# CHB Claymore Advantage High Yield Bond ETF



## Jungle (Feb 17, 2010)

Anyone hold this fund? It's composes of mostly B1/B2 junk bonds. Yield is about 7.4%. Just wondering if holding the basket takes some risk out of junk bonds. I believe it uses a forward swap structure with TD Finance. Currency hedged? Looks like the bonds are US companies..

I was thinking about buying it for some yield in the fixed income portion of our portfolio, which I like to hold in a TFSA. Before I used TD e-series bond index, but looking for a little more risk/yield. Too risky?

http://www.claymoreinvestments.ca/en/etf/fund/chb


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## humble_pie (Jun 7, 2009)

a non-mentioned advantage of this bond fund is that its yield is tax-advantaged in a non-registered account. That is, because of the forward swapping structure, distributions from this fund are largely paid out in the form of return of capital (adjust cost base down) and capital gains (taxable at 50%) rather than as fully-taxable interest.

there are several similar bond funds or bond units. A comparable would be marret's MHY.UN. Another, with perhaps a greater inclusion of canadian issuers, would be onex credit's OCS.UN. This latter feature may be one reason why ocs.un's share price has lagged mhy.un ... last time i looked, a significant number of its canadian issuers had defaulted.

the reason the managers of these bond funds turn to US junk bonds is that the sheer number of issuers is vast. Among canadian issuers the choice is severely limited. Typically the managers seek safety through large numbers of holdings across diverse sectors of the economy.

a granddaddy of these bonds would be JNK, a US etf, and its hedged canadian clone ZHY, which is a member of the BMO etf family. I believe that interest payments from either of these two are fully-taxable interest payments, rather than the tax-advantaged streams of income offered by the claymore, marret & onex products.

as for the risk, it is not worrisome to me at present. I for one have always held either the marret or the onex product in non-registered because of the tax advantage, but for certain registered accounts i would believe they or their claymore cousin are suitable. None of them is an entity to buy and forget, though. In a severe downturn such as the doom bears are forecasting, these funds will hurt badly.


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## fatcat (Nov 11, 2009)

rbc just started a high yield bond fund (in october) which invests primarily in us junk which as you say are more numerous

mer should be around 1%

i bought it and the phn high yield fund when i opened an account at phn

here's the link: http://funds.rbcgam.com/investment-solutions/mutual-funds-spotlight/rbc-high-yield-bond-fund.html


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## ledtim (Sep 4, 2010)

http://canadianmoneyforum.com/showthread.php?p=40029#post40029


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## Belguy (May 24, 2010)

I have a small percentage of my overall bond portfolio in the SPDR Barclays Capital High Yield Bond ETF (JNK):

https://www.spdrs.com/product/fund.seam?ticker=JNK

Generally, I am a buy-and-hold investor but I understand that, given the overall economic conditions, that this is not a good buy-and-hold investment.

I have made 11.33% YTD on this ETF but it is down almost 2% so far this month.

And so, the dilemna now is when to sell?

This is why I should practice my own advice and just hold broad-based ETF's.

High yield or junk bonds are more like equities than bonds!


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## Jungle (Feb 17, 2010)

@humble_pie

Thanks for the great write up, I did not know BMO had a junk bond etf!

@fatcat, thanks for the link, I checked it out. 

@ledtim, I read your post, but could you explain how the BMO ETF underperformed the claymore by 20%? On charts I see both funds moving in the same pettern, also, BMO has a higher yield right now. 

@belguy, I read a report that etf junk bond prices tend to move in line with equities.


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## ledtim (Sep 4, 2010)

Jungle said:


> @ledtim, I read your post, but could you explain how the BMO ETF underperformed the claymore by 20%? On charts I see both funds moving in the same pettern, also, BMO has a higher yield right now.


I never said ZHY underperformed claymore by 20%. I said ZHY "seems to be underperforming more than the withholding tax from JNK comprising 20% of its holdings would suggest."

It means that ZHY is charged 15% withholding tax on income from about 20% of its holdings which is JNK (unless I'm missing other non-direct US bond holdings other than JNK) which would be the expected underperformance (assuming the withholding tax is lost, as if you've held it in a tfsa account for example, since it's impossible to know how much of the distribution was reduced by the withholding tax exactly currently) compared to CHB (which is charged no withholding tax) and JNK (which is charged withholding tax but the indicated distribution is pre-withholding taxation value). But the difference is greater than that. For example, since Jan 11, 2010 (the inception date of CHB), a portfolio that held of CHB would be worth about 2.5% more today than one that held ZHY (distributions not reinvested).


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## Jungle (Feb 17, 2010)

Thanks for the explanation  Any more thoughts on Junk bond etfs?


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## fersure (Apr 19, 2009)

I've owned CHB for awhile: I think it was the first high-yield bond fund in Canada (or close to it - Ishares may have been in the market first). It was an interesting asset class to which I lacked exposure. I hold it in my TFSA - and it spins off some nice monthly income. I know now, that because of its tax-advantaged status, you can/probably should hold it in a non-registered account.

A note: I tried to set CHB up on a DRIP at Credential Direct earlier this year; however, they denied the DRIP without providing a reason (and I didn't bother to follow up). Strange: I had no problem setting up a DRIP with CYH.


