Alternative yield-enhancing credit is playing an innovative role in the risk profiles of Canadian institutional investors’ portfolios, said Findlay Franklin, portfolio manager at RBC Global Asset Management (UK) Ltd.’s fixed income team, during a session at the Canadian Investment Review’s 2025 Risk Management Conference.
In the past few years, he’s seen credit used within multi-asset portfolios to move up the risk spectrum, often sourced from core bond positions. However, within the last six to 12 months, he’s seen a shift in a different direction.
“[Institutional investors are] funding allocations in multi-asset credit, out of riskier private illiquid assets and global equity allocations.”
Investors are faced with considering multiple factors when reviewing the potential for credit investments in their portfolios, he said, noting yield, volatility or drawdown risk and credit rating all play key roles.
After a few volatile years coming out of the coronavirus pandemic followed by political uncertainty around the world, credit spreads are — for the most part — currently tight versus history, said Franklin.
Given some of the uncertainty in the U.S. market, high yield is currently underweighted within the portfolios he manages compared to structured credit and financial capital. “There may be a time when we actually do like high yield on an outright basis,” he added.
“All of these [asset types] evolve over the investment cycle and it’s very much with the view of creating total returns within [our portfolio]. There will be points of the cycle where you want to swing the bat or increase the credit risk of the portfolio and target a higher return. . . . But then there’s also times when it’s going to revert and very much move in a different direction.”
A multi-asset approach in credit can better serve institutional investors, noted Franklin, because it will help add flexibility at different parts of the investment cycle; in some instances, it will make more sense to be invested in one particular asset type over another.
“Multi-asset credit lends itself to casting that wide net and having a product that can evolve with the time and add new asset types as and when they come about or really pivot as they dynamically change.”
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