John DeGoey BMO Emerging Mkts Bond Hedged CAD ZEF-T TOP PICK Sep 26, 2016

Prefers VEE-T. Emerging market bonds are a sexy way to go.

(A Past Pick Nov 28/11. Up 4.1%.) (BNN showed this as a Top Pick Aug 2/12. Our records show iShares US High Yield Bond Index ETF (XHY-T.) was the Top Pick Aug 2/12. – Bill.) Has liked this for a long time. Sold his holdings when he thought this would be vulnerable.

The whole bond space has been hurt substantially since May 22^nd, when rates started creeping up. Prefers iShares Emerging Market Div (DVYE-N) but he got stopped out of this. He would take a look at getting back into this one. On the ZEF, he would want to know how much of it is corporate versus government, preferring to be a little bit more on the corporate side.

Emerging market bonds had a rough 4^th quarter, but in the past 2 or 3 months, they’ve at least held their own. It is very difficult to make money in bonds these days. If you can keep up with inflation with your bond position, you are probably doing as well as you can reasonably expect.

Basically, a hedged version of the emerging markets bond strategy. Emerging markets dropped quite quickly when Trump won the election, and that was when he bought emerging-market bonds. With these, you want to be a little careful as to when you hold them and when you don’t. A lot depends on what is happening in that part of the world on currencies, etc. This pays a pretty decent yield of 4.5%+. You have to be a little more active in this area.

Some conservative ideas for the next recession ahead for a senior? He would suggest this one, a BMO emerging-market bond ETF. Growth is really anemic in the West and bond yields in the US and Canada are 2% over 20-30 years, but bond yields in other parts of the world are 5%-6%. You’re taking on the little more volatility, but getting a lot more yield.

ZEF-T vs. ZHY-T. The question is credit risk. You have emerging market risk with ZEF-T and so you get extra yield. When you do the correlation of the higher yield, they trade more like an equity than a bond. ZEF-T is an equity type risk, where as ZHY-T is more like fixed income. He does not think it is the time to step into either of these.

Good fixed income play in a diversified portfolio? EM bonds give higher return at higher risk. For a younger investor with 70% equities and 30% fixed income, wouldn’t have more than 5-6% in EM bonds. Funny things can happen in terms of valuation and nationalization.