The article discusses the strength of various investment products. Hedge funds, resource royalty trusts and high yield debt are three investment vehicles that are popular. The promise of capital preservation, generous yields and market neutral performance is in tune with current investor psychology, which is assumed to be risk averse. Hedge funds that specialize in arbitrage have found those inefficiencies correct faster, and individual returns are decreasing. Eric Sprott, manager of a successful hedge fund in Toronto doesn't do arbitrage but takes long-and short equity positions. It's worked well for the Sprott Hedge Fund LP, which was up 25.5% in 2004. One of the problems with investment fads is that people become less discriminating with their money and buy the strangest things. This hubris--all part of the greater-fool theory--benefits managers, investment dealers and early investors. Some observers fear this dynamic is at play in the Canadian income trust sector, particularly on the oil and gas side, where questions have been raised about whether current trust valuations are sustainable. One metric useful here is the adjusted payout ratio, which defines free cash as operating cash flow less maintenance and development capital expenditures. An adjusted payout ratio exceeding 100% means a trust will have to resort to financing to keep reserves up, a practice that is actually common in the industry. Another potential problem is the growing use of convertible debentures. High yield corporate bonds could also suffer from a rising Canadian dollar. Gregory Kocik, a vice-president at TD Asset Management and manager of the TD High Yield Income Fund, says if you want to hold high yield corporate debt, look to cable companies, since they are positioned to generate relatively consistent growth in free cash flow, which can go to debt repayment.