Opinions
Terry Shaunessy
iShares US High Yield Bond Index ETF
XHY-T
TOP PICK
Mar 14, 2016
$18.880
Stock price when the opinion was issued
E.T.F.'s
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COMMENT
Which fund would you recommend for high-yield bonds? You are always dealing with US bonds in this one. He would probably look at the ZHY as well as the XHY. Remember, you are not getting the same premium for high-yield that you used to. He would rather buy a Covered Call. He isn’t a big fan of high-yield stuff.
E.T.F.'s
DON'T BUY
For US high-yield bonds, he hedges the currency. No sense buying a US high-yield bond fund, if the CAD rises from the 75 cent level. There is a US high-yield bond ETF that hedges the currency so you don't get burned if the US dollar softens up. He doesn't think XHY hedges, but check. Do not buy US bonds unless you're going to have a currency hedge.
E.T.F.'s
DON'T BUY
In general, the high-yield bond market is yielding at least 300-400 bps above investment-grade bonds. This one should have that yield advantage, and if it doesn't, there's an issue. Yield is 5.8%, and the high-yield bond market is yielding over 8%. He's going to take a look at this ETF after the show.
E.T.F.'s
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One of the few hedged things he has at the moment. He likes the US high-yield bond market. The spread has got huge on this. The yield on this is roughly around 7%. With a yield to maturity and a duration of about 4 years, this is pretty good. The hedge works, because you don’t have to take your currency risk. Also, you don’t get a withholding tax.