Stockchase Opinions

Tyler Mordy iShares Diversified Monthly Income ETF XTR-T COMMENT Sep 20, 2016

For revenue and safety of capital? A good holding, diversified and everything. Looking at the bigger picture with retirees facing an income crisis, he would favour a different approach. Rather than trying to source income from North America into domestic, he would favour looking further afield for income opportunities, and assemble a portfolio with a diversified yield. It could be an emerging market debt, a high dividend yielding country ETF. He launched this in 2008 and it has been a highly effective strategy.

$11.210

Stock price when the opinion was issued

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COMMENT

Does iShares collect an MER from all the other ETFs held within XTR? He's asked Blackrock this and, no, they're not double-dipping. Generally speaking, there's no question that MERs of ETFs will continue to decrease because of of competition among ETF compnaies. It's amazing how far they've fallen just in the past few years.

HOLD
20% is a return of capital? You want to know what kind of dividends its holdings pay and what their risk profile is. He thinks you will be comfortable with this position.
COMMENT
It yields around 5.5% and offers good diversification: Canadian and US stocks, preferreds and high-yield corporates. However, these are interest-rate sensitive, so if rates stay low or lower, then you'll see price appreciation in these investments. However, prefs and corporates act more like stocks than bonds, and have been underperforming the market lately. He likes the diversity of XTR.
DON'T BUY
He doesn't know this one. It's a matter of finding the lowest MER and comparing ETFs. This holds other iShares ETFs. This probably is good. A lot of this in the high-yield bond market. But hunting for yield isn't always good. XTR's chart hasn't moved much since 2015, actually. He'd rather buy a pure play, namely pure bond or pure dividend and buy each of those vehicles separately.
DON'T BUY
Hates this. It was the old income trust ETF. It has issues with the return of capital--you get your money back, but it inflates the yield.
DON'T BUY
Buyers like its high dividend. But the problem is XTR is a remnant of the old income trusts. Distinguish between return OF capital and a return ON capital (your money) and with XTR there's problem with the latter. He hasn't looked at this for a long time and doesn't care to. Do not fixate on yield. Rather, understand the mechanics of how such yielding stocks or bonds work. Don't accept yields at face value; be suspicious.
DON'T BUY

The bond markets are impaired and will be for a while. Low interest rates are here to stay. Income focused ETFs with exposure to bonds will not return 4-5%. Are you getting return of capital or yield? Must look into the structure where the returns are coming from. Both are similar. Both ZMI and XTR give you exposure to diversified income. All fixed income has negative return after inflation.

Unspecified
You are getting interest income but you can get greater tax efficiency with dividend income ETF's . Consider VDY and also HXH which holds corporate shares with profits taxed as capital gains.
DON'T BUY

Banks are cutting rates, which is a tailwind, but the market has already priced it into balanced ETFs like this. So, there's limited upside.

WEAK BUY

Broad basket of equities and fixed income. The one thing to keep an eye on is the bond portion. If we start to see inflation rear up again (because of US spending and tariffs), you might want to take your bond duration down, which you can't do with this ETF. Yield ~4.25%.