The BMO High Yield U.S. Corporate Bond Hedged Index (ETF) (TSX: ZHY) has posted strong gains in the last three months. In the last three months, the ETF has gained 8%. The gains in ZHY have coincided with a rebound in oil prices.
Oil prices had collapsed at the start of this year. But since February, oil has made a strong comeback, driven partly by supply outages and also by improving fundamentals. Interestingly, ZHY had fallen sharply in mid-2014 when oil prices began to slide. The reason for the pullback was that many of the shale producers had tapped the junk bond market to fund their exploration activities. But as oil prices began to slide, hurting their profitability, the risk of default from many of the shale producers grew.
Indeed, ZHY still remains well below the levels it was trading at in mid-2014. But with oil prices recovering and more important, the fundamentals of the oil market improving, investors should consider ZHY. The ETF currently offers a dividend yield of 6.66%.
The fund has been designed to replicate the performance of the broad U.S. high yield corporate bond market through a passive investment in securities that track a widely recognized U.S. high yield index.
