High Yield Bond Funds

Off Topic Politics and World Issues
1

So I am thinking about putting some money in this bond fund - http://www.claymoreinvestments.ca/en/etf/fund/chb ( yields 7%, MER .5, 100+ companies, currency hedged, Ba1/BB+/BB+ bonds )

For the investors out there-

Do you buy any junk bonds? What is your allocation?

What kind of credit risk is involved here(this fund)? To me it seems quite small as you’re diversified across 100+ companies.

What is your opinion on where interests rates are going? Bond bubble?

I’m a college student who has managed to get $2,500 together and have put it in a TFSA(registered account where interest and capital gains are not taxed). I need to decided what to do with this money. Capital preservation is key but I still would like to earn a decent rate of return. I have also been looking at a Canadian dividend ETF(yields 3.5%, MER .6, AVG P/E 19.5), and a Corp 1-5y bond ETF(yields 5.14%, MER .27).

Thoughts ?

2

No, I don’t invest money into money especially when they are debasing the currency. Good recipe to lose your bank roll.

3

Well, everyone has an opinion, but for me I’m holding short term, high quality bonds. Some info that I follow for why I invest the way I do.

http://www.moneyandmarkets.com/debt-crisis-accelerating-â??-what-to-do-â?¦-42517?FIELD9=3

Rate Hike Rumblings Increasing in the Interest Rate Market

http://www.moneyandmarkets.com/rate-hike-rumblings-increasing-in-the-interest-rate-market-42503?FIELD9=3

4

[quote]tmay11 wrote:
So I am thinking about putting some money in this bond fund - http://www.claymoreinvestments.ca/en/etf/fund/chb ( yields 7%, MER .5, 100+ companies, currency hedged, Ba1/BB+/BB+ bonds )

For the investors out there-

Do you buy any junk bonds? What is your allocation?

What kind of credit risk is involved here(this fund)? To me it seems quite small as you’re diversified across 100+ companies.

What is your opinion on where interests rates are going? Bond bubble?

I’m a college student who has managed to get $2,500 together and have put it in a TFSA(registered account where interest and capital gains are not taxed). I need to decided what to do with this money. Capital preservation is key but I still would like to earn a decent rate of return. I have also been looking at a Canadian dividend ETF(yields 3.5%, MER .6, AVG P/E 19.5), and a Corp 1-5y bond ETF(yields 5.14%, MER .27).

Thoughts ?

[/quote]
Seems like a decent enough ETF. Modern portfolio theory holds that you’re diversified with 30 names, you don’t need 187. Top 10 holdings account for %21 of the fund which is very reasonable, although fund may not be diversified as you think. Seems to be concentrations of holdings in certain industries ie: travel (Harrahs, MGM, Hertz). Some impaired holdings like AIG.

All in all, not a bad ETF although I’m not sure where it’s expenses land vis-a-vis it’s competitors. Definately not a fund if you’re concerned about capital preservation. Concern about rate hikes in the UK and Canada going to hurt the ETF as well as the underlying businesses that need cheap financing to continue to operate even with a relatively modest duration of 5.

5

I’d avoid the high yield funds right now. It seems all but inevitable that interest rates are going to rise. When they do bonds that pay below the new rate in yield will see their principle value fall until the yield is competetive.

In general you want to hold bonds as rates fall and sell before they start to rise again.

6

[quote]JoeGood wrote:
I’d avoid the high yield funds right now. It seems all but inevitable that interest rates are going to rise. When they do bonds that pay below the new rate in yield will see their principle value fall until the yield is competetive.

In general you want to hold bonds as rates fall and sell before they start to rise again. [/quote]

I thought you bought bonds to earn interest.

7

[quote]Brother Chris wrote:

[quote]JoeGood wrote:
I’d avoid the high yield funds right now. It seems all but inevitable that interest rates are going to rise. When they do bonds that pay below the new rate in yield will see their principle value fall until the yield is competetive.

