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.”
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.
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.”