Opinions
Larry Berman CFA, CMT, CTA
First Asset U S & Canada LifeCo Income Fund
FLI-T
DON'T BUY
Aug 21, 2020
He hates the life space. They have a big problem with low interest rates. He would avoid lifecos until we see yield curve normalization. We have a massive amount of debts and interest rates just cannot go up.
$7.830
Stock price when the opinion was issued
E.T.F.'s
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COMMENT
This is fine if you want to be involved, but remember any dividends are accrued in the US are taxed as income, not as a dividend. (If it is a covered call, then he really doesn’t like the story as he doesn’t like First Asset’s covered calls. They only do it on 25% of the portfolio, so your amount of income is pretty small and your downside protection is pretty small. Also, fees are quite high for 25% covered calls.)
E.T.F.'s
DON'T BUY
The 10 largest LIFECOs in the US and Canada and with covered calls. The yield is 7.2%, which worries him because the stocks themselves do not pay this yield. He wonders if the structure is resulting in a return of capital or there is some underlying leverage involved. Is the return more volatile than the underlying securities? He would not recommend it now.
E.T.F.'s
BUY
This tracks the lifecos in US and Canada, using an actively managed covered call strategy which gives you low volatility. Lifecos will benefit from rising interest rates, and are moving into asset management. An ideal way to offset interest risk on the fixed-income side. Pays a 3.5% yield. PE 8.5x.
E.T.F.'s
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