Credit Suisse High Yield Bond Fund (ETF) (NYSEMKT:DHY) and High-Yield Bond ETF Liquidity Issues


Dallas, Texas 09/11/2013 (Financialstrend) – Benchmarked against Merrill Lynch US High Yield Master II Constrained Index, Credit Suisse High Yield Bond Fund (ETF) (NYSEMKT:DHY) is a closed ended fixed income mutual fund. The fund mainly invests (80% of its total assets) in below investment grade (lower than Baa by Moody’s Investors Services Inc. or lower than BBB by Standard & Poor’s) fixed income securities and partly (20% of its total assets) in securities of companies across different sectors.

The distribution rate for this Closed End Fund (CEF) is a high with over 10%. DHY holds 265 securities, and has a high expense ratio of over 2.15%. The fund has invested in 265 securities with around 13% CCC rated and over 85% in BB and B rated high yield bonds. During the recession of 2008 DHY lost around 45%.

Many of these high yield CEFs delivered better results during the FY12 reflected through their high yield dividend payouts. Though the party did not last longer and the funds tumbled, suffering their worst loss in the last couple of years, during the second and third quarter of FY13 along the Federal Announcement of plans to taper their Quantitative Easing. Recently these CEFs have started recovering though many selling at a discount.

Despite evident sign of bond to equity switching, as major liquidity flows to high yield bonds and emerging markets equities, ETF market liquidity has been the issue of greater concern. Credit Suisse also raised the concern about the ETFs trading as closed ended funds which could significantly swipe the share from the actively managed market given their diversified, low-cost and tax efficient portfolios which easily lure the investors.

Credit Suisse also noted that they remain overweight equities and believe that higher bond yields (above 3.25% to 3.5%) will be a win-win for equities with year-end target of 1,730 on the S&P 500.

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