re repeat visits to the junkyard, aka short-term trading in high yield bond etfs in order to book capital gains.
there's a huge thirst for these products, which on the face of things do offer high returns. BMO has just brought out, among its brand-new family of etfs, a hi-yield bond etf which turns out to be a licensed canadian version of the US hi-yield bond etf JNK with a US dollar hedge thrown in. Not a bad idea.
another fund family recently brought out a hi-yield debenture fund that was oversubscribed, therefore is now bringing out a hi-yield bond fund.
hmmmn. Are these high yield funds a similar story to the mortgage-backed products of yesteryear, all catering to the same greed for what appears to be abnormally high income. Many convertible debentures, for example, have language written into the fine print stating that the issuer, at maturity, has the right to not redeem for cash but to issue a fixed number of common shares instead.
another worrying scenario is that a company can get bought out by an over-leveraged larger fish, and so the investor ends up owning different convertibles or other securities that are even weaker than those he had been holding.
overall, there is concern that, although junkyards can tolerate a certain proportion of bankruptcies, nevertheless this proportion could creep upwards to a percentage of the holdings that would drastically reduce the unit or share price by 30-50%.
one approach is to trade these etfs on an exceptionally tight leash. Some that pay monthly that i've looked at trade with intramonth price swings that are markedly greater than the distributions. Most tend to move up towards x-date & fall not long thereafter. So it's possible to trade these instruments aggressively on a short-term basis only, booking capital gains along the way whose annual aggregate is higher than the annual distribution. I'm hardly a day-trader, but recently held one of these etfs for less than 4 hours. I certainly don't feel comfortable stashing cash permanently in hi-yields under a buy-and-hold approach. Think they're being over-marketed to a perhaps gullible investing public.
all in all, i'd rather stash cash in top-rated short-term paper as one could even 2 years ago, but alas dem days are done like dinner.