Capital International Asset Management (Canada), Inc. and Capital Group World Bond Select ETFTM

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- relief from subsection 2.1(1) of National Instrument 81-102 -- Investment Funds to permit funds to invest more than 10 percent of net assets in debt securities issued, or guaranteed fully as to principal and interest, by foreign governments or supranational agencies -- subject to conditions.

Applicable Legislative Provisions

National Instrument 81-102 Investment Funds, ss. 2.1(1) and 19.1.

July 23, 2024

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the Jurisdiction) AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF CAPITAL INTERNATIONAL ASSET MANAGEMENT (CANADA), INC. AND CAPITAL GROUP WORLD BOND SELECT ETFTM (Canada) (the Proposed Fund)

DECISION

Background

The principal regulator in the Jurisdiction has received an application from Capital International Asset Management (Canada), Inc. (the Filer) on behalf of the Proposed Fund and any future investment funds (the Future Funds) of which the Filer is the manager (the Proposed Fund and the Future Funds being, collectively, the Funds, and each, individually, a Fund), for a decision under the securities legislation of the Jurisdiction (the Legislation) for an exemption (the Exemption Sought), pursuant to section 19.1 of National Instrument 81-102 Investment Funds (NI 81-102), from subsection 2.1(1) of NI 81-102 (the Concentration Restriction) to permit the Funds to invest up to:

(a) 20% of a Fund's net asset value at the time of the transaction in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments, other than the government of Canada, the government of a jurisdiction in Canada or the government of the United States of America, and are rated "AA" by Standard & Poor's Rating Services (Canada) (S&P) or its DRO affiliate (as defined in NI 81-102), or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates; and

(b) 35% of a Fund's net asset value at the time of the transaction in evidences of indebtedness of any one issuer if those evidences of indebtedness are issued, or guaranteed fully as to principal and interest, by supranational agencies or governments, other than the government of Canada, the government of a jurisdiction in Canada or the government of the United States of America, and are rated "AAA" by S&P or its DRO affiliate, or have an equivalent rating by one or more other designated rating organizations or their DRO affiliates

(such evidences of indebtedness are collectively referred to as Foreign Government Securities).

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in all of the provinces and territories of Canada other than Ontario (together with Ontario, the Jurisdictions).

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

This decision is based on the following facts represented by the Filer:

The Filer

1. The Filer is a corporation organized under the laws of the Province of Ontario, with its head office located in Toronto, Ontario.

2. The Filer is registered in the categories of (a) exempt market dealer in the Provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec and Saskatchewan, (b) portfolio manager in the Provinces of Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, Quebec and Saskatchewan and (c) investment fund manager in the Provinces of Newfoundland and Labrador, Ontario and Quebec.

3. The Filer is the manager of certain existing mutual funds and will be the manager of the Funds.

4. Neither the Filer nor the Proposed Fund is in default of securities legislation in any of the Jurisdictions.

The Funds

5. Each Fund is, or will be, a mutual fund structured as a trust or a corporation or a class thereof that is organized and governed by the laws of the Province of Ontario. Each Fund is, or will be, a reporting issuer in the Jurisdiction(s) in which its securities are distributed.

6. The Funds are, or will be, governed by the provisions of NI 81-102, subject to any exemption therefrom that has been, or may be, granted by the applicable securities regulatory authorities. Securityholders will have the right to vote at a meeting of Securityholders in respect of matters prescribed by NI 81-102.

7. Units of the Funds are, or will be, qualified for distribution pursuant to a simplified prospectus filed in the Jurisdictions.

8. The investment objective of the Proposed Fund is to seek to provide, over the long term, a high level of total return consistent with prudent investment management through investments primarily in bonds and other debt securities of global issuers. Total return comprises the income generated by the Proposed Fund and the changes in the market value of the Proposed Fund's investments.

9. As part of its investment strategies, the Filer would like to invest at least 80% of the Proposed Fund's assets in bonds and other debt securities, which include Foreign Government Securities. Under normal market conditions, the Proposed Fund will invest substantially in investment-grade bonds (rated Baa3 or better or BBB- or better by Statistical Rating Organizations (SROs) recognized by the United States Securities and Exchange Commission), and may also invest up to 25% of the value of its assets in lower quality, higher yielding debt securities (rated Ba1 or below and BB+ or below by SROs, or otherwise unrated if determined by the Manager or subadvisor to be of equivalent quality).

10. Each of the Future Funds will similarly have investment objectives and strategies that permit them to invest a majority of their net assets in fixed income securities, including Foreign Government Securities.

11. Subsection 2.1(1) of NI 81-102 prohibits a Fund from purchasing a security of an issuer, other than a "government security", as defined in NI 81-102, if, immediately after the purchase, more than 10% of the net asset value of the Fund would be invested in securities of that issuer.

12. The Foreign Government Securities do not meet the definition of "government securities", as such term is defined in NI 81-102.

13. The Filer believes that the ability to purchase Foreign Government Securities in excess of the limit in subsection 2.1(1) of NI 81-102 will better enable a Fund to achieve its fundamental investment objectives, thereby benefitting the Fund's investors. Specifically, allowing a Fund to hold highly rated fixed income securities issued by foreign governments will enable the Fund to preserve capital during adverse market conditions and have access to high quality foreign government bond markets with minimal credit risk. The increased flexibility to hold Foreign Government Securities may provide higher returns than Canadian or United States of America short-term government fixed income alternatives in certain market conditions.

14. Each Fund will only purchase Foreign Government Securities if the purchase is consistent with the Fund's fundamental investment objectives.

15. A Fund's simplified prospectus will disclose the risks associated with the concentration of assets of the Fund in securities of a limited number of issuers.

Decision

The principal regulator is satisfied that the decision meets the test set out in the Legislation for the principal regulator to make the decision.

The decision of the principal regulator under the Legislation is that the Exemption Sought is granted provided that:

1. paragraphs (a) and (b) of the Exemption Sought cannot be combined for any one issuer;

2. any Foreign Government Security purchased by a Fund pursuant to this decision is traded on a mature and liquid market;

3. the Fund has investment objectives and strategies that permit it to invest a majority of its net assets in fixed income securities, including Foreign Government Securities;

4. the simplified prospectus of the Fund discloses the additional risk associated with the concentration of net asset value of the Fund in securities of fewer issuers, such as the potential additional exposure to the risk of default of the issuer in which the Fund has so invested and the risks, including foreign exchange risk, of investing in the country in which the issuer is located; and

5. the simplified prospectus of the Fund discloses, in the investment strategies section, a summary of the nature and terms of the Exemption Sought, along with the conditions imposed and the type of securities covered by this decision.

Application File #: 2024/0338

SEDAR+ File #: 6140176