BMO HighYield Corp Bond US Hedge to CAD ETF (ZHY.TO)

If you expect rate cuts and softer growth, you may want ZLC or XLB. If you're a bit higher income and willing to accept business cycle risk, then you can go into high yield bond ETFs -- XHY or ZHY.

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.

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.

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.

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.

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.

On the return on high-yield bonds, which he doesn’t like very much, you have to evaluate them as you would an equity as opposed to a bond. This is because of the default risks.

High yield bonds with a currency hedge. He has no exposure right now. It is a nice yield, but with 20% of US fracking business in the high yield index, he stays out. He thinks this will re-test the levels from last year and that would be an okay time to step into it.

Like all high-yield markets, this is not about price appreciation, which is why this has probably traded sideways. However, while it has been trading sideways, it has been paying you about a 6% yield. This is an income strategy. 6% is a pretty good return compared to what the bond market has done in the last 5 years.

BMO US High Dividend Covered Call (ZWH-T) or BMO High Yield Corp Bond US Hedge to Cdn (ZHY-T)? Corporate bonds are probably going to be riskier than covered calls. Covered calls gives you the guaranteed income and are more stable with regards to the underlying investments. The corporations are going to be giving a higher return if the market remains benign, but you are taking a risk in case we have a hike or there's a credit crunch with regards to those corporations. You don't need the hedging these days because the Cdn$ is, if anything, dropping. If you could get it with an un-hedged version, it would be better still. If he really had to choose, he would select the Covered Call.