If you don’t already own units of this great fund, then you are out of luck. It has been capped since November 2011, and there has been no discussion of reopening it anytime soon. One of the differentiating factors of this high-yield fund is that it focuses on higher quality issues in the high-yield space, mainly on medium-quality corporate bonds, convertibles, and preferreds. At the end of March, 91% of its holdings were rated BB or lower.
The PH&N High Yield Bond Fund can invest anywhere in the world, but currently about 43% is in Canada, 57% in the U.S., and the balance in other developed markets. Manager Hanif Mamdani, Head of both Corporate Bond Investments and Alternative Investments at RBC Global Asset Management, sets the sector mix of the fund based on the outcome of his macro analysis. Once the sector mix is determined, he conducts a fundamental analysis on a number of companies, looking at their free cash flow and interest coverage ratios to determine quality.
The fund is conservatively positioned, with a yield to maturity of 4.2%, which is well above the yield of the DEX Universe Bond Index. Its duration is 2.6 years, which is considerably less than the benchmark duration of approximately 7 years. Because of this positioning, it will hold up better than the broader bond market when rates move higher. That was the case between last May and September, when yields shot higher. In that period, the DEX Universe Bond Index was dropped 3.35 percentage points, while this fund was down by only 0.14 percentage points.
Given the more conservative nature of the fund, its performance can be a bit of a mixed bag. It will likely lag in a market where high yield issues rally sharply higher, yet will hold up much better in periods of extreme uncertainty. Longer term, results have been very strong, handily outpacing the DEX Bond Universe and Global High Yield universe over the past 10 years. Volatility is also the lowest in the category. Another bonus is that it carries a rock-bottom MER of 0.88%.
This has long been one of my favorites in the fixed-income space, and I expect it to be for the foreseeable future. It is a great way to add high-yield bond exposure in your portfolio without taking on huge risk. The only drawback is that it is closed to new investors. Existing investors may continue to purchase units.
Fund company: RBC Global Asset Management Management
Fund type: High Yield Fixed Income
Fundata FundGrade® Rating: A
Style: Credit Analysis
Risk level: Low to Medium
Load status: No-load/Optional
Manager: Hanif Mamdani since July 2000
Code: RBF 1280 (no load)
Minimum investment: $500
See the Fundata FundCard™ for more details.
Dave Paterson, CFA, is the Director of Research, Investment Funds for D.A. Paterson & Associates Inc., a consulting firm specializing in providing research and due diligence on a variety of investment products. He is also the publisher of Dave Paterson's Top Funds Report and Mutual Fund and ETF Update offering regular commentary and in-depth analysis of Canada’s top investment funds. He uses a unique analytical approach to identify funds with strong, risk-adjusted returns, and regularly publishes his insights and analyses in Fund Library.
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Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.