In general you want to hold bonds as rates fall and sell before they start to rise again. [/quote]

I thought you bought bonds to earn interest.[/quote]

Of course you do, but only an idiot would not take into account how interest rate swings will effect the principle value of the bonds. Of course if you hold the bonds to maturity you will recieve your principle back but high yield mutual funds and ETF’s will seee their asset values fall with rising interest rates, the further out their average maturity the further the principle value will fall.

http://www.investinginbonds.com/learnmore.asp?catid=3&id=57

8

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:
I’d avoid the high yield funds right now. It seems all but inevitable that interest rates are going to rise. When they do bonds that pay below the new rate in yield will see their principle value fall until the yield is competetive.

In general you want to hold bonds as rates fall and sell before they start to rise again. [/quote]

I thought you bought bonds to earn interest.[/quote]

Of course you do, but only an idiot would not take into account how interest rate swings will effect the principle value of the bonds. Of course if you hold the bonds to maturity you will recieve your principle back but high yield mutual funds and ETF’s will seee their asset values fall with rising interest rates, the further out their average maturity the further the principle value will fall.

http://www.investinginbonds.com/learnmore.asp?catid=3&id=57

http://www.fool.com/investing/etf/2010/09/01/the-true-risk-of-bond-etfs.aspx[/quote]

Yes, everyone knows that when interest rates increases price of bonds decreases. Or, so I hope. However, it’s not necessarily all factors being equal. Look at 1960’s bond market, totally made those in the bond market lose their wad. As well, you (or I do) have to do an analysis of the company to make sure their ability to pay their debt is feasible and I’m not looking at losing more money than the interest.

9

[quote]Brother Chris wrote:

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:
I’d avoid the high yield funds right now. It seems all but inevitable that interest rates are going to rise. When they do bonds that pay below the new rate in yield will see their principle value fall until the yield is competetive.

In general you want to hold bonds as rates fall and sell before they start to rise again. [/quote]

I thought you bought bonds to earn interest.[/quote]

Of course you do, but only an idiot would not take into account how interest rate swings will effect the principle value of the bonds. Of course if you hold the bonds to maturity you will recieve your principle back but high yield mutual funds and ETF’s will seee their asset values fall with rising interest rates, the further out their average maturity the further the principle value will fall.

http://www.investinginbonds.com/learnmore.asp?catid=3&id=57

http://www.fool.com/investing/etf/2010/09/01/the-true-risk-of-bond-etfs.aspx[/quote]

Yes, everyone knows that when interest rates increases price of bonds decreases. Or, so I hope. However, it’s not necessarily all factors being equal. Look at 1960’s bond market, totally made those in the bond market lose their wad. As well, you (or I do) have to do an analysis of the company to make sure their ability to pay their debt is feasible and I’m not looking at losing more money than the interest.[/quote]

I’m betting the OP who asked about ETF’s didn’t know.

10

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:
I’d avoid the high yield funds right now. It seems all but inevitable that interest rates are going to rise. When they do bonds that pay below the new rate in yield will see their principle value fall until the yield is competetive.

In general you want to hold bonds as rates fall and sell before they start to rise again. [/quote]

I thought you bought bonds to earn interest.[/quote]

Of course you do, but only an idiot would not take into account how interest rate swings will effect the principle value of the bonds. Of course if you hold the bonds to maturity you will recieve your principle back but high yield mutual funds and ETF’s will seee their asset values fall with rising interest rates, the further out their average maturity the further the principle value will fall.

http://www.investinginbonds.com/learnmore.asp?catid=3&id=57

http://www.fool.com/investing/etf/2010/09/01/the-true-risk-of-bond-etfs.aspx[/quote]

Yes, everyone knows that when interest rates increases price of bonds decreases. Or, so I hope. However, it’s not necessarily all factors being equal. Look at 1960’s bond market, totally made those in the bond market lose their wad. As well, you (or I do) have to do an analysis of the company to make sure their ability to pay their debt is feasible and I’m not looking at losing more money than the interest.[/quote]

I’m betting the OP who asked about ETF’s didn’t know.[/quote]

True OP buy Securities Analysis, or give me your money I’ll make you a nice rate of interest.

11

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:
I’d avoid the high yield funds right now. It seems all but inevitable that interest rates are going to rise. When they do bonds that pay below the new rate in yield will see their principle value fall until the yield is competetive.

