Quality is important, but value matters too

Domenic Bellissimo is a Vice President & Portfolio Manager with the Core Fixed Income Team at Scotia Global Asset Management. Click here  to learn more about his investment solutions.

Key takeaways:

• Strong companies can attract significant demand, but that alone does not determine value.
• Finding value often means looking beyond familiar names and comparing opportunities across issuers.
• As the Canadian bond market continues to evolve, patience and selectivity can help investors stay disciplined when valuations appear less compelling.

What's in a name? Quite a lot, for many investors. Well-known companies with strong balance sheets, durable business models and established market positions often inspire confidence. And in the corporate bond market, those characteristics are commonly associated with quality.

Yet confidence in a company is not always the same as confidence in a corporate bond investment. For investors, the challenge extends beyond identifying successful businesses. A more relevant question may be whether a bond offers sufficient compensation for the risks being assumed.

That question has become increasingly important as the Canadian corporate bond market expands and attracts more global issuers. As the opportunity set grows, investors may benefit from looking beyond the issuer itself and evaluating whether the value of the compensation offered by an investment aligns with its risks.

A company's quality remains an important consideration in the corporate bond market. Financial strength, cash flow generation, competitive positioning and an ability to meet debt obligations through different market environments can provide valuable insight into an issuer's credit profile and overall risk characteristics.

However, quality alone does not determine value. Recent bond offerings from large technology issuers demonstrated how strong demand for highly regarded companies can influence valuations. As investors compete for the same bonds, credit spreads may tighten, reducing the compensation available for assuming similar risks. Even the strongest companies may offer less compelling value when market enthusiasm is already reflected in bond valuations.

That reality is becoming increasingly relevant in Canada. Historically, the corporate bond market was dominated by a relatively narrow group of domestic issuers. Today, investors can access a broader and more global opportunity set as foreign issuers enter the market and new sectors gain representation.

Greater choice creates new possibilities, but it also increases the importance of selectivity and active management. The challenge is often not identifying strong companies but determining where value exists among them. Quality can help investors assess business fundamentals, while valuation provides context on whether the compensation offered by a bond appears appropriate for the risks involved.

Corporate bond investing is often thought of as an exercise in comparisons. Rather than focusing exclusively on a company's strengths, investors can evaluate how a bond is valued relative to comparable issuers. Changes in supply, shifts in market sentiment and company-specific developments can create valuation differences that warrant closer examination.

"It's important to consider that not every company is worth owning at all times,” says Domenic Bellissimo, Vice President & Portfolio Manager at Scotia Global Asset Management. “You really have to allocate thoughtfully to where you believe you can find the greatest value within a group of issuers."

A disciplined process to finding value in the corporate bond market starts with looking beyond headlines and brand recognition. Market participants often place a premium on familiarity, but bond investors are ultimately assessing risk and compensation. A well-known issuer may not always represent the most compelling value, while opportunities can emerge in less-followed areas of the market.

Differences in valuation can emerge even among companies with similar business profiles. Issuance activity, investor demand and issuer-specific developments can all influence relative value. As a result, investors may benefit from evaluating opportunities within groups of comparable issuers rather than assuming the most recognizable name offers the best opportunity.

The growing presence of global issuers adds another layer of complexity. Canadian bond valuations increasingly reflect supply and demand dynamics originating outside Canada's borders, particularly in larger markets such as the United States. Understanding those relationships can provide important context when assessing relative value and evaluating compensation for risk.

Strong fundamentals and brand recognition remain important considerations, but neither guarantees value on its own. Relative valuation can help distinguish between a good company and an attractive corporate bond opportunity.

Periods of market enthusiasm can test investor discipline. When demand becomes concentrated in a narrow group of issuers, valuations can become disconnected from the level of compensation investors may seek for assuming risk.

Bellissimo underscores the importance of maintaining perspective.

"It doesn't always have to be the cheapest issue,” he says. “Sometimes a higher-quality company trading at similar levels to lower-quality issuers can offer a more attractive balance of value and risk."

Patience can help investors separate business quality from market enthusiasm. A disciplined approach does not require owning every new issue or participating in every popular theme. In some cases, waiting for valuations to become more compelling or for risks to become better understood may prove the more prudent course.

As the Canadian corporate bond market continues to evolve, investors have access to a broader range of issuers, sectors and opportunities than ever before. That expanded universe increases the importance of balancing quality with valuation.

Quality remains a critical foundation of corporate bond investing. Yet quality alone does not determine value. As the market becomes larger and more global, investors may benefit from remembering a simple principle: a great company and a great bond are not always the same thing. Finding value remains just as important as identifying quality.

This article is based off an interview with Domenic Bellissimo conducted in July 2026.