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Investment Q&A

Not investment advice or solicitation to buy/sell securities. Do your own due diligence and/or consult an advisor.

Q: Hi Peter and team, thanks for all your great advise in 2013. I'm looking at several converts to spruce up my fixed income side. I would appreciate your thoughts or ranking of the following debentures: afn.db.a, are.db.b, ahf.db, eif.db.e, fr.db.h, mrt.db.a, weq.db.c, di.db.c and nwh.db.
I'm 70 and plan to hold to maturity and would represent about 10% of my fixed income.

thanks in advance
Read Answer Asked by Cyril on January 22, 2014
Q: At age 72 the most recent recommendation for income (bonds) in a portfolio is age 72x72= 52%. Would you agree that convertible bonds (less than a 5 year term) should be a significant portion of the total. What % amount would you recommend and could you please provide a few names to include.
Thanks for providing such a necessary service to the small retail investor.
Read Answer Asked by Warren on January 10, 2014
Q: Do you have any update on the IBI group? The last word on them was not good. I own some IBG.DB.B and am severely under water. In trying to clean up dogs before year end I noticed the underlying stock had started to rally and since, if they did not default at the end of December, I was earning 30%+ on the existing value, I decided to wait to see if they defaulted. They did not, the interest arrived in my account and it has been rising every day (up 19% today). Is this rise just because they did not default or are things a bit better at IBI. When do they next declare?
Read Answer Asked by Don on January 09, 2014
Q: BBD.PR.B perpetual, cumulative, floating at Prime, Preferred from Bombardier
Would this preferred share be a good long term holding? With a current yield of ~5.25%, when BOC does finally increase the overnight lending rate, each quarter point increase bumps up the monthly dividend. With $20 billion on the order books, the company looks safe for paying the dividends. Please give me your thoughts.
Read Answer Asked by Terry on January 08, 2014
Q: Happy New Year. I hope it's a good one for everybody. I'm looking for companies with preferred stock with good dividends.
I already have SLF.PR.D and would like some diversity. Thank you.
Read Answer Asked by Terry on January 06, 2014
Q: I was under the impression that the price of convertible debentures followed that of their common stocks but in reviewing a number of convertible debentures that will mature by the end of 2014, I find that is not always the case. For example, EIF.DB.A, PKI.DB, NPI.DB, and IBG.DB all followed their common stock prices very closely (down); ATP.DB and CHR.DB held their values well while their common stock prices plunged; while PGF.DB.A and AFN.DB remained flat or fell gradually while their common stocks soared. What are the factors that impact this apparently irregular behaviour? I look forward, as always, to your reply. Thanks.
Read Answer Asked by richard on January 06, 2014
Q: Dear 5i,

I just did my 2 year renewal with you. I've been a member since the very first day and wanted to thank you for your care of exisiting members!

To celebrate, I was hoping I could ask a question about TRP and TRP.PR.D. I own both the common and preferred stock of TransCanada (about 5% in each) and wanted to sell one of the positions for balancing reasons. The rest of my portfolio is all cash and stocks (no other fixed income). I was planning on holding the preferred "forever" and selling the common but the thought crossed my mind that the preferred my react particularily negatively to rising interest rates (worse than the common). Any thoughts on what should stay and what should go?
Read Answer Asked by Marc on January 03, 2014
Q: Convertible Bond question of Jan 02/14(asked by Lance):

Also check the "Change of Control" sections in the CD prospectus (sedar.com). In such circumstance, often the company must make an offer at par in cash, and somtimes extra shares are available to compensate for the loss of interest to maturity.
Publish at your discretion.
Read Answer Asked by Russ on January 03, 2014
Q: Hi Peter and 5i: a couple questions about convertible debentures (“CDs”) and also could you please let me know if anything that I am saying suggests I may be misunderstanding these instruments. First off, it seems there are two typical situations that result in CDs trading above their face value. One is if the common share price appreciates to the point where the CD’s are primarily of interest for their potential conversion value. I’d like to leave this aspect aside, as right now I am more interested in their characteristics when they are behaving more like bonds. The second situation seems to occur mostly when they get relatively closer to their maturity dates. I would guess this is an effect of their relatively high original yields in combination with the fact that the perceived default risk can decline more steeply and from relatively higher levels for these corporate debt instruments than for “safer” fixed income alternatives. If they are issued with 6 or 8 years to maturity, that is a long time in the world of corporate business and who really knows how some of these companies will do over that kind of timeframe. On the other hand, in a CD’s last year before maturity, the visibility of the solvency and continued existence of the corporate issuer may be extremely good. With a short enough time to maturity, one might even think that the default risk is not materially worse than with government backed securities, that is, probably still somewhat worse but the overall risk is small enough that the difference is not that significant. So my first question is: Is it common for professional money managers to purchase CDs with short remaining maturities in order to boost short term yields in their fixed income funds? Would that be a significant component of what causes CDs to trade above par as their maturity dates get nearer?
Second question: Are there any standard “catches” or pitfalls in the construction of individual CDs that retail investors really need to be watchful for? I know it is important to go right to the filed prospectus document when evaluating a CD for potential purchase but it would be helpful if I had a better idea of what kinds of features to be on guard against when I am doing that research. (Feel free to refer me on to another info source on this one, if that would make the most sense.)
Thanks for any help, as always!
Read Answer Asked by Lance on January 03, 2014
Q: A general question on rate-reset preferred shares. There are many that have had their share prices hit hard because of the worry over rising interest rates, and that makes them look quite attractive if their share prices recover. Wouldn't the share prices move back to par as the reset date approaches, as the new yield would compete with then-current rates?
If so, then buying a rate-reset preferred with a share price of $20 should provide a very nice return.
Read Answer Asked by Lloyd on January 02, 2014
Q: With a recent run up in share prices the fixed income portion of my portfolio is due for an injection, and I am holding plenty of cash for new purchases. I hold a reasonable mix of government bonds, preferred shares, and corporate debentures, but feel that my weighting of debentures is low and an increase would be appropriate. Can you provide your top 2 or 3 picks of convertible debentures from any of the companies you cover or if that list is too short anything outside of your coverage that looks good. I’m looking for something that pays at least a 5% dividend and trades at a slight discount (i.e. <$100). Could even trade at a deep discount as long as you have no concerns with repayment at maturity.
Read Answer Asked by Steven on December 23, 2013
Q: Could you please tell me if I should hold or sell these reset
preferred BPO.PR.P, HSE.PR.A and PWF.PR.P. How much will they be affected by rising interest rates? PWF.PR.P is down $2700.00 since purchased.
Merry Christmas to all. Thank you.
Helen
Read Answer Asked by Helen on December 17, 2013
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