John Cassady III, CFA, CEO and Co-Chief Investment Officer of Red Cedar Investment Management, joined Keith Black, Managing Director of RIA Channel, to discuss how managers navigate the risks and inefficient markets in multi-sector fixed income investing.
Red Cedar Investment Management is the subadvisor to several funds offered by North Square Investments, including the North Square Strategic Income Fund (ADVNX), which is rated five stars by Morningstar.
Historically, fixed income investing risks focused on interest rates, credit, and convexity. Inflation, which is driven by an expansion in the money supply, drives interest rates and duration risk. Today’s bond market is more complex, with investors needing to analyze the risks from monetary and fiscal policy, geopolitical developments, and globalization or deglobalization. Cassady worries about taking 7 to 9 years of duration risk when a government has 6% annual budget deficits and debt in the amount of 120% of GDP.
A multisector bond approach allows the investment manager to decide the exposure to take to each risk factor. The preferred, hybrid, and securitized markets may offer inefficiencies not available in the Treasury and investment-grade corporate markets. Mortgage-backed securities have call risks and negative convexity, as homeowners lengthen duration by hesitating to sell their homes with low-rate mortgages. Preferred and hybrid securities, which are all callable, have nearly $1 trillion in market capitalization. Investors need to understand the credit analysis, the structural nuances, and the issuer’s motivation to call the securities. Managers can generate alpha on both security selection and structural analysis. Managers also need to analyze the credit support of issues in the securitized markets.
Red Cedar seeks to build an income-producing portfolio in a high-quality way. That is, the yield is not generated mainly from extending duration or reducing the credit quality of the portfolio. The goal is to earn income that will not be eroded by the falling bond prices that result from increasing interest rates and credit spreads. The firm implements tail-risk hedges to limit the impact of these risks on the portfolio, seeking an asymmetric payoff from the hedges when market volatility rises. Part of the work of reducing portfolio risks is to understand correlation across the sectors and diversify across risk factors. Preferred securities have less interest rate risk than many sectors believe, which diversifies the risks of investing in longer-duration bonds.
WEBCAST – Multi-Sector Fixed Income: More Tools, Better Potential Outcomes
It can be difficult navigating the impact of volatile markets on client’s income-producing securities. We believe a multi-sector fixed income approach—targeting inefficiencies in preferreds, hybrids, and securitized markets—offers a powerful way to navigate volatility and enhance the resilience of your clients’ income.
Topics to be covered:
- Diversify beyond traditional bonds by tapping into inefficiencies in preferreds, hybrids, and securitized markets.
- Ways to enhance income stability in volatile markets with a flexible, multi-sector approach to fixed income.
- Mitigating risk through broader exposure and active management across multiple credit sectors.
Accepted for 1 CFP® / IWI / CFA CE Credit
Resources:
Red Cedar’s Investment Approach
North Square Core Plus Bond Fund 2Q 2025 Fact Sheet
North Square Preferred and Income Securities Fund 2Q 2025 Fact Sheet
North Square RCIM Tax-Advantaged Preferred and Income Securities ETF 2Q 2025
North Square Strategic Income Fund – An All Weather Kind of Fund – 2Q 2025 Update
North Square Strategic Income Fund – Tail Risk Hedging Piece – July 2025