In general you want to hold bonds as rates fall and sell before they start to rise again. [/quote]

I thought you bought bonds to earn interest.[/quote]

Of course you do, but only an idiot would not take into account how interest rate swings will effect the principle value of the bonds. Of course if you hold the bonds to maturity you will recieve your principle back but high yield mutual funds and ETF’s will seee their asset values fall with rising interest rates, the further out their average maturity the further the principle value will fall.

http://www.investinginbonds.com/learnmore.asp?catid=3&id=57

http://www.fool.com/investing/etf/2010/09/01/the-true-risk-of-bond-etfs.aspx[/quote]

Yes, everyone knows that when interest rates increases price of bonds decreases. Or, so I hope. However, it’s not necessarily all factors being equal. Look at 1960’s bond market, totally made those in the bond market lose their wad. As well, you (or I do) have to do an analysis of the company to make sure their ability to pay their debt is feasible and I’m not looking at losing more money than the interest.[/quote]

I’m betting the OP who asked about ETF’s didn’t know.[/quote]

I’m an accounting student, I know how bond pricing works. I wouldn’t be looking at the fund if I didn’t.

12

[quote]tmay11 wrote:

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:
I’d avoid the high yield funds right now. It seems all but inevitable that interest rates are going to rise. When they do bonds that pay below the new rate in yield will see their principle value fall until the yield is competetive.

In general you want to hold bonds as rates fall and sell before they start to rise again. [/quote]

I thought you bought bonds to earn interest.[/quote]

Of course you do, but only an idiot would not take into account how interest rate swings will effect the principle value of the bonds. Of course if you hold the bonds to maturity you will recieve your principle back but high yield mutual funds and ETF’s will seee their asset values fall with rising interest rates, the further out their average maturity the further the principle value will fall.

http://www.investinginbonds.com/learnmore.asp?catid=3&id=57

http://www.fool.com/investing/etf/2010/09/01/the-true-risk-of-bond-etfs.aspx[/quote]

Yes, everyone knows that when interest rates increases price of bonds decreases. Or, so I hope. However, it’s not necessarily all factors being equal. Look at 1960’s bond market, totally made those in the bond market lose their wad. As well, you (or I do) have to do an analysis of the company to make sure their ability to pay their debt is feasible and I’m not looking at losing more money than the interest.[/quote]

I’m betting the OP who asked about ETF’s didn’t know.[/quote]

I’m an accounting student, I know how bond pricing works. I wouldn’t be looking at the fund if I didn’t.
[/quote]

Then why would you buy a bond ETF, with its sensitivity to interest rates, when we are entering a period of rising rates? I don’t get it.

13

[quote]JoeGood wrote:

[quote]tmay11 wrote:

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:
I’d avoid the high yield funds right now. It seems all but inevitable that interest rates are going to rise. When they do bonds that pay below the new rate in yield will see their principle value fall until the yield is competetive.

In general you want to hold bonds as rates fall and sell before they start to rise again. [/quote]

I thought you bought bonds to earn interest.[/quote]

Of course you do, but only an idiot would not take into account how interest rate swings will effect the principle value of the bonds. Of course if you hold the bonds to maturity you will recieve your principle back but high yield mutual funds and ETF’s will seee their asset values fall with rising interest rates, the further out their average maturity the further the principle value will fall.

http://www.investinginbonds.com/learnmore.asp?catid=3&id=57

http://www.fool.com/investing/etf/2010/09/01/the-true-risk-of-bond-etfs.aspx[/quote]

Yes, everyone knows that when interest rates increases price of bonds decreases. Or, so I hope. However, it’s not necessarily all factors being equal. Look at 1960’s bond market, totally made those in the bond market lose their wad. As well, you (or I do) have to do an analysis of the company to make sure their ability to pay their debt is feasible and I’m not looking at losing more money than the interest.[/quote]

I’m betting the OP who asked about ETF’s didn’t know.[/quote]

I’m an accounting student, I know how bond pricing works. I wouldn’t be looking at the fund if I didn’t.
[/quote]

Then why would you buy a bond ETF, with its sensitivity to interest rates, when we are entering a period of rising rates? I don’t get it.[/quote]

Because earning a relatively safe 5/6/7 % is better than earning nothing. As long as I plan to hold it for some time(till the bulk of the bonds mature) a rise in rates wont matter. There will only be the missed opportunity of earning a potentially higher return.

