Q: Hello 5i team,
I currently have a balanced position in HBND in my TFSA for income (Using TFSA as an income source in general). Before HBND I used to have HYI as an asset class that used to track US high yield bonds, but was shut down last year. I have a few questions.
1)Is HBND an approximate substitute for HYI for this asset class?
2)Also HBND is not even a year old but do you have an idea of the NAV of the ETF?
HBND pays a decent amount monthly but I am not sure of the sustainability of the payout.
Thank You,
Andrew
I currently have a balanced position in HBND in my TFSA for income (Using TFSA as an income source in general). Before HBND I used to have HYI as an asset class that used to track US high yield bonds, but was shut down last year. I have a few questions.
1)Is HBND an approximate substitute for HYI for this asset class?
2)Also HBND is not even a year old but do you have an idea of the NAV of the ETF?
HBND pays a decent amount monthly but I am not sure of the sustainability of the payout.
Thank You,
Andrew
5i Research Answer:
HYI invested in N. American corporate bonds. HBND invests in US treasuries and writes covered calls against them. Thus, the securities owned are quite different, and the call strategy means HBND pays a higher yield (much will be return on capital or capital gains). But for bond income we would be quite comfortable with HBND over the former HYI.
2) We do not have an NAV nor is one listed currently.
3) The covered call premiums and coupons on the securities held will always produce some income. But the income may vary. The portfolio is most correlated with interest rates (lower is better). Call premium is typically most correlated with volatility (higher is better). Since inception, the distribution has declined marginally (13c to 12.9c).