Q: I am down significantly on these ETF's, down 17% with distribution included on ZPR with it representing 3.6% of my portfolio and down 7% on ZLI or 0.8% with distribution with ZLI representing 3.1% of the portfolio. These were added prior to the rising interest rate environment with the desire for income. Given the unit price have declined so significantly on ZPR (24%), would it be a good move to average down on this ETF in this interest rate sensitive environment? At least the ZPR is mainly held outside registered accounts so the significant capital loss could be used to offset other gains if I was to sell? What would you do with these funds at this point? Hold, Sell, Average down or...?
5i Research Answer:
Preferreds have been strange traders over the past few years. The current weakness might be a relative attractiveness issue, with savings accounts paying in the 4% range. Investors likely need a higher yield and in turn lower pref prices to justify owning the asset class. While we would not be particularly concerned with preferreds in general, they might be in a bit of a tough spot in the short to medium term. But if interest rates peak they should at least stabilize. We would be ok slowing buying ZPR for income and average down. If there is a significant tax advantage, we would sell.