High yield bond funds

Money Digest, Jan, 1998

Because interest rates are low, bond fund yields are relatively low. But there is a way to boost your returns if you are prepared to take some extra risk by buying high yield funds.

High yield bond funds often invest in investment quality as well as non-investment quality bonds. Non-investment quality bonds include junk bonds that are issued by companies that lack sufficient financial stability to command enough confidence from investors. The only way these companies can borrow is by offering an interest rate that is sufficiently high to cover the extra risk assumed by investors. Currently high-yield bonds offer 3%- to -5% higher return compared to ordinary bonds.

Although these bonds do not frequently default, the risk cannot be ignored. By investing in a high yield bond fund (rather than in an individual junk bond), you further reduce your risk of losing your capital. Please note that high-yield funds are more volatile than regular bonds funds.

                        Some high-yield bond funds

                                                  Returns (%)
Fund name                    Load  RRSP Eligible  1 yr.  3 yr.


Altamira High. Yield Bond    NL          F         13.7  -
C.I. Global High Yield Bond  F/B         F          7.7  12.3
Inv. N.A. High Yield Bond    F/B         Y         10.7  -
Mawer High Yield Bond        NL          N          7.1  -
TAL/Hyperion Hi-Yield Bond   F/B         Y         10.8  -