What are we looking for?
The biggest money makers among riskier bond funds.
High-yield fixed-income funds own bonds with below-investment-grade credit ratings – what are often called “junk bonds.” In this era of low interest rates, a growing number of investors have gravitated to this kind of corporate debt in a search for higher yields.
We looked for the 15 funds with the highest returns in the high-yield fixed-income category for the year ended Sept. 30. U.S. dollar, segregated, pooled and duplicate versions of the funds were excluded.
What did we find?
Towering returns from a trio of exchange-traded funds.
The biggest gainers included the iShares Advantage U.S. High Yield Bond ETF, which climbed 19.8 per cent; BMO High Yield U.S. Corporate Bond ETF, up 19.2 per cent; and iShares U.S. High Yield ETF, up 19 per cent. Low fees helped the performance of these ETFs, which also hedge their U.S. currency exposure back to Canadian dollars.
U.S. high-yield bonds benefited from a strong rally late last year, but investors have continued to seek out higher yields from riskier assets, said Steven Leong, vice-president at BlackRock Asset Management Canada Ltd., which manages the iShares ETFs.
Both the iShares Advantage U.S. High Yield Bond and BMO High Yield U.S. Corporate Bond funds aim to track the Barclays U.S. High-Yield Very Liquid Index (which tracks large and easily tradeable bonds), but they take different routes to that goal. The iShares Advantage ETF uses derivatives, which offers tax advantages for investors in non-registered accounts. The BMO ETF invests directly in corporate bonds, but can own other high-yield ETFs.
On the other hand, the iShares U.S. High Yield Bond ETF holds a U.S.-listed iShares ETF that tracks a broader universe of securities in the Markit iBoxx U.S. dollar Liquid High Yield Index.
Mark Raes, an ETF portfolio manager at BMO Global Asset Management, says there is still some upside left in the high-yield space, but noted that the yield spreads of their bonds versus U.S. Treasuries have tightened to about 5.3 percentage points. “Investors should keep in mind that this asset class has done well over last year,” he said. “There is less room for robust returns.”
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Top-performing high-yield fixed income funds for the year ended Sept. 30, 2012
|Fund||Symbol||MER||Assets (in $ mil.)|
|iShares Adv. U.S. High Yld Bond Idx Com CAD-Hed ETF||CHB-T||0.55||433.7|
|BMO High Yield US Corp Bond CAD Hed ETF||ZHY-T||0.62||493.4|
|iShares U.S. High Yield CAD-Hedged ETF||XHY-T||0.61||573.5|
|Manulife High Yield Bond Fund||n/a||2.16||35.2|
|Franklin High Income Fund||n/a||2.52||59|
|RBC Global High Yield Bond-A||n/a||1.76||971.2|
|IG Putnam U.S. High Yield Income||n/a||2.39||341|
|Fidelity Amer HighYld Curr Neutral||n/a||2.16||99.7|
|Northwest Spec Global High Yld Bond||n/a||2.14||155.2|
|BMO Global Strat Bond Fund A||n/a||2.23||892.2|
|Fund||Symbol||MER||Assets (in $ mil.)||1 yr. to Sept. 30/2012||YTD to Sept. 30/12||2011||2010||2009|
|iShares Adv. U.S. High Yld Bond Idx Com CAD-Hed ETF||CHB-T||0.55||433.7||19.83%||10.98%||4.61%|
|BMO High Yield US Corp Bond CAD Hed ETF||ZHY-T||0.62||493.4||19.16%||10.62%||4.85%||10.30%|
|iShares U.S. High Yield CAD-Hedged ETF||XHY-T||0.61||573.5||18.96%||7.70%||6.83%|
|Manulife High Yield Bond Fund||n/a||2.16||35.2||17.75%||11.87%|
|Franklin High Income Fund||n/a||2.52||59||17.69%||10.33%||2.95%||10.81%||35.11%|
|RBC Global High Yield Bond-A||n/a||1.76||971.2||17.30%||11.73%||6.35%||10.97%||27.61%|
|IG Putnam U.S. High Yield Income||n/a||2.39||341||17.22%||10.81%||1.22%||12.40%||43.47%|
|Fidelity Amer HighYld Curr Neutral||n/a||2.16||99.7||16.70%||10.39%||3.44%||11.81%||42.57%|
|Northwest Spec Global High Yld Bond||n/a||2.14||155.2||16.32%||10.44%||4.14%||12.21%||39.90%|
|BMO Global Strat Bond Fund A||n/a||2.23||892.2||15.39%||10.78%||2.57%||10.56%||21.59%|
|Altamira High Yield Bond||n/a||1.9||662.1||15.13%||10.57%||3.24%||13.18%||36.64%|
|PowerShares High Yield Corp Bond Idx A||n/a||1.28||30.5||14.96%||8.96%||4.78%|
|RBC High Yield Bond A||n/a||1.42||638.2||14.91%||8.64%||7.02%|
|Mack Sent Reg NorthAmer Corp Bond-A||n/a||2.19||499||14.29%||9.33%||3.32%||10.02%|
|BMO U.S. High Yield Bond||n/a||2.21||355.4||14.07%||8.38%||4.66%||10.17%||29.32%|
|Barclays Capital Aggregate Bond||5.16%||3.99%||7.84%||6.55%||5.93%|
|S&P/TSX Total Return||9.17%||5.38%||-8.71%||17.61%||35.06%|
|S&P 500 Composite Total Return Idx($Cdn)||23.27%||12.61%||4.42%||9.35%||8.08%|