One Bond at a Time: Burgundy’s Credit Approach

WHAT IS CREDIT INVESTING?

James Arnold: Credit investing plays a vital role in a well-diversified portfolio. At its core, credit is about lending money to companies in exchange for regular interest payments and the return of principal at maturity.

Unlike equities, where you own a piece of the company, this positions you as a lender. This comes with key benefits, including predictable income from coupon payments and certain protections such as priority over equity holders if the company encounters financial challenges.

However, credit investing also carries risks, primarily default risk—this is when an issuer fails to meet its debt obligations. This is why, we believe, a thorough analysis of an issuer’s financial health is not just helpful, it’s essential.

WHAT IS BURGUNDY’S PROCESS?

At Burgundy, we apply the same bottom-up, research-intensive approach to credit as we do to equities. We don’t rely on credit agency ratings or attempt to forecast future interest rates to predict short-term returns. Instead, we prioritize independent credit analysis, carefully building our portfolios one bond at a time.

Our process focuses on identifying businesses that exhibit these three attributes.

1. Strong & sustainable competitive advantages—companies with high barriers to entry or growing market strength.
2. Capable & honest management—leaders who are responsible capital allocators and aligned with long-term value creation.
3. Solid financial attributes—stable cash flows, manageable debt burdens, and appropriate bondholder protections.

We conduct in-depth, independent research to understand a company’s business model, assess the management team, and forecast the ability to meet its debt obligations. Every investment decision is made with a long-term perspective, designed to ensure that we are adequately compensated for the risks involved. We initiate a position only when we are satisfied with the quality and value of the security.

Ultimately, we believe this disciplined approach is key to protecting your capital from permanent impairment.

WHAT SETS BURGUNDY APART?

So, what makes our approach unique?

First, collaboration across teams: Our close partnership with our global equity team enhances our investment process. From our Toronto-based office, nearly 30 Burgundy team members collaborate across geographies and asset classes, combining their expertise to gain a deeper understanding of the businesses we invest in. This collaborative approach enables us to identify opportunities that may be overlooked by others.

Second, a targeted focus: While we invest across the fixed income spectrum, our specialty lies in corporate credit. We focus on areas where we can add the most value—such as lower-rated investment-grade bonds and higher-quality high-yield issuers. These segments provide compelling risk-adjusted returns, particularly when viewed through Burgundy’s rigorous, research driven process and long-term perspective.

Third, capitalizing on market events: Events like new bond issuances, restructuring announcements, M&A activity, or regulatory changes often create windows of opportunity. Our active monitoring of both company and market developments, combined with deep industry relationships, allows us to act quickly and capture value where others might hesitate.

And finally, volatility creates opportunity: Credit spreads—the difference between credit yields and government bond yields—are more volatile and tend to react faster than changes in underlying credit quality. This volatility creates opportunities for active managers like Burgundy to uncover value.

For over 20 years, Burgundy has remained committed to our disciplined investing principles, building our portfolios one bond at a time. As we look ahead, our goal is to continue delivering attractive, risk-adjusted long-term returns while prioritizing the protection of our clients’ capital.