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  5. BEP.UN: I hold XLB in my RRSP. [Brookfield Renewable Partners L.P.]
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Q: I hold XLB in my RRSP. What do you think of swapping the XLB for BEP.UN?

Can you address the answer in various interest rate directions please?

( Between BIP.UN in the RRSP and the BN and BAM outside, I already have 10% exposure to the group. Doing the trade would have me bumping 15%. )

Thank You
Asked by Tim on May 24, 2024
5i Research Answer:

XLB has an MER of 0.2%, but pays a distribution yield of 4.3%. Largely, we do believe that rates have peaked and it is expected that the Bank of Canada will begin cutting rates within the next month or 2/3. Rates being cut would typically imply downward pressure on bond yields, which would bring mortgage rates down, which eventually would ripple through to a decline in inflation (through mortgage interest expenses), and this would be a self-fulfilling cycle where lower inflation would lead to lower rates. 

That said, the upside potential in XLB is good, but BEP.UN has been suppressed, and the decline in rates would act as a benefit to BEP.UN's bottom line. For more operational risk but also higher upside potential, we would prefer BEP.UN, but for an investor looking for a more conservative approach and a good yield, we like XLB.