When most people think about investing, stocks and real estate come to mind, but fixed income is the unsung hero that brings balance and stability to portfolios, especially in today’s shifting economy. In this episode of Smart Advice, host Carissa Lucreziano talks with Aaron Young, Executive Director and Head of Client Portfolio Management at CIBC Global Asset Management, about the evolving world of fixed income. Discover why this asset class is more dynamic than you might expect, what’s driving current opportunities, and how innovative solutions can help you protect and grow your wealth through uncertain times.
[03:06] Aaron: “Right now, fixed income is in a bit of a golden age, for lack of a better term. What I mean by that is we've hit a nice balance point in fixed income markets where this asset class can generate a really attractive income potential for clients, and it can do so while also regaining a bit of that role of hedging risk.”
[06:58] Aaron: “I would say for any level of investor, you should have a portion of fixed income in your portfolio for diversification, and not diversification such as a sector or holding a single stock versus other companies. Its diversification of where your risk and return comes from.”
[10:45] Aaron: “The investment grade bond funds really was a focus on, how do we build something that's similar to a GIC in a lot of respects, in terms of target maturity date, I know I'm going to get my capital back, not the same risk profile, but also not going out and buying really high risk bonds, where the prices fluctuate quite a bit day to day, we buy governments and really solid large cap corporate bond issues.”
Aaron Young is the Executive Director and Head of Client Portfolio Management at CIBC Global Asset Management. With more than 15 years of experience in fixed income markets, he has dedicated his career to helping global investors understand the power of bonds and income-generating investments. His work spans from guiding individual investors to managing portfolios for some of the country’s largest institutions, including pension plans, foundations, and endowments. Aaron specializes in strategies that balance income generation, capital preservation, and long-term growth in both traditional and alternative fixed income strategies.
Known for his passion for making fixed income accessible, Aaron brings clarity to a part of investing that is often overlooked. He believes bonds are not just the “quiet side” of a portfolio, but a dynamic tool that can stabilize wealth, reduce volatility, and create new opportunities for investors. Through his expertise, he empowers Canadians to look beyond traditional GICs and embrace innovative solutions that align with their financial goals.
Connect with Aaron Young on his LinkedIn.
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Carissa Lucreziano: Welcome to Smart Advice, a podcast connecting you with timely financial advice, investment strategies, and economic trends, empowering you with insights to make informed decisions about your money. I'm CIBC’s financial advice expert, Carissa Lucreziano.
In today's episode, we're diving into a part of investing that doesn't always get the spotlight, but plays a steady and reliable role in building and protecting wealth: income-generating investments.
From GICs, government or corporate bonds, to bond funds and others, these strategies can support Canadians in very practical ways. They can help balance a portfolio, preserve capital as you prepare for retirement, and even provide flexibility when you are saving for shorter-term goals, where you will need access to your money.
While fixed income investments may not grab headlines like stocks, these solutions offer stability, predictable income, and peace of mind. Qualities that become especially important as your financial goals evolve throughout your life.
More and more Canadians today are asking, ‘How do I keep my money working for me while still protecting it?’ That's exactly where these types of investments shine. And where my guest, Aaron Young, Executive Director and Head of Client Portfolio Manager at CIBC Global Asset Management, will be talking all about.
Aaron is an expert in fixed income solutions, and he's going to talk about innovative investments in this space, why fixed income is more interesting than you think, and actionable portfolio strategies for you.
Carissa: Aaron, welcome to the Smart Advice Podcast. I'm so happy that you're here today.
Aaron Young: Thanks for having me on, Carissa. I really appreciate it.
Carissa: Aaron, there is a lot to talk about. I'm really glad you're here to kind of give us the goods into the fixed income market. Let's get right into it. Let's set the stage.
I know you've been navigating the fixed income world for over 15 years, and many people think of this part of investing as the quiet side to the portfolio. I'm sure you've heard other terms. But we know that it's anything but quiet. It plays a key role in protecting and growing wealth.
