Investment Q&A

Q: Would CPD be classified as 'fixed income'? What would be a recommended short duration ladder bond fund that you would recommend for diversification?

Q: Hi Peter and Team,

In our grandchildren's RESP (ages 15 and 16) I have been using accumulated dividends to 'top up' the above ETFs, as I'm able to do so commission-free through Scotia iTrade. The portfolio is balanced, with the majority of holdings from the 5i portfolios. Can you suggest a strategy as to which ETF(s) I should invest this extra cash at any given time? Since the 16-year-old is in grade eleven, and the 15-year-old is in grade ten, is it safer to use CLF and/or CBO, even though their charts don't look so great, as compared to CDZ and CUD?

Thanks in advance for your valued advice.

Q: Good afternoon. I currently have $30k in my daughters RESP. Where should I park it for 3 more years?

Q: Within a fixed income portfolio, given the rising rate environment would you prefer HFR over CLF? HFR has a slightly lower yield but should have a better price response to higher rates than CLF...no? Thanks.

Q: Not too happy with the price fall of CLF. Would you consider switching to PYF a decent move....just looking for some relative safety and yield over the next 3 to six months. Thanks.

Q: I've recently sold my ZRE position and am looking for some suggestions on what to consider purchasing with the extra funds on the fixed income side of my portfolio. My equity portfolio is balanced; I am about 8 years from retirement, and am conservative in my approach. I am about 30% in laddered GICs, 5% individual bonds, 3% CPD and 5% in cash. I don't have any bond ETFs (and am concerned about the principal in a rising interest rate environment). What to do with the extra cash? More CPD? Or an international REIT? Or a bond ETF, Canadian or International? Or something else?

Q: CLF is often recommended as a good, safe place for money but it only moves down. While meager interest is paid that really only kicks in tax which further reduces, or most likely eliminates any gain...where is the benefit? What conditions would have to occur for it to move up?

Q: Greetings Peter and 5i Team,
I have $100,000 to invest in the fixed income part of my portfolio. All investments will be inside a RRSP. As a retiree, I'm hoping for capital preservation, (safety) with a reasonable return on my investment. Currently, the only exposure I have to fixed income is ZPR. I'm considering adding the investments in your Income Fund (CVD, XHY), as well as HFR to my portfolio.
-Do you believe these investments will provide solid fixed income exposure?
-Do you see any way I can improve my exposure to the sector? i.e. is there any need for exposure to foreign bonds?
- What percentage of the $100,000 would you allocate to each ETF?
As always, thanks in advance for your appreciated support.

Q: Dear 5i,

I am aiming to configure a fixed-income allocation that is an equal compromise between safety/security and long-term total return potential. I would like to choose ETFs that are versatile enough that they may continue to be reasonably held irrespective of changes in market, interest rate, inflation, and economic conditions. Which configuration do you think would be most appropriate for fulfilling this mandate:

1. 100% VAB
2. 50% VAB, 50% VCB or ZCM
3. 25% VAB, 25% VSB, 50% VCB or ZCM
4. 50% VCB or ZCM, 50% intermediate-duration (~5 years) Canadian government bond ETF (does one exist?)
5. another configuration (please suggest)?

I would prefer to avoid the higher risk XHY and CPD. Why does 5i prefer CLF (VSG is cheaper and similar) and CBO (VSC is cheaper and similar)? VCB is relatively new and has only $12.7M in net assets at this time, is this a problem? Or should I opt for the costlier but similar ZCM?

I realize there are actually many embedded questions in this 'question', so please deduct as many credits as appropriate. I am sure your answer will be well worth it.

Thank you.

Q: Hi 5i Team:
A couple of thanks first before getting to my question.
1. Thanks for the fantastic job you did on my portfolio review and the suggested transactions.
2. Thanks for your opinion and feedback on annuities.
I have some money to add to my fixed income. Are you still liking CLF for government bonds and CBO for investment grade corporate bonds. Time horizon is very long term. Or do you have some other suggestions.
Thanks so much.

Q: VSB looks to include both government and corporate bonds. Is owning VSB the equivalent to owning CBO and CLF? Looking to reduce number of holdings and the MER on VSB is attractive. Is there something similar that includes corporate and govt short term bonds that you like better? Thank you for all that you do!

Q: Greetings, I've always had a bit of a difficult time understanding bond ETF's or more specifically how they may be expected to react to economic events. Some observers interpreted recent comments from the BOC as perhaps indicating they may not be as opposed to a rate hike as they have been for the last 7 years. If rates were hiked even a little in Canada, I assume bond ETF's would react somehow. Does it depend on the nature of the holdings? Or is the underlying reason for the rate hike more important? Could a bond ETF ever respond neutrally (or even positively)? I think I understand how an individual bond reacts, and how if I held it to maturity it really wouldn't matter, but I am thinking specifically of ETF's like VAB and CLF. I would really appreciate your thoughts,
Thanks

Q: Dear 5i
Can you confirm the following yields and MER`s for the following Bond ETF`s;
CLF yield 3.04% & MER .17%
CBO yield 2.91% & MER .28%
CPD yield 4.54% & MER .51%
XHY yield 5.47% & MER .67%
Thanks
Bill C.

Q: Hi 5i: I find the behavior of Bond ETF's quite mysterious. I bought CLF some time ago, in the belief that a short term ladder protected to some degree against the effect of rising rates. Canadian rates have not risen and those in the US have gone up only a little. Nevertheless, CLF has gone down steadily (linearly until recently) over the last two years. The chart suggests they may recently have bottomed. It may be that the decline in price is because the underlying bonds are bought at a premium. If so, is this effect likely to be negated as rates go up? Bottom line: what can I expect of CLF over the next couple of years? Thanks for your always valuable advice.

Q: What would be your preference between either CLF or XBB for government bond exposure at this time?

Q: I'm looking for a safe place to park some money. You've mentioned CLF but could you explain why its price chart goes straight down and do you expect this trend to continue? Also, what might make it rise? Thanks.

Q: Hello 5i,
I am glad to see that you are still answering questions about bonds and bond funds. I sent in a question the other day about BND, an American bond fund and was told that you don't deal with bonds. These questions are important to us, however.

Regarding the answer you gave to Fred on Feb 15, regarding this bond fund. You said that with distribution for this year, the fund is still under water, only slightly, though.

I continue to buy bonds but with trepidation these days. With such a question and such an answer, for instance, I am asking myself why I would buy a bond fund if I was going to lose even a bit of money? Wouldn't I be better in a high interest savings account?
thanks for the great service

Q: Will CLF fall if US rates rise in March or June?

Q: The high markets seem poised for a correction, do you think moving money into CLF, CBO, or any other bond ETF is a good way to go. Maybe ride out the next few months and move back into equities after a correction has taken place? Thanks.

Q: Hello,

I have 100k (non-registered) that I need to use for a child's schooling over the next 5 years. I will need 20k each year for the 5 years. Looking to balance preservation of capital while looking to at least match inflation over the 5 years. No interest in equity. How would you recommend going about investing the funds? GIC's? Short term bond funds? Money market funds? Recommendations?

Regards,

Robert