| Fund Company | National Bank Securities |
| Fund Type | High Yield Fixed Income |
| Rating | $$ |
| Style | Credit Analysis |
| Risk Level | High |
| Load Status | No Load / Optional |
| RRSP/RRIF Suitability | Fair |
| TFSA Suitability | Fair |
| Manager | Marc-Andre Gaudreau since November 2009 Francis Pelletier since December 2001 Gilles Chouinard since October 2008 |
| MER | 1.90% |
| Code | NBC 813 – No Load Units NBC 413 – Front End Units NBC 513 DSC Units |
| Minimum Investment | $500 |
Analysis: With interest rates hovering near historic lows, many investors are turning to high yield bonds as a way to generate additional return while rates remain stable, and provide better downside protection when interest rates begin to move higher.
This high yield offering from National Bank invests in high yield bonds of both Canadian and global issuers. As of September 30, it was heavily tilted towards U.S. issuers, which make up more than two thirds of the fund. Canadian issuers make up 17%.
The yield is higher than traditional bonds, coming in at 7.6%, while the duration is relatively short at 4.4 years. The credit quality is neutral to its benchmark, holding an underweight position in BB bonds with a slight overweight in bonds rated CCC or lower.
The managers are fairly patient in managing the fund. Portfolio turnover has averaged approximately 40% for the past five years. In looking at the current environment, the manager does not anticipate any major changes in the portfolios positioning, and expect that it will remain relatively conservative. That said, they are looking to replace bonds in the portfolio that are fully valued with other issues that they believe to be more attractive and less vulnerable to any market turmoil. In reviewing the current environment, they believe that high yield bonds will need to see some level of sustainable economic turnaround if they are to gain any ground
Historically, this has been one of the most volatile funds in the category, outperforming in up markets and underperforming in down markets. In 2008, it was hit particularly hard, dropping 24%, which was worse than many of its peers. In the time since, performance has been very strong, 10.4% for the three years ending September 30, putting it well into the top half of the high yield category.
While the recent performance has undoubtedly been strong, it is our opinion that the overall volatility may be too high for most investors. While this may be suited for more aggressive investors, it is our opinion that there are other choices available which offer a comparable return profile with considerably less risk.