Tell us what is happening in the fixed income market right now, and why should Canadians be paying attention to their portfolios?
Aaron: Thanks, Carissa.
Every year we get summer students in, who sit on the desk as part of their rotation, and learning. They're given a choice, ‘Do you want to sit on the fixed income investing side or the equity investing side?’ They continue to all go to the equity side, because they think ‘What is actually interesting in fixed income? I don't want to build a career in that space.’
I always find it absolutely amazing, because I think fixed income is actually one of the most interesting asset classes in the world. It doesn't get as much of the shine because it's not as easily quotable in Yahoo Finance or in the headlines, but it's actually the most important asset class in the world, I would argue, something that I've dedicated my career to.
What's going on in fixed income markets right now? ‘What's not going on?’ is really the question I would say to your listeners. Right now, fixed income is in a bit of a golden age, for lack of a better term. What I mean by that is we've hit a nice balance point in fixed income markets where this asset class can generate a really attractive income potential for clients.
It can do so while also regaining a bit of that role of hedging risk, to your comments earlier, being that ballast in the portfolio to soften the edges of volatility when things like equities, or alternatives, are seeing really big moves up and down.
I always like to position as fixed income has returned to its rightful place in the portfolio. Lest we forget, just a few years back, when yields were near zero, there was no income in fixed income. I don't blame people for not wanting to talk about the asset class. It was the most boring and offered the least kind of compensation.
Totally different now. Income is back in the markets. Again, you can earn a really attractive yield in fixed income securities, without having to do anything too fancy.
Then from the perspective of the total portfolio, because yields are back above zero and at healthy levels, we also have built in the buffer where when we do hit pockets of volatility, when things like your stock portfolio is really moving day in and day out, fixed income is back; in terms of keeping a bit of that volatility down, offering that buffer against the risk you see in other parts of your portfolios.
In that way, it's a golden age. In another way, it's kind of a return to what fixed income should be doing. That's great. The one thing I would say on the other side of it is, the unknowns that we're seeing with all the macroeconomic elements, whether it be trade policy, tariffs, geopolitical events, fixed income is not immune to that.
We're seeing some of those unknowns, especially if you're looking at things like the US Treasury Market, US corporate bonds. There's some volatility in that respect. What I would say is, for us as active managers, volatility is actually a good thing. That's where we can earn additional returns for our investors.
But there are definitely a bit of unknowns here around, where does the market go? Especially in terms of interest rate policy in the US? Are we moving towards cuts? Are we going to see yields come down caused by the Fed cutting rates? Or are we kind of in a holding pattern until we figure out where trade policy lands? What's the impact on inflation?
But again, I'll just reiterate from an excitement standpoint, fixed income is such a broad, diversified market with lots of little niches and interesting pockets. No matter what the backdrop is, there's always something interesting to do in this space.
Carissa: I want to hear more because you're very passionate about fixed income. It's really good to hear that it's back to norm. Canadians are still thinking about how and where they should invest. I want to get into, a little bit later, how you and your team really think about it and get ahead of what's happening out there in the market.
But let's talk a little bit about Canadian portfolios. When we think about fixed income, should everybody have a portion in their portfolio of fixed income? And maybe visualize for us what does that look like?
Aaron: Sure. You have to remember, when you're looking at a balanced portfolio and all of its iterations, what it's really built off is diversification across all the different asset classes. But also the idea that fixed income, and specifically interest rates, usually move in the opposite direction of riskier investments like equity indices, like some of the alternatives.
If you use that as your base case, and the long-term normal trend of those two offset each other, I would say for any level of investor, you should have a portion of fixed income in your portfolio for diversification. Not diversification such as a sector or holding a single stock versus other companies. It's diversification of where your risk and return come from.
