November 14, 2024

In Profile: Leith Wheeler's award-winning fixed income team

We recently wrote an article about the power of compounding which maps the arc of a successful long-term investment: allocate your capital, let it grow, grow on that growth, and before you know it, you’re reaping surprising riches. As we switched to consider the story of Leith Wheeler’s fixed income team – and a national team award they recently won, claiming Lipper’s 2024 Group Award for Bonds (Canada) - the analogy also fit surprisingly well. Accolades are great but the team’s success is not an overnight story. It’s been 15 years in the making.

Leith Wheeler has of course been around a lot longer than 15 years. Founded in 1982, we managed core fixed income strategies for years to provide balanced options for clients, but it was in 2009 that Jim Gilliland, our Managing Principal, President & CEO, joined the firm as Head of Fixed Income and grew the offering.

Jim brought with him significant experience managing complex strategies. After spending time at Vancouver’s historic asset manager MK Wong and later HSBC, Jim earned a Master of Financial Engineering from Berkeley, and then spent close to a decade at Barclays Global Investors (BGI) in San Francisco, one of the pre-eminent quantitative investment managers in the world. While there, he developed BGI’s active fixed income business and understanding of credit strategies, international fixed income, and liability-driven solutions. He also built and launched a fixed income hedge fund.

Jim began just after credit analyst Eric Lam, with the pair rounding out a small but strong bond team at Leith Wheeler that included Alexei Konopkine and Catherine Heath. Jim selectively grew the group over the years to take advantage of opportunities to add talent where the firm’s strategies were growing, or were headed. In 2015-2016, the team grew by five as Dhruv Mallick, Sean Greenhalgh, Colin Boese, Ryan Goulding, and Tamsin Wilding joined the desk. That crew, bolstered by the 2019 arrival of credit analyst Michelle Zuliani, brought significant rates firepower along with additional credit analysis capabilities – including high yield.

With those capabilities, the team has been able to successfully roll out several more sophisticated credit strategies. The core bond fund evolved into the Core Active Bond Fund to provide additional value, The Multi Credit Fund was launched to opportunistically pivot within high yield and senior loan issuers, and the Core Plus Fund was born to bring together credit and global rates capabilities.

A tax-aware monthly income product, the Corporate Advantage Fund, is popular with individual investors and the Income Advantage Fund offers investors a tax-aware, balanced, option.

In response to client demand following the 2017 launch of the Carbon-Constrained Canadian Equity strategy, the team also rolled out a Carbon-Constrained fixed income strategy for discretionary clients in 2021, and a pooled fund in February 2024. “A common theme when considering where to deploy our efforts is working closely with clients,” Gilliland said. “We want to find solutions, not sell products.”

The Goldilocks advantage

Today the firm manages over $13 billion in fixed income strategies, including several specialty portfolios in excess of $1 billion, and liability-driven mandates. With Noor Walia joining in 2024, the group of 11 now ranks as a mid-sized fixed income team in the Canadian context.

Gilliland describes the firm’s size as an advantage. “Our team is large enough to be a significant relationship for investment dealers and credit issuers – so we can get allocations to deals that are of interest – but small enough that we can work as an integrated team without the silos that develop in larger firms,” he said. “We’re also of a size that we can still be nimble in trading client portfolios.”

Through a team-based decision-making structure, the focus is on building bottom-up portfolios of mispriced securities and diversifying the sources of value-added (alpha). They also employ risk management techniques to ensure risk is controlled, with no one position threatening to impair the track record.

“When you have shareholders all around the table, you don’t get the same distorted incentives for analysts to have their sector represented. When the portfolio performs well, clients do well and in turn, we as owners of the firm do well. That alignment is very powerful.”
-Jim Gilliland

On edge

To consistently beat the market, an investment manager needs an edge. What is the bond team’s edge at Leith Wheeler? Gilliland points first of all to the people on the team. “Having career analysts who are specialists in their areas of expertise, and have seen a variety of markets, makes a big difference,” he said.

The team also works hard to create an environment where it’s safe for everyone’s views to be shared. They use tools like the online messaging platform, Slack, to share thoughts and research, democratizing the conversation and giving more junior analysts the opportunity to contribute and learn.

The fixed income team’s collaborative relationship with the firm’s Canadian, US SMID, and global equity teams is another source of edge as by sharing insights from research and management meetings, all of the teams are able to share ideas and check each other’s biases.

Ownership structure is also a big one. “When you have shareholders all around the table, you don’t get the same distorted incentives for analysts to have their sector represented,” Gilliland said. “When the portfolio performs well, clients do well and in turn, we as owners of the firm do well. That alignment is very powerful.”

To illustrate, he pointed to the example of the use of preferred shares. While prefs represent a small part of the market, the team recognized the outsized opportunity they represented during a period of volatility in 2022 and moved quickly to overweight them across mandates – a move that generated significant value for clients. “The speed and conviction we were able to exercise probably wouldn’t have been possible in a salary + bonus environment,” he said.

That nimbleness when volatility presents opportunity is at the heart of the process in both equity and fixed income management at the firm. For example, after COVID-19 had crippled equity markets and corporate bonds for 3 weeks in March 2020, the fixed income team was active selling liquid government bonds at high valuations to rebalance client portfolios, culminating in a $750 million trade executed across two days near the market bottom for stocks.

What’s next?

Walia is working with Principal, Portfolio Manager – ESG Lisa Meger to expand the infrastructure Meger and the equity team built, to the fixed income issuer universe. It’s a continuation of the process. Build on strength, be consistent, give your people an environment to thrive, take care of your clients, repeat. And let the compounding work its magic.

Mike Wallberg

Principal, Head of Marketing & Communications