He often gets asked about preferreds, because it is a very popular asset class for retail investors and has a very nice yield. Lately it has been extremely volatile. A very small market, anywhere between $40 billion and $60 billion. Because it is so small and the issues are so complicated, this is one of the few areas where active management may be able to help the investor. It is actively managed, not an index product, and has handily outperformed the S&P/TSX Preferred index. Buying an ETF for this asset class makes a lot more sense than using an individual issue, because you are diversified and you have the active management as well. Dividend yield of 4.2%.
Fixed income or bond ETF? When he talks about bond ETF’s, he begins with what he thinks of as the core holdings. The core holdings will be the most liquid with the lowest fees and access to the whole market. These are for long-term Hold positions. The asset class he favours is aggregate bonds, a mix of government and corporate. In Canada, there are a good number of them. This Index recently had its fee dropped, and he believes it makes them the lowest cost one in Canada. A long-term aggregate Bond ETF, and will have duration risks, so if there are rate movements in Canada, it could suffer. He thinks Aggregate Bonds are the way to go. Dividend yield of 3.1%.
S&P 500? There are at least a dozen ways to buy this in Canada. Four of the ETF’s each offer at least 2 of the versions. Also, you can get it currency hedged or unhedged. The vast majority of these ETF’s are very similar to one another. Most of them are very, very cheap. This one is among the lowest cost. A great way to get US Large Cap in an unhedged way.
(A Top Pick May 26/16. Down 0.81%.) This has lost a bit of ground, but on a total return basis, because of the yield to maturity, it is still a little bit up. There are bonds in this and they are paying a coupon, so it is doing what it is supposed to do. It is meant to be the ballast in a portfolio, not meant to deliver total returns.
A geographical proportion ETF for an RRSP? You want to put in those kinds of ETF’s that deliver income or dividend that is taxed the most if it were outside the RRSP. That would mostly be bonds, or international equities. The breakout between asset allocation is the heart of the main question of investing. You really need to begin there before picking out your ETF for each asset class. The 5 asset classes would be a 3rd Canadian equity, a 3rd US equity, a 3rd international equity, some fixed income and cash.
For short term holding? An interesting ETF, because it is quite seasoned and has a significant amount of assets. Historically, its origins were income trusts. This is an ETF of ETF’s, so if you really look at its sub holdings and go into its true underlyings, it has asset classes from all around the world. A good, one-time ticket for putting cash to work where you want yield. Dividend yield of 5.3%.
Risk? An ETF that gives other investors the right to Sell its stocks. A Put writing strategy is very interesting, a little different from Covered Call writing. Put writing usually means you are holding cash, T-bills, etc. because you are on the sidelines. If the stock price goes down, you are forced to buy it at the Strike price if you are willing to own it. It is a way of collect a little bit of additional income while you have cash on the sidelines. The yield has been good, but the markets have also been good. It does expose you to a certain degree of risk.
Bonds? There are a lot of reasons to question why you should be in the bond market at all. Investors shouldn’t lose sight of the reason bonds are in a portfolio. They are the ultimate cushion in case there is a very steep market drop. A “cash account” exposes you to one issuer, such as the bank where your money is deposited. However, cash may be more tax efficient. It is hard for bonds to compete with a high interest savings account these days.
Short-term corporate bonds, ZCS-T or CBO-T? They both have very similar holdings. This one weights the bonds in the portfolio related to the size they have in the market, whereas CBO weights them with a traditional laddering strategy, each ladder getting an equal weight. It is really hard to say which is better, because all bond ETF’s are ladders of a sort.