond, which may hold maturities between nine and 25 years, currently has a duration of six years and an average term to maturity of approximately 10 years.
"We'd probably be slightly more aggressive than your average manager, whereby we'd go out by a year shorter or longer -- or even a year and a half, if we really thought things were going to change," Corneil says.
Corneil and Gregoris also tackle sector rotation from the top down. "At the present time, we think the credit spreads are very attractive given the financial positions of some corporations and their very flush and robust balance sheets," says Corneil.
At 43% of the portfolio (compared with a 28% weight for the benchmark Scotia Capital Universe Bond Index), the fund is currently overweight in corporates at the expense of federal and provincial bonds. Here, diversification is not a consideration. The fund has held as little as no provincials and 10% in corporates at times, according to Corneil.
Still working on a top-down basis, a decision to overweight corporates leads to the question of what maturities to emphasize, says Corneil. "Most corporations in the longer maturities are [currently] trading at very attractive yield spreads against [federal bonds]." He cites TransCanada Pipelines Ltd. as one core holding that has been topped up in Beutel Goodman Long Term Bond lately.
Implementing portfolio strategy is up to John Christie and John Fuca, the two traders who round out Beutel Goodman's fixed-income team. They do this after the final step in the investment selection process -- a rigorous testing of the managers' assumptions using a portfolio simulator.
While the simulator does not offer answers, these trials are critical in the team's active strategy. "We can go through a lot of iterations before we come up with the correct solutions -- sometimes it takes as many as 30 to 50," says Corneil.
Corneil's typical turnover, at one and a half times the portfolio per year, reflects the team's commitment to adapting its strategy to economic changes. "We're not active traders; we tend to buy positions and structure our portfolio to reflect our views," he says.
Indeed, passive management is not an option for Corneil, who believes adaptability is key to navigating Canada's bond universe. For example, excessive demand in the world before 1981 has been replaced by the "excess production" and commodity price inflation of today, stemming in part from China's low-cost production.
"Such macroeconomic influences are crucial in trying to predict the direction of interest rates, the shape of the yield curve and quality spreads -- all the factors that affect bond prices," says Corneil. "You have to adjust your view based on what the major influences are."