Generally speaking, fixed income offsets the risk and return you get from equities, especially in times of stress. I definitely think it should have a place in everyone's portfolio. What it looks like depends on client-specific risk profile, needs, et cetera.
But at the end of the day, the underlying pillars of why you own fixed income are there. Protection of capital against the riskier parts of your portfolio, you're going to want it in there. You're going to be thankful it's in there at times when other parts of your portfolio are experiencing heightened levels of volatility due to unknowns in the macroeconomic backdrop.
The other element, too, is really what's in the name: income. Generating a strong income stream, it's literally part of the structure of any bond you buy, is you get paid a coupon. I get why people haven't recognized that in the most recent past. Again, because yields have been near zero, so the income wasn't really there.
But as I argued before, income is now back. If you're looking for a part of your portfolio that's going to pay predictable coupons income against things that are more focused on capital appreciation, fixed income is always going to have a place in that respect as well.
The last one is one that people often don't think about, but we've experienced in the last couple of years, more of the capital appreciation side. Fixed income at times, especially when it’s mixed price, can offer that really strong upside potential. That's something I think investors think of less, but is actually a really good input into your total portfolio.
Carissa: You mentioned something really important. It's really about income and producing income, and also depending on, not only your risk tolerance, but also what's happening in your life, the stage in your life, what you need the money for.
You may have a different proportion or allocation to fixed income, depending on your needs. It really does matter, like what you need the money for, and then also what your income needs are to think about what proportion of fixed income.
We'll talk a little bit about going beyond that traditional fixed income solution. GICs are the go-to fixed income solutions for most Canadians in terms of what they know well. But there is a universe of fixed income solutions. Markets have evolved. There are new, innovative strategies now, like investment-grade bond funds, that add a whole new dimension. Can you share how this works and why there's such an interesting opportunity now for investors today?
Aaron: Sure. GICs have a rightful place in everyone's portfolios. What I would say is, when you go a little bit beyond GICs into things like investment grade bond funds, which are really a bond fund that has an end date, and we buy bonds that align with that end date, so you know you're getting your capital back by that time, but you're also getting paid interest while you wait.
That really is a way of going a little bit up the risk spectrum. This is not a GIC in the sense that your GIC doesn't change in value day over day. You put in your X amount of capital, you get paid interest, and when it vests, that capital comes back to you. This is different.
It moves up and down with the market, because we own publicly traded bonds in the funds. But then it offers some of the benefits that you just wouldn't get in a GIC. The investment-grade bond funds really focused on, ‘How do we build something that's similar to a GIC in a lot of respects, in terms of target maturity date?’
I know I'm going to get my capital back. Not the same risk profile, but also not going out and buying really high-risk bonds where the prices fluctuate quite a bit day to day, we buy governments and really solid large-cap corporate bond issues.
How do we take advantage of another element that's just not present in GIC markets, which is bonds trading at a discount? It is a way to say there's an opportunity to own bonds that move towards their full value as they get closer and closer to maturity.
I would say GICs aren't the only game in town. They have a very important part in the portfolio, but there's, like you mentioned, newer solutions out there that are in the same realm of a GIC, in terms of investor experience, but offer new benefits.
To be honest, there are different risks on the other side too. I really would view it as kind of another tool in your toolkit, in terms of, ‘How do I create a fixed income solution, a fixed income holding that really fits the different needs I have in my portfolio?’
The other thing I would say, quickly around GICs, and this is more topical in the current environment, is sometimes I think investors underplay reinvestment risk. We look at one-year GICs, short-term T-bills, those really ultra safe asset classes. Those are great for the one year where you hold it, and it yields really high.
If you're going into a falling interest rate environment, which we think we are going into, we have been in and are continuing, reinvestment risk is really high. If you think about that one-year yield? Looks really attractive. But fast forward 12 months from now, you're looking at much lower yields.
