Investment Q&A

Q: I'm trying to assess unit price movement of HYPYT under certain scenarios ..... I have HYPT not HYPT.U ......

1} The Bank of Canada reduces rates in response to Trump's tariffs. Tariff inflation cannot be battled with interest rate increases .....

2} The US Fed also reduces rates as raising them would have no affect on tariff inflation and a possible recession would be Powell's main concern ......

Please comment on my theory and what price action you would expect if I am correct ? Thanks for your terrific service ......

Q: I know 5i doesn't like to give portfolio weighting advice so I will approach this is a different way ..... Hypothetical situation . YOU have a RRIF with no fixed income component. You have chosen HPYT to represent that sector . You would be comfortable between "X" and no more than "Y" weighting of HPYT ..... Please solve the equation and provide a value for X and Y ? .... Thanks for your terrific service .....

Q: I hold the following High dividend players: CALL, DGS, GLCC, HDIV, HMAX, HPYT, QQCC and QQQY. Can you please rate these as safest and best for growth. I am down on HMAX, HPYT and QQQY. I hold so many as I am leery to place all dollars on one player. Or are there some I should sell.

Q: Thanks for your advice on greater than 10% covered call ETF's in a Trump tariff world .... Of the ones you { and the one I chose HPYT } I am leaning toward a combination of HBND and HPYT for bonds. UMAX for a non volatile stock ETF, and XYLD for US exposure .....

However I am not well versed on bonds . Could you explain the differences between the two ETF's ? I have noticed that they peaked in mid September and declined since. HPYT has declined by 10.65% and HBND by 12.66% ..... What market conditions account for the price action between September and now ? I have no idea what bond durations are or what the significance of a " long " bond is but I am curious why HBND has had the bigger decline of the two ? ..... If HPYT is the less volatile of the two I'm inclined to go for the juicier dividend ..... Please explain the differences between the two ETF's and what circumstances will effect one over the other ? ..... I'm inclined to make my bond ETF purchases now and my stock ETF purchases after the tariff announcements . Would you endorse this strategy ?

Also UMAX isn't really a utility ETF . It is Communication Services 23.2%, Pipelines 22.0%, Industrials 23.6%, and, Utilities 31.2% ..... Is this something I should consider ? Or do you still put it in a defensive category with a minimum of volatility potential ? ......{ I like the juicy 14% dividend but unsure how 5i evaluates it in a Trump tariff world } ..... Thanks for your terrific service ......

Q: I purchased these 4-6 months ago thinking I should diversify away from stocks and equity based ETF's. All 3 of them are down (from 3.5% to 8%). While they all pay a healthy dividend (~8% to ~ 18%), I am wondering if I should continue to hold. Can you tell me what it will take to get them improving in value (identify for each). And the likelihood of an improvement in value in the next 6-12 months. As well, if you recommend selling and moving on, in what order would you sell?

Q: Will this recover or should I sell? Harvest Premium Yield Treasury ETF (HPYT:CA)
Your view would be appreciated.

Q: Can you explain the dynamics of this ETF declining some 18 % this year. Thanks. Derek

Q: These appear to both be treasury etfs. One is in CAD the other in USD, but the difference in price is insignificant? I am assuming these are treasury bills. What am I missing here? Are these stable etfs or should I stay away from them?

Q: I have xhy.ca in my unregistered account and am down about 20%. Does it make sense to sell this and buy HPYT or HBND or are these totally different products?

Q: In an answer to Numa this morning you stated that HYPT was down 1.1% this year. Just for clarification does that include the 17.27% dividend ? Thanks Garth

Q: I am currently at loss with TLT in my cash account. I want to sell it as tax loss. I am thinking buying HYPT in margin account with interest rate of 7.95%. HPYT has yield of 17.27%. So, theocratically I can make 9.32% if I do not sell it. I want to hold it for a medium term 3-5 years. Does it make sense? Will it be more risky than investing in TLT?

Q: I am looking to move some recent high risk stock gains into a dividend/yield product (>7%) that is not a direct function of market equities as I think markets are very overbought. Would something like HYPT be appropriate and can you suggest a few other ideas? Thank you

Q: We have about 1/3 of our portfolio in a HISA earning about 4%. This was done since at our age ('50's) we decided that was the approximate amount we should have in "non-equities". But we'd like to target a low-risk return on this portion of about 6%, and HISA rates are also coming down. So we want to move this to other "non-equity" areas. What is your best suggestion on this? Bond ETF - of so which ones are best right now? Or other ideas?

