Opinions

Stan Wong iShares S&P/TSX Preferred ETF CPD-T COMMENT May 19, 2016

BMO S&P/TSX Laddered Preferred (ZPR-T) or iShares S&P/TSX preferred (CPD-T)? The only difference between these 2 is that ZPR probably has a little bit more in the rate reset preferred shares, which are the shares that will do well when interest rates start to move higher. The both are very similar though. This one gives you about a 5% dividend yield, and you are basically investing in preferred shares. There is going to be some volatility in the preferred share market.

Stan Wong

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COMMENT

Changing from GICs and a savings account? He would suggest you buy some preferred shares. Preferred shares are undervalued relative to interest rates. You can buy this ETF. 70% of the portfolio is in floating rate preferreds, which means if interest rates rise, the value of the preferreds will hold their own because the interest they collect will rise. It pays a monthly income and has a 4.8% yield, significantly better than you would get on a bond portfolio.

DON'T BUY

How much weight would you give to a preferred share ETF within a FI portfolio? He doesn't like preferreds. You get a return of a bond abut the risk of a stock. He prefers covered calls for income.

DON'T BUY

Dividend stocks have been very volatile in Canada. Predicting where interest rates is very difficult. Every single ETF provider has one of these preferred ETFs. He wonders if there is too many retail investors chasing a vary small sector of the market. He prefers a BCE or a similar stock.

BUY

ZLC The bond market has more upside so you're okay, but at some point you need to move out. Perhaps go into CPD for preferred shares, a higher yield and tax advantage.

DON'T BUY

A mix of perpetual issues and resets. Makes up 10% of his portfolio. It's a Blackrock ETF loaded with rate resets and that's why it's under pressure. He's not ready to sell it--it pays a nice yield and he owns it as a hedge. But it's had a hard time lately. 10% is too much, unless interest rates come back which he doesn't expect.

BUY

Adding preferred shares to bonds and GICS to a portfolio? HPR or ZPR? Great idea and either of those ETFs is fine. CPD is a basket of reset-preferreds is another idea or buy the individual preferreds like BCE or the banks. Preferreds are good to buy now because rates are so low. Preferreds are now yielding 120-200% of what 1o-year bonds are paying.

COMMENT

There is heavy financial sector exposure in the CPD ETF. They hold 35% banks, 20% insurance and 17% energy -- all are economically sensitive. You may want to hold utility preferred shares instead that operate under more of a regulated rate of return.

DON'T BUY

He generally does not like preferred shares. It has the risk of a stock and return of a bond. You also have to be concerned about rate resets versus perpetual dividends. He would prefer to sell call options against the banks. He thinks you should focus on the recovery being in the US as Canada is purely a commodity based economy and will take much longer to recover from this.

COMMENT

The ETFs are better to go because of diversification. There is a little more upside but not a whole lot more. There will not be increases in interest rates any time soon. Rates shouldn't go much lower either. The rates should remain stable.

BUY ON WEAKNESS

Not interested at current pricing. Waiting for interest rates to rise. Not a good time to buy.

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Stan Wong iShares S&P/TSX Preferred ETF CPD-T COMMENT May 19, 2016

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