Investment Q&A

Q: Good Morning 5i

Can you provide an alternative to Mart at this point? It has been a frustrating stock to hold notwithstanding the conditions they are operating in. Any update on their new pipeline? I wonder too if the new pipeline they are working on will even help eliminate "pipeline losses" or are they still vulnerable?

Thank you

Q: Hi Peter and the team, WZR just hit a new high, a turn around stock?

Q: Guys, any comments on the PDN news released last night. New Equity issue.

Q: Hi Peter and the team, would you please comment on AKT.A?

Q: Hi Peter, how is IAG comparable to other insurance companies? Thanks.

Q: Good morning! I would appreciate if you could clarify what a "position" is... 5% of portfolio, or $5,000 in one equity? Thx

Q: I own morguard north american reit.It keeps dropping in price.
Today alone more then 4%
Whats going on.Is it a sell or hold?

Q: Re: life insurance companies, especially SLF
One of the managers on BNN claimed that he will sell the bonds in a RRSP and instead buy SLF, as its performance is inversely proportional to the performance of bonds as interest rates slowly rises
Is the statement correct ?
Instead of just buying the SLF, is there an ETF in the Canadian
market that will have a basket of Canadian insurances companies?
Thanks!

Q: Hi Peter:
re: Gib energy has pulled back abit from the $ 25 level,
is the dividend safe ?
On the same page re: Peyto energy which pays a nice dividend as
well,
If I have some new money coming in to look for a dividend energy
stock, are both of the above good quality ones? Thanks!

Q: hello 5i people - excellent info ,thanks
appreciate any info on uex.to -price increase om large vol.
any idea whats going on?
thanks
ed

Q: hi, thanks for a great service. what is your take on OSK osisko latest results. thanks

Q: Hi Peter and Team,

What are your thoughts on Covanta, CVA

Q: Hi Peter and Team,

What are your thoughts on Universal American Corp. (UAM:nyse). Has around $4/share in cash.

Q: Hi Peter and Team,

What are your thoughts on the Howard Hughes corporation, HHC.

Q: Regarding FRC2239---Russell Fixed Income CL SR 15....would you keep this fund for the near future ?....thanks....Karl.

Q: Hi Team,
Can you comment on the current drop in price of Artis REIT (AX.un).
It's dropped another 5% recently, and I'm wondering what's up?
Thanks for all your great advice!

Q: all ..ATH has been on a tear ... is this the 1+ billion effect and where do you see it ending (crystal ball guess)

Q: volume of ESL, Enghouse, is very erratic and the trend is still up.
Can you comment?
When will you be updating the ESL report?
Thanks

Q: any chance you might be covering either element financial or enterprise group in the near future?

Q: Hi Peter & 5i:
(This may be too long and unwieldy for posting so I’ll leave it to you – please post away if you want to.)
Can you please check my thinking on this stuff. I hold several Canadian REITs and have done well with them but, after holding through the recent top, I am wondering if I should strip down my positions or even exit them entirely. Here is my thinking:
Over the years I’ve noticed that they tend to separate out into tiers based on perceived risk/quality. Occasionally one moves significantly relative to the rest of the REITs but not usually. Usually the REITs stay within their tiers, the tiers maintain their relative positions and the market tends to move the whole group up and down together. With the recent topping and pullback, I have been thinking about what is going on with bond interest rates, wondering about REITs’ present valuations and to what extent the REITs are discounting, or susceptible to, further movements in the bond markets.
It seems to me that it is useful to view REITs in terms of the spread between a REIT’s yield and a bond yield (eg. Cdn 10-yr). The market requires REITs to have a higher yield because they have equity risk, among other things. Taking REI.UN for example, right now its yield is about 5.8% and 10-yr Cdas are about 3% so you have a yield spread of 2.8%. During very turbulent times like the tech boom and bust or the 08-09 financial crisis the spreads get significantly wider – with REIT valuations compressed and very high yields available to investors who can be comfortable with the perceived risks amidst the turmoil. I tried to select a couple of “mid-points” in REI.UN’s unit value over the last 10 years and came to the view that the current spread of 2.8% is just about “normal” (not exactly “average”, but more like “reasonable for non-crisis times and potentially relatively stable”). It doesn’t matter if I have the “normal” number exactly right for what I am thinking, just so long as I am somewhere around right. So one suggestion is that you could look for REI.UN to find its way toward a 2.8% spread, if the broader markets aren’t either on a rocket ride or in a free-fall.
I kind of expect that over the next 3 to 5 years the 10-yr bond rates are going to rise. And it wouldn’t surprise me to see them moving back into the range of 4-6% . On the way down, the move from 6% to the 4% range spanned from mid 2000 to 2007. REITs, fueled in part by the ever lower interest rates, moved steadily higher over the same time span. As a touch point along the way, in January 2005, REI.UN’s spread over 10-yr Cdas was about 2.8%, but with the bond at about 4.2%, that meant REI.UN’s yield was 7%, with a unit value of about $18.00.
Today, with a spread of about 2.8% and a yield of 5.8%, REI.UN’s unit value is about $24.40. Now I know that not everything tracks its own history perfectly, REITs can kick in the odd small distribution increase, and endlessly many other variables may have some impact. However, based on the current distribution level, on the 2.8% spread metric, a move to a 10-yr Cda rate stabilizing at around 4.00% would imply a unit price of under 21.00 for REI.UN. Similarly, a 10-yr Cda rate stabilizing at around 6.00% would imply a REI.UN unit price of about $16 – a long, long way down from over $24. Moreover, because what I am considering has absolutely nothing to do with Riocan’s operational performance and because the market tends to move the group of REITs in tandem, it is likely that if REI.UN units trade lower on the yield spread over rising bond rates, then the rest of the REITs will do the same thing.
The conclusion seems to me to be that it would be prudent to underweight REITs now, if not exit them entirely. But it all depends on the interest rate call. If something happens to push 10-year Cdas back down to 1.6% (like ca. June 2012), REITs could provide another significant top, and a great exit point. If interest rates trend steadily higher from here, then we probably don’t see another top like the one we just recently had. Interest rate trends can be very long (and scary). With relatively few peaks and valleys along the way, the trend on 10-yr Cdas was down from 1982 to 2012 (30 years!).