I would say bond funds, whether it be investment-grade bond funds or other solutions, offer an opportunity to kind of extend out the curve, defend some of that income, and own a two, three, five-year bond, where you're getting that yield for a longer period of time. You don't have to worry about reinvestment risk as much.
Carissa: That's great. Hold that thought on reinvestment risk. I want to ask you about the investment-grade bond fund. How can investors incorporate this into their portfolio?
Aaron: It's a really good question, Carissa. I also help manage portfolios for some of our largest institutional clients here at CGAM, including pension plans, foundations, endowments, some of the largest allocators in the country.
We do something for them called ‘liability-driven investing’. To some extent, we call it that because it makes it sound very smart. But at the end of the day, what we're really doing is picking bonds that align with our institutional clients' cash flow needs.
Now in this case, their cash flow needs, because a pension plan is 30, 50 years out, quite long maturities. But it is the same concept in terms of, if I'm a high net worth investor and I have a cash flow need that I can project out two, three, five years out, you don't need that capital before that point?
Whether it's down payment on a home, buying a cottage, paying university tuition. If you know you have that liability X years out, you can match it up with a solution that's in the market, like the investment-grade bond funds.
Because you know you have that relative certainty of capital need at the end of two years, you match it up with a two-year investment-grade bond fund. You get the additional interest that accrues to you because of that. You also know that you're getting your capital back almost exactly when you need it. That is really what we're doing for all intents and purposes.
For the largest institutions, I would view it the same way for any investor: ‘How do I align my investments, especially in the short to medium term, against any cash flow needs that I may have?’
Carissa: You gave three really great examples. If you're saving for a shorter-term goal. Let's just say, you're saving to buy a cottage, or a down payment on a home or education needs, you know you need those funds in a shorter period of time. But you don't want those funds to stand still. How do you earn potential above inflation returns, but also maintain that capital preservation, which you mentioned?
Aaron: Exactly.
Carissa: The last few years have been a bit of a roller coaster. Underline that a bit, it's not really a bit. It's been a lot and an eye opener when it comes to the economic environment. Canadians have truly felt just how quickly inflation can erode savings, as well as increase expenses across the board.
Many people are keeping cash on the sidelines, whether that's out of caution or just waiting for the right time to invest. You kind of alluded to this a bit, but there really is a risk of standing still. Why does earning a return above inflation matter so much for long-term growth? I think now more than ever, because of what we felt as Canadians and experienced, we're really paying attention to this.
Aaron: To your point around volatility back in the market, the unknowns that come from geopolitical risks, trade policy, etc. The resurgence of inflation, which we need to remember, we had not seen for decades. Plus, when we speak to any clients from our side that uncertainty is very acute.
We do often see that kind of gut reaction to say it's too volatile. There's too much unknowns, whether I'm talking about fixed income, managed money solutions, etc. I am too concerned to put capital to work. I'd rather have it sitting in cash, because I know it's there. It's not fluctuating in its value, but especially against a backdrop of inflation, which we haven't had for a long time.
Inflation has come down. It's not as high as it was post-COVID, but it's still there. The idea of being invested in some format is really key. The way I would think about it, it's not how much you make, it's how much you take home. That applies to a lot of different avenues, but especially inflation.
At the end of the day, what's your real purchasing power after you've invested capital? I think to your point, sitting on cash or not being invested, that's a big opportunity cost that investors are missing. Now, one thing we see quite a bit from all types of investors, is also the idea of timing the market.
I'm sure your previous guests, the podcast that I've listened to, have talked about this quite a bit, around trying to time the market. Lots of volatility, lots of unknowns. Who knows where interest rates and policy rates are going? I'm going to sit on the sidelines, but I'll wait for that kind of re-entry point. I'm going to time it so that when everything's looking all clear, that's when I'll put my money back into the market and in whatever format.
What I would say to you, as professional investors, we sit on a trading floor. We have our Bloomberg terminals in front of us. I have four screens in front of me. We have people looking at every type of aspect of macroeconomic data, pricing on bonds, trends in stocks. Lots of smart people are doing this.
