Investment Q&A

Q: Hello 5i
We currently hold CBO, CLF & XRB at 25/25/50% all as long term holdings in a slight loss position. I believe we are currently at (or very near) peak interest rates. Do you have any suggestions to bond replacements that might be better positioned to capture rate reductions for these holdings. (not accounting for the bonus of tax loss selling)
Again many thanks
Les

Q: Hi, further to your reply on real return bonds to Alex on April 28th, I am trying to understand the return I could expect to receive on XRB from the underlying bonds vs. the inflation component.

For XRB, Blackrock currently shows the weighted average coupon at 2.33% and the the weighted YTM (coupon plus amortized realized gain/loss) at 3.43%. My understanding is that YTM is the true measure of bond return. If I bought this ETF could I theoretically expect to receive a 3.43% return from the underlying bonds in addition to an annual principal increase from inflation. So if inflation averaged 3% per year could I expect 3.43% YTM plus 3% inflation principal increase = 6.43% total annual return. Is that generally how it would work? Also would the annual principal increase just be added to the NAV of the ETF?

Thanks.

Q: Yesterday you suggested the above entities for possible inflation protection for my current cash positions. I have looked at their summaries but don't understand how they work. Can you please explain in layman's terms? As always, I appreciate your inputs. Al

Q: I have too much cash and too little fixed income investments. We are facing inflation headwinds and the GIC rates I'm looking at ( sub four per cent) don't come close to this years forecast inflation. My pref shares are slumping. Can you suggest any inflation adjusted investments that are as safe or nearly as safe as GICs? In the US the treasury offers i-bonds in limited amounts. Do we have any equivalents here in our fine country? Thanks, al

Q: All my fixed income is in XCB,XRB and VAB. All are held in tax sheltered RSPs and distributions are in DRIP programs. My question is " would you continue with the DRIP programs as I have to start withdrawals in 5 years when I turn 71? " These bond ETFs are all in serious down trends.

Q: How does one purchase Canadian real return government issue bonds and do you recommend them in this inflationary environment?

Q: Hi 5i team,

As many do, I currently hold part of my portfolio in fixed income (bond etfs). I am wondering if you can recommend any fixed income or "fixed income like" investments that might hold up best in the current rising rate environment that seems to have a long way to run. I had held ZAG but have switched to VSB with rates rising. Currently even cash is doing better than these however. Thanks!

Q: Hello Team

I purchased XRB about a year ago or so on the thought that the ETF would do well during times of inflation. Was this reasoning incorrect?

This ETF has lost value since then and the distribution has been flat. Can you shed any light on this? Is it just a matter of time for the hedge against inflation to play out?

Thanks for your insight.

Q: Gentlemen: With Gold, Bonds, Money market funds, CDs, Emerging markets and cash all paying less than inflation, diversifying a portfolio to say 50% non equity as advised with aging, is a joke…. Where do you recommend looking for 2022?

Q: I'm entering retirement and won't be adding much more new capital to savings and so capital preservation is paramount as I look at drawing down phase in the next 6 months. Right now I am still heavily exposed to the markets with about 85% equity exposure. I want to increase the amount of safety but am concerned with the loss of purchasing power and feel the old 60/40 rule isn't adequate anymore. The big dilemma in today's environment is that there really aren't a lot of alternatives to stocks for keeping up with inflation, but this involves capital risk. What balance do you think is more appropriate in this environment? I'm thinking around 75/25 while trying to keep around 12-18 months of expenses in high interest savings so one doesn't have to sell into a down market.

Are you aware of products offered in the market that may provide returns of 5-8% while being "fairly" safe for the capital invested?

Any suggestions on perhaps bond funds that offer returns that will at least keep pace with inflation after fees without undue manageable risk for capital safety?

Looking for any ideas..preferred shares ETF's? (know there is still some capital risk here). Thank you for your help and input.

