Don’t give up income for security

The safety of investment-grade bonds isn’t worth the return tradeoff.

Instead, “The value is in the high-yield bond area, and we have roughly 12% of the fund in that category,” says Barry Morrison, CEO of Aston Hill Institutional Partners.

He adds, “At the moment, they yield about 9%, and have a duration of 4.2 years.”

Overall, the Canadian investment grade market yields 2.34%, he notes, so if investors are concentrated in this asset class, “[they’re] giving up a lot of income for security and lower volatility, and we don’t think the tradeoff makes much sense.”

Read: Don’t overlook global bonds

His fund’s mix, he says, generates about a 6% yield, mainly through dividends. “Most of the bonds are U.S. issues,” says Morrison, and the fund has exposure to different GICS sectors and bond grades.

Read: Why dividends offer downside protection

He also owns Canadian bonds, including Mattamy Homes and Golf Town.

Over the past few years, Morrison had forecasted a rate rise because he thought the economy would gather strength. And while that’s happened in the U.S., “Europe is slowing down, and as China is not as fast,” which is delaying that forecasted rise, and “the whole cyclical process in the worldwide economy.”

Read:

Global growth too slow

Going global in bonds

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Adapative asset allocation: A primer

Help clients secure their retirements

Melissa Shin

Melissa is the editorial director of Advisor.ca and leads Newcom Media Inc.’s group of financial publications. She has been with the team since 2011 and been recognized by PMAC and CFA Society Toronto for her reporting. Reach her at mshin@newcom.ca. You may also call or text 416-847-8038 to provide a confidential tip.