A lack of yield is a big issue for many investors. With the most generous GICs yielding just over 2% and government bonds paying even less, these folks are finding it harder and harder to exchange capital for cash flow.
One solution is to check out long bonds. Particularly the BMO Long Corporate Bond Index ETF (TSX:ZLC).
Long bonds give investors more yield in exchange for locking up their money for a longer period of time. The ETF currently yields 4.3%, and the average bond in the fund has a duration of 13.2 years.
One of the dangers in buying long bonds is their price can be quite volatile, at least for the bond universe. If the market gets a sniff rates are heading higher, long bonds will be the first to get hit. But still, bonds are a relatively stable asset class, and the chances of a move big enough to really matter looks to be pretty low.
The ETF has positions in 150 different corporate bonds. Almost 45% of assets are invested in infrastructure, with 32% in energy and near 10% in communications. It focuses on companies with solid credit ratings.
ZLC also has a very reasonable management expense ratio, only charging investors 0.34% annually.
It offers plenty of liquidity for the average investor. It has a market cap of $292 million and more than 35,000 shares trade during an average trading day.
Performance has been pretty solid since inception. ZLC has returned 8.71% annually since January 19, 2010, a combination of capital gains and income.
