WEBVTT

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<v ->I'm Jenipher Nevin.</v>

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And today I'm joined with Brian Carney, a portfolio manager

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at Canso Investment Counsel.

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Now Brian, let's talk fixed income.

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Word on the street is active portfolio management is dead

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and ETFs are the way to go.

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What do you have to say to this?

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<v ->Canso was founded in 1997, based on the premise that</v>

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the financial markets are inefficient.

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And nothing we've seen or experienced

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since then would lead us to believe otherwise.

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And it's our belief only an active manager

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can take advantage of inefficiencies

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in the financial markets.

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<v ->Could you give us an example of an inefficiency</v>

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in the market and how Canso has reacted versus

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that of an ETF?

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<v ->There's been a great example recently,</v>

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in November, General Electric, GE;

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which is the most analysed company in the world,

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had an earnings call and they made some announcements

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and following that call, credit spreads

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on GE securities widened between 250 and 350 basis points,

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which is an extraordinary move in any market.

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And Canso's response, was to buy more GE securities

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in the marketplace.

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And ETF, which might have experienced withdrawals

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during that period, would have been selling GE

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at exactly the wrong time.

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<v ->So would you say that GE could now be classified</v>

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as a fallen angel security?

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<v ->So, GE is not a fallen angel,</v>

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but it definitely has fallen from grace.

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A fallen angel means a company that's downgraded

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from investment grade, so triple B minus and higher,

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to non-investment grade, so double B plus and lower.

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So GE is not technically a fallen angel,

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but it's credit spreads would suggest it's trading

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like a median high yield company.

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<v ->What will happen if the security drops</v>

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below investment grade?

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<v ->So if General Electric does fall below investment grade,</v>

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it's triple B now, so,

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we're not saying it will anytime soon,

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but there are investors out there

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in the marketplace that can't hold

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non-investment grade rated securities.

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So there would be selling in the

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marketplace and that could further

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pressure GE spreads.

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<v ->And Brian, what else is going on</v>

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in the market currently that has contributed

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to the drop in GE's price?

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<v ->In addition to specific credit factors surrounding GE,</v>

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all of that happened when the equity market was going

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through a fairly dramatic and extreme sell-off.

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So the equity market

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during this period is also down about 10%.

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So that has contributed to the widening in GE spreads.

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<v ->Well, thank you Brian for your time today,</v>

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to read more on GE and our other market insights,

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go to cansofunds.com and read the latest edition

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of the Corporate Bond Newsletter.