Larry Berman CFA, CMT, CTA BMO HighYield Corp Bond US Hedge to CAD ETF ZHY-T WATCH Feb 23, 2015

Probably a good way to get exposure to the high-yield market, because it is extremely opaque. He currently has around a 10% weight in high-yield debt in his private client portfolios. High-yield in general has a strong risk adjusted return over a 5, 10, 20 year timeframe as an asset class.

Don’t invest in it because it is ‘high yield’. You are investing in the worst companies that have not defaulted yet. There is more risk in these bonds. When the economy turns down, these companies will struggle. It will trade like equities. He thinks markets are much closer to a top than a bottom.

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.

Which fund would you recommend for high-yield bonds? You are always dealing with US bonds in this. He would probably look at the ZHY as well as the XHY. You have to remember that you are not getting the same premium for high-yield that you used to. He would rather buy a Covered Call. He is not a big fan of high-yield stuff.

ZFH is exposure to short-term high yield credit using a swap strategy to mitigate the interest rate risk. You still get credit risk. ZHY trade more like equities than bonds. People are seeking the higher yields. A floating rate note mitigates the interest rate risk only.