By Tom Bradley

Call it an interesting juxtaposition. A few pages after my column on reaching for yield a couple of weeks back, there was a back page ad for the MINT Income Fund. Since then, the ad has been running constantly in the national papers.

MINT, which is an existing closed-end fund, is doing an exchange offer whereby investors can tender individual securities (stocks, trusts, preferreds and convertible debentures) in return for units in the fund. This is a common way for closed-end funds to grow their asset base.

MINT is an example of aggressively ‘reaching’. The fund is currently yielding an impressive 8.4%. It is primarily an equity fund, although it does hold some cash and convertible debentures. It is 60% invested in energy stocks, with the largest 13 holdings being oil and gas companies. Its distributions have varied widely over its 12-year history and its share price volatility has been reflective of a typical resource fund.

If an investor was to exchange a preferred share or convertible bond into the MINT fund, she would get a more diversified portfolio of income securities and a higher current yield to be sure, but she would also be subject to considerably more risk and volatility.

A fund like MINT reinforces the importance of understanding what a fund is made up of and where the yield is coming from. Its claim of being a “cost effective method of reducing the risk of investing in high income securities” is one that needs to be seriously questioned.