Anyways, I ended up buying a Canadian Dividend ETF - CDZ.

14

[quote]tmay11 wrote:

[quote]JoeGood wrote:

[quote]tmay11 wrote:

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:
I’d avoid the high yield funds right now. It seems all but inevitable that interest rates are going to rise. When they do bonds that pay below the new rate in yield will see their principle value fall until the yield is competetive.

In general you want to hold bonds as rates fall and sell before they start to rise again. [/quote]

I thought you bought bonds to earn interest.[/quote]

Of course you do, but only an idiot would not take into account how interest rate swings will effect the principle value of the bonds. Of course if you hold the bonds to maturity you will recieve your principle back but high yield mutual funds and ETF’s will seee their asset values fall with rising interest rates, the further out their average maturity the further the principle value will fall.

http://www.investinginbonds.com/learnmore.asp?catid=3&id=57

http://www.fool.com/investing/etf/2010/09/01/the-true-risk-of-bond-etfs.aspx[/quote]

Yes, everyone knows that when interest rates increases price of bonds decreases. Or, so I hope. However, it’s not necessarily all factors being equal. Look at 1960’s bond market, totally made those in the bond market lose their wad. As well, you (or I do) have to do an analysis of the company to make sure their ability to pay their debt is feasible and I’m not looking at losing more money than the interest.[/quote]

I’m betting the OP who asked about ETF’s didn’t know.[/quote]

I’m an accounting student, I know how bond pricing works. I wouldn’t be looking at the fund if I didn’t.
[/quote]

Then why would you buy a bond ETF, with its sensitivity to interest rates, when we are entering a period of rising rates? I don’t get it.[/quote]

Because earning a relatively safe 5/6/7 % is better than earning nothing. As long as I plan to hold it for some time(till the bulk of the bonds mature) a rise in rates wont matter. There will only be the missed opportunity of earning a potentially higher return.

Anyways, I ended up buying a Canadian Dividend ETF - CDZ. [/quote]

Least you didn’t buy an American currency based bond.

15

[quote]tmay11 wrote:

[quote]JoeGood wrote:

[quote]tmay11 wrote:

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:

[quote]Brother Chris wrote:

[quote]JoeGood wrote:
I’d avoid the high yield funds right now. It seems all but inevitable that interest rates are going to rise. When they do bonds that pay below the new rate in yield will see their principle value fall until the yield is competetive.

In general you want to hold bonds as rates fall and sell before they start to rise again. [/quote]

I thought you bought bonds to earn interest.[/quote]

Of course you do, but only an idiot would not take into account how interest rate swings will effect the principle value of the bonds. Of course if you hold the bonds to maturity you will recieve your principle back but high yield mutual funds and ETF’s will seee their asset values fall with rising interest rates, the further out their average maturity the further the principle value will fall.

http://www.investinginbonds.com/learnmore.asp?catid=3&id=57

http://www.fool.com/investing/etf/2010/09/01/the-true-risk-of-bond-etfs.aspx[/quote]

Yes, everyone knows that when interest rates increases price of bonds decreases. Or, so I hope. However, it’s not necessarily all factors being equal. Look at 1960’s bond market, totally made those in the bond market lose their wad. As well, you (or I do) have to do an analysis of the company to make sure their ability to pay their debt is feasible and I’m not looking at losing more money than the interest.[/quote]

I’m betting the OP who asked about ETF’s didn’t know.[/quote]

I’m an accounting student, I know how bond pricing works. I wouldn’t be looking at the fund if I didn’t.
[/quote]

Then why would you buy a bond ETF, with its sensitivity to interest rates, when we are entering a period of rising rates? I don’t get it.[/quote]

Because earning a relatively safe 5/6/7 % is better than earning nothing. As long as I plan to hold it for some time(till the bulk of the bonds mature) a rise in rates wont matter. There will only be the missed opportunity of earning a potentially higher return.

Anyways, I ended up buying a Canadian Dividend ETF - CDZ. [/quote]

And the falling value of the ETF.

The dividend ETF at least has the chance of increases to offset the inflation pressure.