With the recent shift higher in Canadian rates and only one more cut priced in, investors are understandably focused on clipping coupons in domestic rates. In this environment, a simple, laddered GIC or bond portfolio might seem like a prudent and appealing strategy. However, we believe this perspective overlooks a crucial factor: the global opportunity cost.
This is a unique moment in fixed income. For the first time in over a decade, yields are high enough across the globe to generate meaningful returns. The world is moving at different speeds, and asynchronous economic cycles mean that various fixed income markets are less correlated and should create significant opportunities for diversification and active management.
The Power of a Global Mandate
A portfolio limited to a single country is inherently exposed to the idiosyncratic risks of that one market – its inflation, rate cycle, and credit environment. If your client needs liquidity or is unnerved by volatility, you may be forced to realize mark-to-market losses.
A global approach fundamentally changes this dynamic. By diversifying across different economies and rate cycles, we can reduce concentration risk and unlock return streams that are simply unavailable in Canada alone. This flexibility allows us to actively manage duration, pivot between credit sectors, and adjust currency exposures to capitalize on the most attractive opportunities while mitigating risk. The result is excellent potential for strong risk-adjusted returns and a smoother ride for your clients.
By the Numbers
The chart below compares the performance of Canadian fixed income with global fixed income hedged back to the Canadian dollar over the past 15 years. The data shows that, even without the advantage of Agile’s established active process, global fixed income offers similar average returns but with significantly less risk, resulting in a more attractive risk-adjusted return (0.74% versus 0.59% per unit of risk).
Source: Morningstar, as at July 31, 2025.
Why a Ladder Can Be a Liability in a Volatile World
If you are still considering a laddered portfolio, it is critical to be aware of its vulnerabilities in an environment of heightened rate volatility and inflation surprises. An active manager can shorten duration to protect capital when rates are rising, allocate to safe-haven assets during flights to quality, or shift into inflation-protected securities when needed. A ladder has no such defense mechanisms; it is a rigid structure in a dynamic world. While it can be adjusted over time, it could come at a cost.
For example, if inflation or growth expectations rise, the yield curve could steepen, resulting in mark-to-market losses on longer-dated bonds held in a ladder. Even if these assets are held to maturity, the decision to lock in today’s rates could mean eroding your client’s real returns. For instance, with a Canadian 10-year bond yielding 3.40%, inflation must average less than 3.40% over the next decade for your client to earn a positive real return. Any surprise to the upside, and their purchasing power would be diminished.
The Institutional Advantage: Every Basis Point Counts
Finally, pricing and execution are a core part of our process. As institutional managers operating at scale, we have access to global markets and liquidity pools that are unavailable to individual investors. This helps to ensure enhanced transparency and, most importantly, better pricing. Every basis point we save on execution is a basis point returned to your clients.
While a ladder offers simplicity, its rigidity can be a significant liability in the face of today’s challenges. We believe an active, global mandate is better equipped to navigate this complexity, manage risk, and deliver more consistent outcomes.
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