The Fund invests primarily in Canadian federal and provincial bonds with a term to maturity in excess of 10 years with characteristics similar to the DEX Long Goverment Bond Index. Exposure to these bonds will be leveraged through the use of derivatives instruments that are consistent with the investment objective and guidelines of the Fund such as total return swaps or bond repos. The Fund is allowed to use its market assets, which are invested directly in fixed income securities, as collateral to facilitate the use of derivatives.
The composition of the portfolio will generally be 1 time the dollar value of the Fund in physical bond exposure and 2 times synthetic bond exposure. The characteristics of the portfolio will be managed on a holistic basis, irrespective of physical or synthetic exposures, to ensure that the overall portfolio’s sensitivity to interest rate and provincial spread changes mirror that of the Fund’s benchmark. The decision as to what positions will be held physically vs. synthetically, and what instruments to use in the synthetic portion, will be made with general liquidity, administration and cost in mind.
The investment objective of the Fund is to provide exposure to long-term government bonds approximately equal to 3 times the cash value of the Fund in order to provide a hedge against liabilities of an investor that are sensitive to changes in long term interest rates.
The Fund is designed for Canadian pension funds that seek to better match the interest rate exposure associated with their pension liabilities
by increasing their fixed income exposure.
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