Q: Dear 5i
I currently own TD and RY for my financial positions . I was considering buying SLF as an alternative to banks but still considered within the financial sector . Is it worth the diversification or should i just add to my existing bank stocks that i own ?
Also i've recently added HISA and PSA to my portfolio which would probably not be for a long term hold but until interest rates decline considerably from where they are today . My question is, is it possible to have too much cash parked in these type of accounts that should interest rates decline noticeably and quickly , that there would be a liquidity problem ie getting my cash out , should a lot of investors decide at the same time to liquidate their holdings in these type of accounts ?
Thanks
Bill C
I currently own TD and RY for my financial positions . I was considering buying SLF as an alternative to banks but still considered within the financial sector . Is it worth the diversification or should i just add to my existing bank stocks that i own ?
Also i've recently added HISA and PSA to my portfolio which would probably not be for a long term hold but until interest rates decline considerably from where they are today . My question is, is it possible to have too much cash parked in these type of accounts that should interest rates decline noticeably and quickly , that there would be a liquidity problem ie getting my cash out , should a lot of investors decide at the same time to liquidate their holdings in these type of accounts ?
Thanks
Bill C
5i Research Answer:
We think insurance companies are different enough from banks that they can help overall diversification. We like SLF. While high-interest ETFs have certainly grown, the sector remains exceptionally liquid, and we would not expect exit-liquidity problems. Unlike with stocks, investors do not 'panic' with their cash holdings and want out all at the same time, quickly. Yes, yields will adjust if rates fall, but the odds of a liquidity problem we would consider to be essentially close to zero. Regulators have recently changed capital requirements on banks to partially address this issue.