Expert warns of high-yield energy debt

The market for high-yield mining and energy debt is suffering from 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 do not understand the underlying credit risk, particularly in exchange-traded funds, said Rick Rule, chief executive of Sprott US Holdings, a subsidiary of Toronto-based Sprott with €6.5bn under management.

“It wouldn’t take anything at all to have the same circumstance occur in mining and energy junk debt that happened in mortgage securities,” said Mr Rule.