Q: I am currently at loss with TLT in my cash account. I want to sell it as tax loss. I am thinking buying HYPT in margin account with interest rate of 7.95%. HPYT has yield of 17.27%. So, theocratically I can make 9.32% if I do not sell it. I want to hold it for a medium term 3-5 years. Does it make sense? Will it be more risky than investing in TLT?
5i Research Answer:
From a securities standpoint, HPYT is quite similar to TLT, and in fact 70% of its holdings is TLT itself. Both funds will be highly sensitive to interest rates (both ways). The only main difference is that HPYT sells call options on 100% of its portfolio. This enhances income. It will be less risky than TLT but only to the extent of this additional income. It can still decline, and in fact is down 1.1% this year. But overall we would be OK with this tax switch and would be OK owning HPYT if an investor wants exposure to long bonds as well as enhanced income.