HOOPP has a multi-asset class investment strategy in capital markets including in stock markets and bond markets. Capital markets are financial markets that bring buyers and sellers together to trade stocks, bonds, currencies, and other financial assets.
This enables savings and investment to be channeled to firms that can use the capital to create social and economic value.
Bonds provide value to the Fund because they offset the sensitivity of the Plan’s liabilities to changes in interest rates and inflation. When interest rates go up, liabilities go down along with our bond values and vice versa. Most bonds pay a
fixed interest rate that becomes more attractive if interest rates fall, driving up demand and the price of the bond. Conversely, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, resulting in a
decline in its price. Within Capital Markets, HOOPP also has active strategies within credit, derivatives and public equity markets where results are not significantly correlated to overall equity or bond markets. This helps us achieve higher returns.
Credit Investments
When businesses need to raise funds, they can issue debt through credit markets, where that debt can be traded by investors. HOOPP invests in corporate credit (both private and public markets), asset-backed structured credit, collateralized loan obligations,
credit risk transfer securities, and other structured macro credit indices.
At HOOPP, credit investments are an important component of our return-seeking portfolio which aims to create value for the Fund.
Key principles of our strategy include:
Return-seeking approach
We employ a relative-value approach to investing in this asset class, which compares the value of assets across all investable credit assets.
Strategic capital allocation
As our outlook changes, we can increase or decrease our capital allocation to credit investments depending on our expectations for risk-adjusted returns and relative value.
Credit market exposure
The Fund gains exposure to credit investments through a combination of corporate bonds, structured products, and derivatives.
Learn more about HOOPP’s credit investments portfolio and our investment performance in our latest Annual Report.
Derivatives
Derivatives are financial contracts that derive their value from an underlying asset (for example, an index, interest or foreign exchange rate) and are used by HOOPP to manage risk. Common derivatives include futures contracts, options contracts, and
swaps.
As a necessary part of HOOPP’s daily fund management operations, we use collateral management to help manage our liquidity, match assets to liabilities and reduce credit risk in our lending activities.
Through a combination of using derivatives and collateral management strategies, we can help manage how the Fund reacts to market swings, known as volatility, and help maintain liquidity.
Key elements of our portfolio include:
Managing risk and generating returns
To provide returns and manage risk, we engage in discretionary trading in equity, fixed income, and foreign exchange (FX) derivatives. We can also add value by implementing various alternative strategies.
Managing liquidity
We manage our liquidity, collateral, cash and leverage through our collateral management operations.
Learn more about HOOPP’s derivatives portfolio and our investment performance in our latest Annual Report.
Fixed Income
Fixed-income investments, bonds being a common example, are an important source of diversification for portfolios that generate income and help preserve capital. Fixed-income investments also help offset the sensitivity of HOOPP liabilities to interest
rates and inflation.
Interest rates are important because they represent the cost of money over time – what lenders want borrowers to pay for money. Interest rates also influence investment decisions by setting a benchmark on how much return is needed above the current
interest rate to make it worth taking on more risk. For pension plans, interest rates directly affect the funded status as they are an important factor in how the ratio is calculated. Generally speaking, rising interest rates improve funded ratios
while declining rates lower the ratio.
HOOPP has a large fixed-income portfolio that includes mid-term and long-term bonds, and inflation-linked bonds. The bonds in this portfolio provide government-guaranteed rates of return, serve as high-quality liquid collateral to support other investment
activity, and are a diversifying asset for the Fund. As well, the Fund's bond portfolio can also generate returns through active management that seeks to add value.
What drives our portfolio strategy?
Data and analysis
We make asset mix decisions and determine value-add strategies based on careful analysis of information, including the macroeconomic outlook, technical analysis and quantitative research as examples.
Learn more about HOOPP’s fixed-income portfolio and our investment performance in our latest Annual Report.
Public Equities
Public equities, also known as stocks, provide HOOPP with long-term growth potential and investment return generation.
HOOPP invests directly in companies that trade on the stock market, and indirectly in the indices comprised of these public companies, in Canada, the U.S. and internationally. This provides the Fund with both diversification and return opportunities.
While the value of public equities fluctuates day-to-day, the combination of liquidity and volatility allows the Fund to increase exposure when the price of quality equities falls and decrease exposure when public stocks are highly priced. The increased
volatility of public equity investments is compensated with higher expected returns over time, which is a key requirement for the Fund.
Balanced portfolio with broad market exposure
Our strategy is to build a balanced, research-based portfolio with broad market exposure to generate returns over time. HOOPP invests in public equities in Canada, the U.S. and internationally, diversifying the Fund and providing return opportunities.
Importantly, public equity investments are a key way that the Fund gains exposure to growing companies, economies and markets around the world.
Research driven
The public equities portfolio is research-based and organized by industry with a focus on medium- and large-capitalization stocks in North America. Our team of experts studies industries to understand the factors that contribute to long-term value
creation. Valuations of individual stocks include an assessment of the company’s strategy and competitive positioning in the industry, historical and anticipated financial results, and the consideration of environmental, social and governance
factors that may influence future returns. For each stock analyzed, a fair or intrinsic value is generated, and special attention is paid when they trade below this value.
Broad index exposure and alpha-generating portfolios
The public equities portfolio includes both broad index exposure and alpha-generating portfolios. In this case, alpha refers to the returns earned on active investing above the benchmark. The size of the alpha-generating portfolios depends on
the number and quality of opportunities the team identifies, which varies considerably in response to market conditions. Ideally, HOOPP aims to invest in quality companies that are undervalued and hold these investments to generate attractive
absolute returns over the long term.
ESG considerations
HOOPP’s public equities team also engages with companies through our proxy votes and through direct communication with corporate management and boards on ESG issues when appropriate. We believe engagement can lead to better investment outcomes.
Learn more about HOOPP’s public equities portfolio and our investment performance in our latest Annual Report.
This document provides a simplified overview of HOOPP's benefits based on the terms of the HOOPP Plan Text at the time of publication. From time to time, HOOPP may amend the HOOPP Plan Text. In cases where the information provided in this document differs from that contained in the HOOPP Plan Text, the HOOPP Plan Text will govern. More details, including the full HOOPP Plan Text and a complete description of the Plan and its benefits, can be found on hoopp.com.
What can we help you find?