Preferreds. The settlement of the energy issue last week has been very favourable. This company is in good shape, because a lot of their existing coal capacity can also convert into natural gas, so as they meet the capacity markets in Alberta that have been created, that is a plus for them. As to preferreds, people own them for 1) income and 2) for the higher position on the balance sheet. It has a 7% yield, but in 2017, that will reset to 3.1% above whatever the 5-year yield is at the time. The rate-reset game that has been going on in the Canadian preferred market since 2008, has been very painful.
He is finding his clients have a real need for income, and you can’t get that in the bond market. The only way you could is to buy Long Bonds. However, these behave inversely to interest rates, and the 70-basis point rise in US interest rates has really hurt the Long Bond market. Yet it hasn’t impacted the preferred share market. This is a great source of income for yield oriented investors.
This has had a rally in the last few weeks, and like all commodity stocks it participated in the post Trump euphoria. The price of uranium has been a significant disappointment. We really haven’t seen a cleaning out of excess supply. He would like to see significant announcements with respect to sustaining the life of these nuclear reactors in the US, and a reaffirment of the Japanese strategy to restart reactors.
Convert Cdn$ to US$ or buy Cdn stocks that have a lot of US exposure? He buys US stocks for areas in the marketplace that we don’t have in Canada. In the next 12 months, he believes the US will outperform Canada by quite a bit. More importantly, US interest rates are prone to rise faster. Owning Canadian companies with US operations gives you a secondary effect.
Dividend play? This is one of those great companies, and the question is, is it in as good an industry as it has been historically. They’ve had a wonderful track record of paying dividends. Made significant acquisitions in the US, which he likes. He is not adding to his holdings as he thinks he can do better elsewhere when looking for yield.
Its assets are wonderful old buildings all across Canada. A very unique asset class. These are hot and where you want to be if you are a hip kind of company. It has been really well run with a strong kind of discipline. It can be volatile, and most recently because of interest rate increases and the decline in REITs in general. This is one of the favourite REITs, and has suffered alongside most REITs. Dividend yield of 4.5%.
Base metals, primarily in countries that he wouldn’t necessarily take vacations in. Higher risk environments, but from that you get higher returns. He prefers more stable jurisdictions. The company has decent assets that are generating cash flow. Also, they got $1 billion in cash on a recent deal which gives them some flexibility.
Market. The ground has shifted since Donald Trump’s election. He has come in with a view of lower taxes, “Making America Great Again” and interest rates have gone up 75 basis points in the last 3 weeks. Thinks we are in a decisive turn on bond yields. It is possibly the thirty-year turn. Yields have got ridiculously low. Commodities now have bids that we have been waiting decades to see.