Q: Good morning 5i,
I need some fixed income. And I am paralyzed by the low rates I see. when I think of fixed income i tend to think of security and not growth. I know there are a number of people who put all kinds of things in fixed income, from high risk bonds to preferred shares. Where would 5i fall on this question? I was wondering what you thought a suitable fixed income component might look like for a retired person? as you can see by the symbol I added in the title, I am thinking short term bonds. But, i am open to suggestion. Could you suggest some bond etf's for the US and for Canada that would be appropriate for our current situation?
thanks

Q: Hello 5i Team

I currently hold a Canada Real Return Bond (Canada Dec-21) in a RRSP account which matures December 01, 2021.

I would like to maintain my current exposure to Real Return Bonds, however from experience I find it very difficult to purchase Real Return Bonds from my discount broker.

I am looking at the following current Real Return Bond ETF:

XRB – MER = 0.39 % – Effective Duration 15.26 year – YTM 1.83 %

ZRR – MER = 0.28 % – Effective Duration 15.91 year – YTM 1.65 %

Three newer ETFs based on the US short term TIPS are as follows:

BMO Short-Term US TIPS Index ETF (Hedged Units) [ZTIP.F] – MER = 0.17 % – Effective Duration 2.65 year – YTM 0.24 %

iShares 0-5 Year TIPS Bond Index ETF (CAD-Hedged) [XSTH] – MER = 0.15 % – Effective Duration 2.60 years – YTM 0.23 %

Mackenzie US TIPS Index ETF (CAD-Hedged) [QTIP] – MER = 0.17 % – Effective Duration 8.05 year – YTM 1.13 %

Which ETF would be a suitable replacement for my Canadian $ Real Return Bond maturing on December 01, 2021?

Thank you

Q: Expectations of sooner-than-expected rate increases have pushed short-term yields higher in recent days. If so, interest rates could be headed up faster than thought, with dismal consequences for stock prices and real estate speculators. Can you suggest a Canadian Bond EFT that would be suitable during this period of inflation? Cheers.

Q: In my balanced cash account I hold CBH as the fixed income portion and while I thought the laddered approach would be beneficial, it has not performed well over the past years. After reading about Real Bond ETF's, I am wondering if I should replace my CBH with a real bond ETF (either XRB or ZRR) for the next few years. What do you think of that strategy? FYI, I also hold XBB in my RSP.

Q: I need to add fixed income to my portfolio. I do not believe the inflation we are heading for will be transitory. Given that assumption, are there ETF's you can suggest that will react best to inflation? And how would they do with the inevitable higher interest rates? Thank you.

Q: With high Canadian government debt, increased money supply and excess stimulus spending, I feel inflation is a growing concern. Your thoughts on real return bonds (XRB) and commodities including Tek,B, and Suncor as well as the Can$ in the coming year?

Q: Hi Team,

Like many I am trying to figure out what to do with cash on hand with interest rates near zero. I am trying to generate income while managing risk/volatility for this "low risk" part of my portfolio.

After some research I have come up with what may be three "best of breed" places to put some cash to work: REITs (e.g., RIT), preferred shares (e.g., HPR) and real return bonds (e.g., XRB).

What are your overall thoughts please on these securities at this time? Do you see any better alternatives in this market and interest rate cycle? What are the main downside risks you see for each security? Would you consider blue chip, high yield common shares more attractive or is there a diversification benefit here?

(Please deduct as many credits as appropriate for this compound question.)

Thank you so much, Michael

Q: Which makes more sense in this environment a US or canadian real return bond fund as an inflation hedge for a RRIF

Q: Are there tsx listed etfs equiviant to TIP & LQD ? Thanks.

Q: This is a follow up to my question yesterday about fixed income investments and inflation/ interest rates.

If one is of the view that interest rates will increase, what is your advice about real return bonds, versus regular bonds. Does it make sense for most investors to hold real return bonds in their fixed income portion of their portfolio? If so, what is the maximum percentage of their fixed income portion that you would recommend that real return bonds take? How best should an investor buy fixed return bonds - does an ETF make sense, and which one would you recommend?

Thank you again for your wonderful advice.