We find it hard to time the market, and our day job is sitting there looking at the minutia of the market so clients don't have to. What I would say is the idea of waiting for that all-clear sign to move from cash to even something like short-term bonds, investment-grade bond funds, is really hard to get right.
Lots of professional investors don't get that call right more than 50% of the time. And something I talk to clients a lot about, too, is markets across the board are forward-looking. What that means is, if you're reading it in the headlines, it's already priced into the market. The market is always one or two steps ahead. That's what markets do. They price the future, not the current or the past.
What I would say, fixed income, for those people sitting with cash on the sidelines, waiting for opportunities? What I would say is: fixed income is kind of the bridge. Maybe that's a good way to think about it's not as high-risk as things like equities, which have a hugely important role to play in terms of keeping up with inflation. But it's also not zero risk, where inflation is just going to erode your entire capital base.
I see it as kind of the bridge to say, it's lower-risk, generates a nice income, it’s not going to move as much up and down as some of those other parts of portfolios you have. If this is an opportunity to stretch out a little bit, start investing, but not go all the way into a full kind of managed money solution. Fixed income may be a good place to kind of start that process.
Carissa: Let's just go back for a moment to that reinvestment risk and that one-year GIC example that you mentioned. Many Canadians have been keeping it simple with a one-year GIC strategy, renewing year after year. Maybe because it feels comfortable.
But when it comes to building a stronger investment strategy, can you dive in a little deep to how we can use GICs in a more effective way to manage risk and take advantage of the opportunities over time?
Aaron: That's a great question. I would say we have a concept in fixed income markets called ‘laddering’. What this really is, is a way to diversify that reinvestment risk. In some respects, this is a way to say, instead of buying one-year GICs and rolling them over, you really are making a call on the fact that you think rates are going to stay level, if not go higher in the future.
You want that optionality, for lack of a better term, around in one year's time. I'm going to get to reset that rate, hopefully at the same or higher again. That works great in a static/rising rate environment. We would argue, right now, it's not going to be static.
Interest rate volatility is definitely here, especially if you're looking across the US and Canada. But I would also say the probability suggests, rates are going a bit lower from here. Not back to zero, like we saw during the pandemic, but definitely the direction of travel is on the lower side.
How do you protect against that or diversify away from that risk? It really is getting exposure across different terms to maturity. We do this in bond land by buying bonds between one- and five-year terms to maturity. We end up with what's called a ‘ladder’, and that protects us on both sides.
If interest rates go up, and we have some of that one-year money maturing, which we can then roll into those higher yields. But if interest rates go down, we have some of that, call it two, three, five-year money that's “locked in” at those yields for a longer period of time.
It could be the same thing for GICs or using the investment grade bond fund solutions around terming out some of that risk so that you can get more predictability and diversify it.
Carissa: If you can tell us more about bond land, as you call it? Take us behind the curtain. How does your team at CIBC Asset Management move in real time to capture these opportunities that you mentioned? How has that agility made a difference for investors beyond the headlines and Bank of Canada announcements?
Aaron: We talk about fixed income as this monolith asset class bonds. At the end of the day, what you're really getting is a package of risks and returns. Things like interest rate risk, credit risk, if you're buying a corporate bond, term risk, like we were just talking about. This is the reason I got into bonds, and why I joined the fixed income team for my entire career.
There's so many levers in fixed income portfolios to pull, to either generate added value for clients, what we call ‘alpha’. On the flip side, to protect capital. To take positions where, you know what? The market's not paying us enough to take risk. We're okay to take risks down to very low levels.
You can do that in so many ways in fixed income, which is quite different from equities. It's not to say equities are a bad asset class. I own lots of equities. It's an important part of your total portfolio. But if you think about where the most interesting part of the market is, for me it was always fixed income. That's really what drove that decision.
