Q: A follow up question re HBND. The yield as you point out is quite high. I suspect that is due to the decrease in share price. If the price recovers will the dividend $ continue to be close to where they are now; and therefore providing the best of both worlds…. Some degree of safety, nice yield and a capital gain.
5i Research Answer:
HBNB is a covered call fund, so the fund earns additional income by selling call options on its bond portfolio. Still, there has been some decay in price. Launched about a year ago, unit value has gone down from $14.63 to $13.54 today, a decline of 7.5%. But with an 11.56% 12-month yield investors have still made a bit of money on this. The distribution has varied slightly, 13c at start up and now 12.8c. The call options will always generate income but it will vary a bit. If the portfolio rises in value the distribution could also increase (it was 13.3c for a while last year). We would consider it decent, but investors need to understand the covered call strategy.