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Canadian hedge fund positions for anticipated rate cuts

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Wealhouse Capital Management’s Amplus Credit Income Fund, a Toronto-based hedge fund that outperformed the Canadian corporate bond market three years in a row, is betting that the Bank of Canada is poised to make its first interest rate cuts since 2020, according to a report by the Financial Post.

In a change of strategy, the fund is positioning for a lower rate environment by reportedly buying up longer-term notes due in under five years as opposed to notes due in a year or less, which accounted for over 70% of its holdings at the end of last month, according to the fund’s latest performance report.

The report quotes Andrew Labbad, Senior Portfolio Manager at Wealhouse, as saying: “The last thing we want is to have no duration and rates go down”, adding that while the firm can’t time the market, on rates, “the skew is to the downside”.

Traders have boosted their bets on Canadian rate cuts in the first half of the year after a slower than expected rise in inflation sent Canadian government bonds surging on Tuesday, with the yield on benchmark two-year debt falling by more than 15 basis points to 4.145%.

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