Trouble Brewing in High-Yield Debt, Commodity Investor Warns
- Rick Rule says markets ‘most generous’ amid yield chase
- Investors selling junk ETFs could trigger liquidity crisis
The open pit stands at the Diavik Diamond Mine, owned by Rio Tinto Plc and Dominion Diamond Corp., in the North Slave Region of the Northwest Territories, Canada, on Monday, May 2, 2016. Since the Diavik mine began operating in 2003, it has produced more than 90 million carats of diamonds, including the 187.7 carat Foxfire.
Photographer: Ben Nelms/BloombergThe market for high-yield mining and energy debt is suffering from the some of the same issues that sparked the 2008 crisis as investors turn a blind eye to poor credit in their desperation for fatter returns, according to an executive with one of Canada’s largest hedge funds.
Fund managers are snapping up lower-quality debt in a bid to outperform their competitors and retail investors don’t understand the underlying credit risk, particularly in exchange-traded funds, said Rick Rule, chief executive officer of Sprott U.S. Holdings Inc., a subsidiary of Toronto-based Sprott Inc. with C$9.2 billion ($6.9 billion) under management.