That framework is really how we manage all the bond funds that we have. Like I mentioned, we have over 100 billion in assets under management at the CGAM fixed income platform across all different types, all different geographies. But at the end of the day, what we're trying to do is use all those different levers to either add value or manage risk throughout market cycles.
We won't tell my equity colleagues, but at the end of the day, we're really proud of the fixed income platform here at CGAM, which has been around for 50 plus years. We have a huge team, dedicated credit research analysts who are doing deep dive fundamental analysis on all the corporate bonds we own.
Gentlemen who focus on rate strategies where sovereign bonds trading. Should we own Canadian government bonds? Is there an opportunity in treasuries, Japanese government bonds? The opportunities are endless.
The way we've really structured the team is to have experts in each of those drivers of added value. Whether it be government bonds, corporate credit duration, etc. A high yield, for example.
And the other element that really makes CGAM’s fixed income team successful in what we do, is you have those experts. But experts are not good if they're siloed and just doing their own thing. 50+ years we built a really good framework around taking those experts, taking their ideas, sharing them across the firm.
That way we really try and ensure every bond portfolio that we run gets those best ideas. Not every idea fits within the mandate. But at the end of the day, that intellectual capital, that sharing of ideas, sharing of where the next risk could be, are disseminated across all the teams. We can really stand behind the positions we have in all of our fixed income portfolios.
The other thing I would say, Carissa, really around fixed income that I find super interesting, and maybe to your earlier question around why own fixed income in your total portfolio, is unlike equities, fixed income is still a very old school market. It's very, what we call, inefficient.
It's not traded. Bonds aren't traded on an exchange. We're calling up dealers when we want to trade. That sounds all very old school and cumbersome, but if you're an active manager looking to add value, you want an inefficient market. We always like to say, we believe the first point of adding value is operating in a market where there's value to be added.
Fixed income still has so much opportunities within it, just given the nature of the market. For us, it's not about making calls on what the Bank of Canada is doing next, what’s Trump going to do next. It's more about those structural inefficiencies earning that extra return for our clients consistently over time.
Carissa: Aaron, too close, what's the one thing our listeners and every Canadian should know about fixed income as an investment option to help their financial goals stay on track?
Aaron: I think I would leave listeners with the same message we mentioned earlier, which is that bonds are interesting as a tool for solutioning. Solutioning gets thrown around a lot in our industry, especially on the asset management side.
But bonds really fit the bill in terms of a lot of the stuff we've talked about today in terms of, if you have a need in the next two years, I can go out and find bonds or GICs that match that need. As you think about your needs and your outcomes, I would argue fixed income is always going to have a rightful place in your total portfolio.
But I would just think about it in terms of, how can I utilize this asset class, along with my advisor? How is it going to help me reach those specific outcomes that I have? Whether it be short-term cash flow needs or long-term capital appreciation, fixed income is always going to have a place in that.
Carissa: Wonderful. Thanks for that. Great considerations and insights for our listeners.
Aaron, thank you so much for today. It was a great conversation and really a good opportunity for us to lean in, and understand the value that fixed income is an important part of an investment portfolio.
For Canadians, it really is important to consider the need for income and opportunity for capital preservation, as you mentioned, that the array of fixed income solutions can provide. Thank you so much for being here today.
Aaron: No problem. Thank you for having me.
Carissa: There you have it. Fixed income isn't just the quiet side of your portfolio. With the right strategy, it can protect your wealth, generate stable income, and help you plan confidently for your financial future.
For our listeners, if you are contemplating strategies and options for your portfolio, speak to a CIBC advisor, to start a conversation on your tailored option to meet your investment goals.
Thank you for tuning in to Smart Advice. I'm Carissa Lucreziano.
If you enjoyed this episode, feel free to share it with your social network. To make sure you never miss an episode, follow Smart Advice on your favorite podcast platform. For more tips, tools, and financial advice, visit cibc.com/smart advice. See you next time.