High Yield Mutual Funds

It was a reader, Cédrick, who challenged me via Twitter when asked about publication in the Globe & Mail an article about high yield ETFs.

“It might be interesting to talk about it in your columns,” he told me.

As a matter of fact…

Exchange Traded Funds (ETFs)

Whenever I talk about exchange traded funds, I get asked how this investment product works. Let’s recall the basics in a few lines:

A fund manufacturer collects money from investors in exchange for shares.

The money is invested according to a specific approach known to clients (passive index, sector, active, etc.).

Shareholders can sell or redeem Shares like Shares through a brokerage platform. The funds are identified by share symbols (tickers).

The price of Shares will vary depending on the underlying assets and the supply and demand for Shares.

The investment strategy for the ETFs discussed here is not rocket science: the money is largely invested in high-interest bank accounts. The investment is therefore interest-bearing and stable.

Better than savings accounts?

You will agree that the money follows a more complicated path than if you deposit it directly into a high yield account. This cycle is accompanied by management fees, which are rather low overall (around 0.15%).

These ETFs still manage to return 2.8% net of fees these days. That’s better than what savers can get at retail, at banks.

On the other hand, some brokerage platforms charge transaction fees, which affects performance. Also the Globe & Mailrecently revealed again that these products are not available from discount brokers affiliated with TD Bank, RBC and BMO, apparently because they compete with high-yield accounts.

I asked Raymond Kerzérho, senior researcher at PWL, a firm that builds portfolios of ETFs, for an opinion. High-yield funds perform the same functions as bank deposits without offering Canada Deposit Insurance Corporation (CDIC) protection, he said.

“My best advice is to look for the best interest rate possible and make sure the amounts invested are covered by CDIC as much as possible,” he continues.

However, the funds we are talking about are low risk.

What’s the point?

But hey, why did you put your money there? Basically to save your resources that you may need at any time. If the sums can sleep for a year or two, guaranteed investment certificates with interest rates above 4% remain cheaper.

In a wallet, they are effective for storing liquid portions. At the limit, they can serve as a temporary shelter when the stock market is brewing, but this type of maneuver can cause us to miss the recovery.

This gives me the opportunity to bring you news on the stock exchange. The Toronto Stock Exchange’s TSX index rose 5% in July. In New York, the S&P 500 returned more than 9% and the Nasdaq 11% for the same month.

If you were in your hideout, you missed this.

SIX HIGH YIELD ETFs

  • Horizons ETFs Cash Maximizer account [Cash maximiser] (HSAV)
  • Horizons High Interest Savings ETF (CASH)
  • CI High Interest Savings ETF (CSAV)
  • Purpose High Interest Savings ETF (PSA)
  • High Yield Savings Fund (HISA)
  • Ninepoint High Interest Savings Fund (NSAV)

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