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## Jungle (Feb 17, 2010)

Waterhouse and Questrade said they will drip for free; I recently called them on this. (no fract shares, must have enough distribution to buy min one share)


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## warp (Sep 4, 2010)

Belguy said:


> I have a small percentage of my overall bond portfolio in the SPDR Barclays Capital High Yield Bond ETF (JNK):
> 
> https://www.spdrs.com/product/fund.seam?ticker=JNK
> 
> ...



I bought JNK in several accounts about 8 months ago.

You are right that junk bonds generally move with equities.

That being said, I'm content to get the 9-10% yield, and follow/mimick the S&P500, more or less....( chaart the 2 together to see)

Also remember that by buying JNK directly, you are playing the US dollar.........I intend to hold JNK for a few years as I am assuming an economic recovery, and I am also assuming,( hoping), for a US dollar recovery too.

As the CAN dollar is almost at par, I think this is a good time to buy JNK, (or US equities), in canadian dollars.

As well keep in mind that your "junk bond-high yield" exposure should only be a small part of your overall portfolio, perhaps 5%.


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## funinagg (Jun 10, 2010)

fatcat said:


> rbc just started a high yield bond fund (in october) which invests primarily in us junk which as you say are more numerous
> 
> mer should be around 1%
> 
> ...


is phn high yield (phn280 i think) closed as of now? i am with RBC Direct Investing and they say it is now closed.


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## fatcat (Nov 11, 2009)

> is phn high yield (phn280 i think) closed as of now? i am with RBC Direct Investing and they say it is now closed.


 yes, thats why i finally opened an account at phn because i wanted to get in that fund (kind of foolish because i am chasing past returns and making too big a deal out of this fund ... however, it has the same manager still and he clearly is a smart guy so i am assuming it will generate similar returns) 

i was told that it is closing because they have been so flooded with investors and money that they don't think there are enough opportunities out there in the way of canadian junk bonds to place all the money flowing in so they have closed the fund

they have however started a new fund on the rbc side (rbc high yield referred to above) which will charge around the same mer (1%) and unlike the phn280 which is composed of like 80% canadian junk, the rbc will be composed of 80% american junk and also uses a different manager

i bought a small chunk of each of them and phn340 which is their main bonf fund with an mer of .57 and is very highly regarded


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## Belguy (May 24, 2010)

Have a look at the Morgan Stanley Emerging Markets Debt fund (EDD) which has done quite well for me nothwithstanding the fact that it has taken a downturn over the past month:

http://seekingalpha.com/symbol/edd

Any thoughts on how long I should stay invested in this?


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## larry81 (Nov 22, 2010)

fatcat said:


> yes, thats why i finally opened an account at phn because i wanted to get in that fund (kind of foolish because i am chasing past returns and making too big a deal out of this fund ... however, it has the same manager still and he clearly is a smart guy so i am assuming it will generate similar returns)
> 
> i was told that it is closing because they have been so flooded with investors and money that they don't think there are enough opportunities out there in the way of canadian junk bonds to place all the money flowing in so they have closed the fund
> 
> ...


any official statement regarding phn280 closing ?

i will have 5000$ to put in my TFSA january first and i am looking at some high yield bonds


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## I'm Howard (Oct 13, 2010)

JNK exposes you to currency risk, and the Canadian market is just too thin for high yields.
I hold JNK but it is only 5% of portfolio.


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## Eclectic12 (Oct 20, 2010)

Jungle said:


> Anyone hold this fund? It's composes of mostly B1/B2 junk bonds. Yield is about 7.4%. Just wondering if holding the basket takes some risk out of junk bonds. I believe it uses a forward swap structure with TD Finance. Currency hedged? Looks like the bonds are US companies..
> 
> I was thinking about buying it for some yield in the fixed income portion of our portfolio, which I like to hold in a TFSA. Before I used TD e-series bond index, but looking for a little more risk/yield. Too risky?
> 
> http://www.claymoreinvestments.ca/en/etf/fund/chb


Hmmm ... are you sure you want to hold it in a TFSA? 

Note that in a TFSA, the 15% US witholding tax and the foreign tax credit are both lost.

http://blog.taxresource.ca/tfsa-non-resident-withholding-taxes/


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## Eclectic12 (Oct 20, 2010)

Jungle said:


> Waterhouse and Questrade said they will drip for free; I recently called them on this. (no fract shares, must have enough distribution to buy min one share)


Yup ... I've been doing the drip for years.

The other thing to watch for is that some brokers will pass on the drip discount and other don't. For example, if you register your BNS shares for the drip, there is a 5% discount on re-invested dividends. Some brokers will pass the discount on and some don't.


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## Jungle (Feb 17, 2010)

Eclectic12 said:


> Hmmm ... are you sure you want to hold it in a TFSA?
> 
> Note that in a TFSA, the 15% US witholding tax and the foreign tax credit are both lost.
> 
> http://blog.taxresource.ca/tfsa-non-resident-withholding-taxes/



"The Fund obtains a tax-efficient exposure to the constituent securities of the index through entering into a forward agreement with a Canadian Chartered Bank."

I don't think there is withholding tax on this one?

PS: the fund is too expensive for me now; I bought something else


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## ledtim (Sep 4, 2010)

Eclectic12 said:


> Hmmm ... are you sure you want to hold it in a TFSA?
> 
> Note that in a TFSA, the 15% US witholding tax and the foreign tax credit are both lost.
> 
> http://blog.taxresource.ca/tfsa-non-resident-withholding-taxes/


Look at my first post in the thread.


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