Reset Preferreds vs. High Yield Bonds – Best one for Income?

iShares XHY US High Yield Corporates in Cdn $


Horizons HPR Active Cdn Preferreds


Total Return                                       Year to Date                                 1 year

XHY                                                           3.77                                                    0.25

HPR                                                        -4.01                                               -14.50


The current dividend yield is 5.61% for XHY and 4.79% for HPR

The difference in performance is quite dramatic.

The High Yield Corporate ETF, XHY,  does well when economy is strong and does poorly in a recession

Rate reset preferreds perform well when rates are rising and perform poorly when rates fall


Canadian preferreds eligible for dividend tax credit while the High Yield bonds are not.

Despite the tax advantage for preferreds, I do not recommend them.

In a recession neither ETF will perform well

In a slow growth economy with flat to declining rates but no recession, the High Yield ETF XHY will outperform rate reset preferreds

Currently we are not in a recession, but in a slower growth environment going forward.

In this environment High yield will continue to outperform Rate reset preferreds.

Posted in Blog Post.

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