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Investment Q&A

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Q: Hi. This rights issue was described in basic form, but there seems to be a much more complex/interesting issue. These debentures, if I exercise the rights, offer a tremendous hedge against inflation, as their yield is tied to the rate of change of inflation. What seems like the deal-breaker is the 33% premium I (would) have to pay to buy the Debentures.
It seems to me odd that I am asked to pay a 33% premium to earn less than 6.5% if inflation rates go down over time. This does not seem like a very tax-efficient strategy for taxable dividends. It just seems like a very unique product and pricing. Can you comment on those particular aspects please? I am interested in earning more income soon, and there is some appeal to this as a hedge against inflation, but the price of that insurance seems too high...?
Read Answer Asked by Darren on September 18, 2023
Q: Good morning 5I researchers,

I received the following offer:
Option 1: Exercise – 3.03 Rights will be required to subscribe for $100 CAD principal amount of unsecured
subordinated floating rate debentures, Series 1, due March 31, 2040 of Constellation Software Incorporated
(CSU.DB (TSX)) (21037XAA8) at a Subscription price of $133.217 CAD per $100 CAD principal amount
of Series 1 Debentures. Please specify the number of Rights you wish to exercise.
The Series 1 Debentures will be issuable only in denominations of $100 CAD and integral multiples thereof.

By reading this, it seems it’s not a valuable buy, spend $133.217 to buy $100 denominated debenture due March 31, 2040. I am not sure if I understand it right. Could you please help me to understand it? Thanks.
Read Answer Asked by Lin on September 18, 2023
Q: I have purchased stocks and ETFs in the past and am considering the purchase of a coupon bond. I am not familiar with this type of investment and would appreciate some comments on this type of investment. The following information is provided for the bond;
Inventory - $150,000
Coupon - 6%
Maturity - 2/27/2030
Price - $70.375 CAD
Yield - 12.90%
DBRS rating - BB
Please explain the information provided for the bond. What are the risks associated with this type of investment.
Read Answer Asked by Don on September 15, 2023
Q: I also have a broker from a long way back where I have CSU and he is advising that with this convoluted system CSU has come out with that is intimidating to us older investors, my broker is telling me I will get approximately $400 in Principal amount of the Debentures and be debited approximately $530. Does that mean that I am getting $400 worth of debentures and pay $530 for them? I got the impression that I was getting money for this action CSU is taking. I do not know how many shares I have at the moment but those numbers will hopefully give you a rough idea. I am hoping I do not end up with another stock that operates in this manner. I will be waiting to hear from you before getting back to my broker. Thank you very much as usual.
Read Answer Asked by Dennis on September 13, 2023
Q: Hello. My portfolio is currently composed of all equities and approximately 10% cash. I would like to move some money 15-20% out of equities into fixed income. What would you suggest is a simple, yet effective way to achieve this? Invest directly into bonds? Buy a bond ETF? Bond mutual fund? Short or long-term bonds? Corporate or government? Can you suggest some bond ETFs or mutual funds?
Thank-you.
Read Answer Asked by Antonio on September 11, 2023
Q: Hi, Just to clarify further about the debentures - If Constellation decides to redeem the debentures, Only the Warrant holders will have the ability to buy the new debentures and in the ratio of 1 warrant providing a right to by 1 debenture. So, the Debenture holders ( with redemption called ), can only swap/buy the new debentures with No Redemption clause, would need to either already have or buy the warrants in the market. If not, they will be exposed to a capital loss of, say. $37, for each debenture.

In our situation, we have currently 500 CSU.DB debentures and only 250 warrants. So, in a Redemption call scenario, we should be prepared to Buy 250 additional warrants in the market, if we want to swap/buy to retain the same no. of 500 debentures ownership. Is this correct ? And, for this reason, there could be a huge demand for these warrants, when called for redemption, because, a large no. of debenture holders, may not necessarily already have those warrants.

Will the New Debentures be listed as a separate security, in addition to the existing debentures CSU.DB ?

Thank You
Read Answer Asked by rajeev on September 08, 2023
Q: Now that I discovered that RBC has opened its direct investing accounts to high interest saving ETFs, I am interested in moving the cash portion of my portfolio. HSAV is interesting because of the capital gains tax advantage. However I noticed that it has been fairly volatile in the last few weeks - swinging by almost 1% in a single day. That is more volatility than I would’ve expected from an investment that primarily holds bank savings accounts that reprice daily. Is there something else going on here?
Read Answer Asked by Andre on September 08, 2023
Q: Hello, Based on 0.33 CSU.RT, purchase and cost of 3.03 rights being 0.33x3.03= $0.99. We can acquire new CSU debentures at a total cost of $133+0.99=$134 appx ( FV $100 and Debentures with no right with management to redeem ). Does it sound accurate ?

Questions:

1. CSU debentures ( existing ) are currently trading at $137. What do you expect the trading range of New Debentures, which will be listed after Oct 6 ? My assumption is that new debentures could trade at a higher price than $137, due to No Management redemption right ( All other terms, interest etc being identical to present debentures ).

2. These debentures will pay interest based on 6.5% + 0r - Rate of change of CPI, over preceding 12 months, as at Mar 31, each year. Looking at the present and projected inflation scenario, if the rate of increase of CPI, declines over time, compared to current high rate, the annual interest rate for debentures could see a decline. Would this not cause the Debenture ( like other Bonds ) market value/price to decline ?

Please correct these assumptions and provide your thoughts. Thank You
Read Answer Asked by rajeev on September 07, 2023
Q: Hi there,

With so many low risk, high yielding ETFs now that are producing better rates than savings accounts, which would be the best to hold in a non registered account, and why?

Thanks!
Read Answer Asked by Michael on September 06, 2023
Q: Would you go for an RBC one year prime linked GIC at 4.75% redeemable with interest after 30 days. or an HSBC standard one year GIC at 5.25% redeemable after 90 days with interest? I suppose it's a call on where you see interest rates heading.
Read Answer Asked by Andrew on September 05, 2023
Q: Hello 5i,

GIC's are about 15% of our portfolio with BTI and EPD each at 1.5%. GIC's (laddered strategy) roll over between October and March. Would you recommend 1 or 2 year GIC's (@5.5%), 5-year GIC @5%, add to EPD or BTI , or do you recommend a bond or mix of bonds? We are in our mid 60's, retired, risk tolerance is medium.

Thank you for your Service
D&J
Read Answer Asked by Jerry on September 05, 2023
Q: I'm looking to park some cash and let it earn some interest. My bank doesn't offer any meaningful savings interest rate and I'm not interested in a GIC. Can you please recommend a couple of money market funds or ETFs I could buy through my non-registered iTrade account.
Read Answer Asked by David on August 25, 2023
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