Q: I’m considering whether I should invest in TLT, HPYT, or a combination of both. I understand that HPYT has a much higher yield, but I’m struggling to fully understand why. TLT, which makes up around 70% of HPYT’s holdings, only has a yield of about 4.3%, which makes me wonder how HPYT can achieve such a significantly higher yield. I understand the basics of covered call ETFs, but what kind of options are they trading to generate this yield? There seems to be something I’m missing here—could you also explain the additional risks that come with HPYT's elevated yield?

Q: Similar etfs....20 yr vs 10 year. Why such a big difference in yield?

16% vs 8%

Q: Dear 5i team.

I tried going through recent Q+A to make sense of these two ETFs.

Can you simplify for me?

1) What are the key differences of these two? The yappear to have similar holdings, just diff %.

2) Closing in on one year since inception, any more visibility to performance/cost etc?

3) Can both be held, or do you prefer one over the other?

Many thanks for your help.

Q: I'd like to assess the following group of ETF's I am considering purchasing from a conservative and safety point of view ...... HYPT has been used as the fixed income part of the portfolio . Please advise if this is appropriate and if not a suitable replacement ? The 5i income portfolio has Canadian preferred, convertible bond, and high yield US bonds for around a 15% weighting as the fixed income section ...... Please give a rating of between one and ten with one being the most " conservative and safe " for the following group of ETF's . I will assign the 5i income portfolio a four just so I can see how my choices rank against it using the criteria I suggested ...... Also everything I have chosen is a Hamilton product. Does 5i consider that problematic ? Thanks for your terrific service .....

FMAX 10%
HMAX 10%
QMAX 20%
HYPT 15%
SMAX 20%
LMAX 10%
HYLD 10%
HDIV 5%

Q: Could you confirm what is happening with the price of long term U.S. treasuries?
I purchased HPYT in January for the high yield to fund my RIF withdrawals. I understand the inherent risks of the structure of HPYT and anticipated some volatility but a generally a flat to upward trajectory given the forecast of reducing interest rates. I know the timeframe is short but wanted to confirm that the reason for the slide in HYPTs price is long term treasury rate increases.
Do you still anticipate rate reductions in US treasuries?

Q: Thank you for the Money Saver's email " Avoiding The Yield Trap " on covered call ETF's. Garth’s question and your answer from February 25, sparked more questions. Also read all the Q&A on HBND.

My understanding HBND is 50% covered call on Treasury ETFs (eg: TLT, VGLT, VGIT, etc.) with target yield of 10%. Dividend growth is reliant on interest rate rising. You answered on Oct 6, 2023: “…But if rates stagnate or decline….the yield on this ETF may come under pressure, but its unit price can see capital appreciation”. Expectation is interest rate may go down this year.

Is it better to invest in HBND or dividend grower in the long term? So, I created a spreadsheet to determine the breakeven period where a dividend grower will match the annual dividend paid by HBND if dividend yield stays around 10%. I choose four random dividend growers FTS, SLF, TD, T with average historical annual dividend growth of 5%, 9%, 6% and 7% respectively. Starting point: Annual dividend payment as of January 2, 2024, no DRIP and no additional stock purchases.

If HBND dividend yield target yield remains around 10%, the number of years, when the annual dividend grower payment would exceed HBND annual dividend payment for FTS in 18 years, SLF in 13 years, TD in 16 years and T in 8 years.

Based on these results, if a person requires dividend income is the next 10-12 years, than HBND is a possible income source. However, if the dividend income is not required for more than 10-12 years, a viable option is to purchase a dividend grower since the annual dividend amount should exceed HBND and continue to grow.

Note: This is a simplistic point of view since HBND target of yield may drop with interest rate expected to drop later this year, a dividend grower rate may drop, no drawdown in capital for more than 10 years or black swan events. This exercise is focus on dividend not capital appreciation. This exercise could be applied to other income stocks (eg: XHY, HPYT),

Is this logic flawed? What other points should I consider? Is there a role for HBND or other high yielders in wealth accumulation portfolio vs wealth decumulation phase? Inflation in the last couple of years has reinforced (for me) to consider dividend growth to be able to fund retirement income for hopefully a few decades.

Thank you for your thoughts.

Q: According to the T3 published on the CDS listing for 2023, the Return of Capital for 2023 for HBND was 70.7% and for HPYT it was 48%. I'm holding them in non taxable accounts so the source of the dividends doesn't matter, but isn't that level of ROC completely unsustainable and will just mean an erosion in the NAV?
thanks