Investment Q&A

Q: Hi,
I would like to buy some preferred shares as I don't have any Preferred's in any of my accounts but with so many different descriptions out there I'm not sure what I should be looking for. For instance I would like to have a high yield ( > 4.5% ) and a guaranteed return of capital on a set date if held until that date (if there is such a thing out there). I see many new offerings come out through TD & Scotia iTrade but these are usually closed very quickly.

For instance this one came out this morning:
"TD Direct Investing would like to inform you that the following New Issue has just been announced.

Element Fleet Management Corp. - 5.75% 5 Year Rate Reset Preferred Shares, Series I

Short Description: Offering of Cumulative, 5-Year Rate Reset Preferred Shares, Series I via Bought Deal
Price: $25.00 CDN per share.
Settlement: On or about May 5, 2017."

This sounded good but by the time I tried finding out more about the offering it was closed already.

So, is there some guidance you can give on what "buzz words" to look for when a new issue comes out so I can put my "expression of interest" in before the offering is closed?
I guess what I would really like to know are the following:
1) Are 5-Year Rate Reset Preferred shares the best option for capital preservation?
2) Is it best to try and buy Preferred shares on a new offering or to look in the open market?
3) Is there a Preferred share Class that guarantees your original capital outlay?
4) Any other guidance you can offer in looking for the best: time / place / kind when looking for Preferred's?
5) And finally, once I find a suitable Preferred offering - which account type would you recommend best to hold in for tax purposes (i.e.- reg. vs non-reg.)
Thank you.

Q: What are the pros and cons of these two ETFs? Looking forward, which of the 2 do you believe has the best price appreciation potential? Are there better ways to get exposure to preferreds? Please explain. Thanks so much for the guidance.

Q: Monday's list of stocks at 52 week highs included an enormous number of preferred shares? What are the reasons behind this sudden surge? Any prognosis? Thank you!

Q: In the Rate Reset Preferred space, what do you like? Any ETFs that you prefer for an income-focused small holding?
Len

Q: Hi 5i Team,
I would like to take some money out of a savings account and have it accumulate dividends in my TFSA over a 5 year time period (I will need it at that time). I was wondering in the income portfolio, which of the ETFs/stocks would be the least volatile or the smallest of price movement that pays a good dividend over this amount of time?

Thank you,
Andrew

Q: Can't say enough times what a great service you guys offer.

Is there an EFT similar to CPD but with a focus on American preferreds? Thanks.

Q: I have 2 preferred share ETFs (CPD and HPR) that are both up about 6 percent over the last few months. I have noticed a slight outperformance with the actively managed ETF (6.01% vs. 5.59%). The fees are slightly higher with the actively managed ETF (0.64% vs 0.51%). Is it advisable to switch my holdings in CPD and put everything in the actively managed ETF? Is it worth it or is the outperformance a red herring because of the short time period?

Thank you,
Jason

Q: I have a note from you wrt to CPD so am aware of its rate reset properties - which should be positive in the anticipated rising rate environment. However, I have not followed prefs before and wondered how they might perform should we get a significantly negative equity market, and - additionally - whether the managed version might do significantly better in those circumstances. Appreciate your opinion. Thanks.

Q: I am interested in beefing up the fixed income portion of my portfolio. My adviser recommends PMO005. I see a MER of 1.39%. What do you think of this mutual fund? Are there similar ETF's at a lower MER. I know you don't usually like Mutual funds but your commentary in the questions and answers seems good on Pimco. Should I diversify fixed income into several bond funds? If so could recommend a few of your favourites please. Thank you for your great service.

Q: Hi 5i team, which of the above preferred ETF's would you recommend right now primarily for income and some price appreciation. Which one has the most to gain from increasing interest rates.
Thanks

Q: Hello 5i team,
What would be a good Canadian preferred shares ETF with a decent dividend?
Thanks,
Andrew

Q: To add to your response to Carl's question "why would anyone ever buy pref shares" - Hymas Investment Counsel specializes in Pref Shares and has a number of publications available on their website including "Why Invest in Preferred Shares" and "Security of Income versus Secrity of Principal". These might be helpful. www.himivest.com.

Q: Income investments - preferred shares
On Jan 4, you posted an answer for an income investor, expressing approval of ZPR (BMO Laddered Preferred Share Index ETF). I am somewhat cynical about preferred shares, their being subject to the interest rate sensitivity of bonds, lacking the upside of common stock and generally lacking a fixed redemption date or any other assurance of capital preservation. I wonder whether, even on a reset date, they would necessarily trade at their face value. If I am right, I can't understand in what circumstances they would be suitable (without fixed redemption or as an interest-rate play with a high coupon). What am I missing?

Q: Regarding your answer provided to Carla today on CVD and CPD, I understand your comments on CVD, but I am still not clear on how rising interest rates can impact CPD. How do rising interest rates affect a preferred share ETF such as CPD? Should I be cautious about buying at this time? Thanks for all the awesome info you provide.

Q: Hello,

Are the distributions for CPD and CVD considered dividend or income? Which would be better in a TFSA and which would be better in a non-registered? My understanding is that both of these ETFs should do well in a rising interest rate environment.

Best,

Carla

Q: I wish all 5i staff and they families Season's Greetings' I hope 2017 sees our portfolios grow ever healthier.

I want to gradually add some preferred shares to my portfolio, partly in lieu of some fixed income. In looking at potential candidates, I am attracted to the above three ETFs, particularly ZPR with its laddered feature. Do you have any thoughts? Are all distributions of such ETFs taxed as dividends? Thanks, Bill

Q: Hello and Merry Christmas to all at 5I.
Moving forward I have new funds to add to my portfolio in the fixed income sector. My RRSP portion is fully utilized for fixed income using CBO and XBB so this is new fixed income funds outside of a sheltered account should I still use XBB/CBO or is there some other fixed income source that would be more beneficial that I should consider.

Q: I manage my husband's and my TFSA's as if they are one account so we do not duplicate the stocks in the 2 accounts and can have a reasonable size of position. We have a similar weighting of ALA, REI.UN, SIA, WSP, ZEB, BEP.UN, CGX, and HR.UN and PKI, and a double weighting of CPD and CDZ. We currently have about $110K in the two accounts and $20K of that is in cash. Can you suggest what we might add to or change in the above list, considering that we prefer income paying securities with some growth prospects and want the TFSA's to act independently of our other investments as a relatively conservative growth vehicle.

Q: Hello Peter, Manulife, Enbridge, Royal bank have been offering preferred-shares. Would appreciate your help selecting the best and their trading symbols. Should I also consider I-shares and or Horizons preferred shares? Your opinion of their vulnerability in view of future interest rate increases is greatly appreciated. Many thanks,
J.A.P. Burlington

Q: In the first few days after the Trump win the pref ETF's moved up. Now they have dropped below where they were pre-election. Do you anticpate a continued drop and another bad run for prefs in 2017?