Pathways

A High Yield Approach to Diversification

What Are High Yield Bonds? Who Issues Them?

Debt securities of companies with low credit quality, as designated by independent bond-rating agencies. Ratings are based on the likelihood that a corporate issuer may default. Issuers typically have higher outstanding debt and less cash flow to cover their interest obligations. Mature companies that operate in capital-intensive industries, such as energy, telecommunications and utilities. Companies in the early stages of development that lack the operating history or balance sheet strength to merit having their debt labelled as investment grade quality. Fallen angels - Companies whose debt once carried an investment-grade rating, but have been downgraded due to doubts about the companies ability to pay interest or principal as promised Yields are generally higher than those of investment-grade bonds, to compensate for higher risk. Prices can be volatile over the short term, due to the risk factor, making this investment more appropriate for investors with a long-term horizon. High yield bonds offer tax-efficient income through a combination of interest income and capital appreciation, ideal for investors looking for a steady income stream. They share traits of both stocks and investment-grade bonds:

What Are Their Characteristics?

Theyre like bonds because... They provide a fixed income The bulk of their return comes from coupon payments They are less volatile than stocks and provide downside protection Absent of default, high-yield bonds can be expected to be redeemed at par value at maturity, while stock prices fluctuate continuously

Theyre like stocks because... They tend to be less sensitive to interest-rate movements than investmentgrade bonds
They are affected by the factors that influence stock prices, such as the issuers business prospects, cash flow and debt level, as well as industry fundamentals and the overall health of the economy

For more information on how to use High Yield Bond Funds in your portfolio, contact your advisor John Sabourin, BA, B.Comm, FLMI, CFP
Telephone: (519) 675-1177 1-888-327-5777 Facsimile: (519) 675-1331

www.selectpath.ca John@selectpath.ca

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Investment Services Inc.