A Comment -- General Comments From an Expert (A Commentary)

ETFs. Better than mutual funds to invest in? He does not own any mutual funds. There are a lot more advantages with ETFs because you can trade them throughout the day. Also, they are a lot cheaper. You know exactly what is in an ETF. Calls can be written on them. Expect mutual funds will be making some changes some day to make them just as popular as ETFs.

Telcos. Has 2 issues with telcos. Revenue stream is from wireline and wireless. We know that wireline is going to be nonexistent at some point in time. When it comes to wireless, it is probably getting saturation in the marketplace as well. Over the next 12 months, you are probably going to collect the dividend from telcos, but you are not going to get a lot of growth. If he was going to pick one it would probably be Telus (T-T) only because he thinks customer service is a lot better than others. Manitoba (MBT-T) will be a takeout at some point in time.

Uranium stocks? So much depends on what Japan is doing and their reactor situation. Thinks they are going to come on stream again and that Japan does not have any choice, but to pick up the nuclear power situation. If there is some pick up in uranium, you have to look at Cameco (CCO-T) or Uranium Participation (U-T) because they are the big ones and if money starts piling in, especially from the US, this is where they will go. But there will be some short-term pressure on these companies.

Interest Rates. Thinks they are going to stay low for at least a year. We are getting improvements in the economy, probably better than what we were doing in the fall. However, we are still getting muted inflation, there are no wage gains and consumer debt levels are high. The consumer really isn’t in a position to spend their way out of this so it is going to be a muted recovery. Federal reserve still has to finish the ending of the quantitative easing program. We are probably looking out about a year before we can get serious about talking about interest-rate increases. Also, any increases will be slow and incremental. The best place to be is the short end of the curve in short dated maturities. For the last 18 months, he has been overweight in corporates in his broad mandated portfolios and of short duration.

Preferred shares as a fixed income vehicle? Preferred shares are really undervalued at this time. It’s a really misunderstood market that doesn’t have a lot of institutional players. We are playing catch up at this stage and he thinks they are really great value. Prefers insurance companies over banks as there is more yield in them. You are receiving dividends, not interest so you get a preferential tax treatment.

Target bond ETFs. This is a basket of bonds, very short, around a maturity date. The ETF will terminate, usually late in the year, of that date. For example, with a target date of 2018, the company will wind down that ETF on Nov 30/18. Most of the bonds will mature at that time. As it gets closer and closer to maturity, the actual value will get closer to the original NAV and they will distribute whatever is left at the end. An example of a target bond ETF would be RBC Target 2014 Corp. Bond ETF (RQB-T).

Interest rates of corporate debt versus yields of their preferred shares? Would this differ between perpetuals and resets if both are trading below par? The gap between the bond yield and the preferred does matter somewhat and tend to follow what the corporate bonds do. We measure things in fixed incomes with the spread, usually over Canada so resets tend to be spread off of the 5-year Canada. However, the relationship is very, very loose because you also have the equity on the other side and the pref yield cannot be driven lower than the common.

Laddered bonds coming due and interest rates are atrocious. Should this be put into preferred shares? If the money is RRSP, you are not going to get the tax advantage of preferred shares, but you will still get a really decent yield. He would think that is where the value is. You are taking a step down in the capital structure, but preferreds look and act so much like bonds and you are getting all the pickup in yield, it is well worthwhile to look at.

Is now a good time to buy Real Return Bonds for 2026 for a ladder? Not a big fan of Real Return bonds. A Real Return bond usually has a fixed coupon plus it pays whenever the CPI rate is. These really came out for pension fund managers that had an established book of business that they were paying out indexed to inflation. You really have to ask yourself whether or not there is going to be inflation because this is what they were designed for.

Safest and most secure place to park cash for 10 months? There are options such as floating rate funds and he would recommend a floating rate preferred which gives you some protection if rates go up. Trading with a yield of about 3%.

Brookfield Preferred Shares Series E. (BRF.PR.E-T) Really likes these. These are one of the ones that he thinks it should do better. 5% dividend. Trading at around $21 so the current running yield is almost 6%.

Markets. We know the Fed will have a difficult time normalizing interest rates so they announced they are testing a facility related to term deposits. They are going to be asking members of the Federal reserve to submit bids to help mom up the liquidity of the stimulus. They are going to do it for about 8 weeks, but there is no plan to change interest rates. Pay attention next week if you are a fixed income investor. This largely got ignored last week by the markets, however. The ECB is still talking about stimulus. They will be doing something in June. The markets actually make their highs in June, but it does not rhyme.

ZAG-T is the cheapest way to get the bond market in Canada. ZCS-T is a laddered portfolio. Doesn’t think interest rates are going up until the end of next year.

What sectors look expensive? Which have underperformed? Being in the right sector is a key way to re-balance portfolios for superior returns. XIC-T is the broader Canada Market. Thinks energy (XEG) is a bit expensive, so deemphasize it. Thinks gold will dip below $1200. This would be the buy for the next 4 or 5 years.

Canadian Dollar. We have seen a huge volatility in the Canadian economy and if you smooth it our over 6 months you see it is weakening. Thinks Canadian dollar will be centered around $0.90USD.