Investment Q&A

Q: Preferred Shares

Upon reviewing the holdings of the four (4) largest preferred share etf, I have noticed the majority of preferred shares are issued by the banks, insurance companies, electrical utilities and pipeline companies. I am a holder of the common shares of the same companies (as they are stable long term dividend payers).
The first question I have is am I increasing my "company" risk by holding both common and preferred shares of the same companies? Should I continue to buy the common shares, which are paying very close to the available preferred share yield and gain long term from dividend increases.
The second question is of the four etf listed, which is your preferred etf. Are there other Canadian Dividend eft I should look at?

Thanks in advance for your excellent service.

Stephen

Q: Hello,
I'd like to know your opinion on this newly launched ETF. It seems a better alternative to a bond ETF if held in a non-registered account. I couldn't find what the implied yield is likely to be. Do you have any idea? What are the main drawbacks to such an ETF?

Thanks

Q: I hold about 3% in XHY and CPD in a registered account. I'm wondering if selling those and moving to XTR would be a prudent move? XTR adds diversification beyond the two I currently hold.

Thanks....

Q: I bought for the first time preferred shares last year as part of a defensive strategy overall. These shares performed as expected and fell in unison with the market in October and December. The rest of my portfolio has nearly recovered and is back to where it was in early fall.
Why are these preferred stocks not recovering? Does the market now believe that interest rates are unlikely to rise so the re-sets now have less value?

Thanks for all your help,

Q: Hello 5i...The preferred share space took a real hit from which it has not recovered. I am thinking of adding one of the above as part of my fixed income allocation but to my non registered account. All of my fixed income and GIC's are in my RSP. I am conservative age 68 and need 4-5% long term. The recent volatility however does concern me. I value your opinion ..thank you Gary

Q: I have a substantial USD investing and as I age am beginning to think that I should invest some of it in fixed income ie bonds, gic type or preferreds. Do you have any suggestions for me as everyone I listen to focusses on Capital gains strategies only.

Q: I hold the above. Is it true that institutional investors are not very active In the preferred market? If this is true then why should retail investors hold these investments, especially given the expeience .of the last few years with the reset disaster?

Q: In this time of low returns for bonds and GICs, preferred shares are an option. Currently they have been under some pressure, like the rest of the market, but I would welcome your suggestions for a few Canadian preferred shares that are rate BB or above, with a decent quarterly dividend.
Thank You.

Q: Thinking of selling CPD and averaging down on ECN.PR.A My reasoning indicates that the reset return on CPD portfolio will continue to fall as the yield flattens or inverts.
In the case of ECN.PR..A if 5 year yield is at 1.06 or lower the yield is still 6.25%. Basically I’m saying there is a floor under ECN.PR.A but not CPD. What is your opinion ?

Q: Hi 5i, Greetings . I am holding CPD etf and some BIP.Pr.D and BEP.Pr.K as part of fixed income allocation. I always considered these to be held forever, but times seem to be changing and interest rate outlook is uncertain., Should these be held and wait it out or bail now and assess later? Thanks for the service. Ted

Q: I am a little curious about your answer to George regarding preferreds. Don't they move inversely to interest rates? So all else equal would you not expect a preferred share etf to fall in value as interest rates rise (just like bonds)? Not only that, would they not generally fall even further than bonds as preferreds never mature (preferreds therefor have a longer duration than bonds making them even more sensitive to interest rate changes). Thanks.

Q: What to do with cpd and Ecn.pr.a .
I’ve held reset prefs before, saw it through through the downturn in interest rates and the upturn again, did well, because I had a long term objective.
I now no longer have this luxury. However I feel some comfort with the minimum rate reset preferred. Should I. I appreciate your unbiased recommendation on both securities.
Thank you.
P.s. will be asking for a complete portfolio evaluation in the new year. Paid of course.

Q: Hi 5i, Seasons Greetings. I generally am a buy and hold type but could use some tax losses against earlier gains this year. The above mentioned stocks could be sold and repurchased in early January. Would that be prudent? Is there anything I should not repurchase? Thanks, Ted

Q: Good morning, I have recently shifted from a third party manager and am reviewing the pref share positions I currently own. All are individual share positions. Am I better off going with CPD versus individual ownership to share risk and also to simplify my management overall. Thanks

Q: Is the decline in preferred shares overdone...how much further down could it go? and under what scenario? For a long term, safe(r), diversified investment, does it not seem like a good time to add to a position?

Q: In the preferred share space I own both cpd and Ecn.pr.a. I am down a fair amount on both. Does the market really affect prefs that much. I bought because of the reset feature . Assuming higher interest rates the reset rate would be higher. No indication yet of falling rates in which case I would sell CPD and take my losses. On the other hand minimum rate reset preferred guarantees a specific rate protection on falling interest rates while at the same time having a possible increase in the reset rate if interest rates rise. Looks to me the best of both worlds. My investment is for income. Final question , will price go back to par on reset date.
Can one expect the the closer to reset the closer the value will be to par.

Q: I have a 1/2 position in CPD. Do you think this is a good time to increase to a full position? I hold this in a LIRA and consider it a long term hold. Thanks - Richard.

Q: Lots of questions to 5i on prefs lately. Some possible are explanations are in a recent article by John Heinzl: "Why preferred shares plunged."
https://www.theglobeandmail.com/investing/education/article-why-prefs-plunged-and-the-acbs-of-the-loblaw-deal/
You can add indiscriminate dumping of issues by CPD,ZPR, and HPR on high volume days as they struggle to keep up with net redemptions. The bid/ask spread on these ETFs is far less than most individual issues, so investors look to them for liquidity.

Q: Can you tell me why preferred shares are getting slammed? I notice that companies like Brookfield with attractive yields, protected by a floor in the 5% range, are down double digits. Also, ZPR is down 7% in the past month. Typically prefs don't get caught up in a correction. They didn't between February-March anyway. Your thoughts would be appreciated. I think there are a number of excellent buying opportunities. In particular BPO.I has a nearly 6% yield at these levels.

Q: Good morning,
In your response to Marilyn on Friday you replied that you "have no concens seeing it (CPD) as part of an income allocation" and "one needs to decide how it fits in"
My recent experience is that any so-called fixed income that I purchase loses money even including distributions. My current cash allocation is therefor 20% earning nothing, with another 20% in CBO, CPD, XBB, XHY, and a few preferred issues. I can look for a DIS account but could you expand on "how it fits in" and perhaps suggest the ETFs we should currently be using in this environment and a possible allocation range for each. Thank you for the ongoing excellent service in a difficult environment.
Ted