Investing

Fixed Income alternatives for rising rates environment

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  • Mar 6th, 2018 11:37 am
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I wouldn't class it close to being a 'Preferred share', its more of a floating rate income/ETF income fund. Current yield is 5%

https://web.tmxmoney.com/quote.php?qm_symbol=MFT

Floating rate too me simply means just that, just like regular stock or floating rate preferred share dividends are not guaranteed fixed, which can be zero to whatever was in the original prospectus 'that are subject to board approval, if & when issued'

page 18 in the prospectus for the risk

https://www.mackenzieinvestments.com/en ... apr-en.pdf

no guarantee on the growth either & no different than a Vanguard, Horizon or other income ETF's, the way that I see this

There are other floating rate 'preferred shares' from the Big Banks, Utility, telecom etc

an alternative sample for comparison

https://web.tmxmoney.com/quote.php?qm_symbol=BNS.PR.G

https://web.tmxmoney.com/quote.php?qm_symbol=IGM.PR.B

https://web.tmxmoney.com/quote.php?qm_symbol=RY.PR.W

https://web.tmxmoney.com/quote.php?qm_symbol=dfn.pr.a

OP, are you looking for just 'fixed income' or 'fixed income with some growth'?

what about a nice 5% fixed income retractable guaranteed income fund where the issue price is guaranteed on maturity or at your call?

or what about a fixed income MIC listed on the TSX, several to choose from, my pick

https://web.tmxmoney.com/quote.php?qm_symbol=ERM

http://bromptongroup.com/funds/fund/erm/overview
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porticoman wrote: I wouldn't class it close to being a 'Preferred share'
Oops I meant that I already have preferred shares (ZPR and one individual) as they were mentioned as the first option in the video, so looking for other alternatives :) MFT sounded like mortgage loans to me from its description..

OP, are you looking for just 'fixed income' or 'fixed income with some growth'?

what about a nice 5% fixed income retractable guaranteed income fund where the issue price is guaranteed on maturity or at your call?
‘Fixed income with some growth’ would be nice (that’s why I like preferred shares :)) Basically, as part of portfolio restructuring, I was planning to sell some Canadian dividend stocks in registered accounts (as we add more cash to non-registered and buy HXT there) and replace them with bonds. Started positions in ZIC and ZCM, will have two more stocks to sell soon-ish - but would rather not buy more bonds ETFs yet (until at least the end of year) So yeah, looking for what else is out there :)
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Prime based preferreds? BCE, BAM & BBD have them. The BBD series have gone up nicely (less so than the common shares, but still up like 30% from the lows in 2017)
:idea: :) :lol: :razz: :D
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freilona wrote: Already have preferred shares, heard about Mackenzie Floating Rate Income ETF (MFT.TO) on BNN last night:

https://www.bnn.ca/video/greg-newman-di ... tf~1333840

Anybody holds it/understands what it is exactly/what are the risks/has better ideas?

Thank you in advance :)
With Floating Rate you are taking on credit risk vs. Interest rate risk. Look how the trimark fund did in 08 ( one of the originals in Canada). Granted in 08 ppl were buying floating rate with leverage and we know what happened then. They have about a .50 correlation to equites and from what I read it should not make up more than 20% of your overall fixed income portion of your portfolio. The makenzie fund has done better vs. Some other because it held/holds some HY bonds. A “conservative” FRN fund would be the IA Claringington version.
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Motoss wrote: They have about a .50 correlation to equites and from what I read it should not make up more than 20% of your overall fixed income portion of your portfolio. The makenzie fund has done better vs. Some other because it held/holds some HY bonds. A “conservative” FRN fund would be the IA Claringington version.
I was thinking to try something different with only ~2% of portfolio (less than 10% of FI/non-equities portion) Thanks, will do more digging around about those! :)
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freilona wrote: I was thinking to try something different with only ~2% of portfolio (less than 10% of FI/non-equities portion) Thanks, will do more digging around about those! :)
They are a great tool in a well in a diversified portfolio! Mazkenzie also offers a unconstrained bond fund etf that you also might like. Can hold all different types of fi including prefs. They also use options to mitigate downside.

PIMCO Mtly income fund etf (hy yld bond) is also another one to look at. They bought boatloads of agency bonds after the financial crisis and it has paid off big time for them - look at the numbers for the fund. That trade was a once in a lifetime so I think I wold tone down future return expectations. Still good for diversification - different interest rate cycles etc.

https://www.thebalance.com/agency-vs-no ... mbs-416923
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Motoss wrote: Mazkenzie also offers a unconstrained bond fund etf that you also might like. Can hold all different types of fi including prefs. They also use options to mitigate downside.
Yep, found it and added to watchlist - MUB: https://www.mackenzieinvestments.com/en ... nd-etf-mub :) It has 19.1% in AAAs while yielding ~4.5%, so might be a better option for my husband’s RRSP (he’s not too hot for more credit risk..)
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Have you considered debentures? I like them for companies I am not worried about their ability to pay off their debt.

For example, Exchange Income Corp is one of my top stock holdings. I know a ton of people do not want to risk on their equity (eg. short attacks have made it a little volatile). I am pretty happy with their ability to pay debt considering their main cash flow is government contract medevacs and airline business in the north (HINT: guaranteed government paid flights). So one option is to buy their Debentures.

Their convertible debenture Series I pays 5.25%. This is a fairly solid yield even if interest rates rise. On top of it, it has a the ability at any time for the holder to convert the debenture to shares in Exchange Income Corp at $51.50 anytime before Dec 31, 2022. Right now, that is terrible, however, that could be very lucrative if say in 4 years time, the shares do balloon higher. I think there is a good probability their share price will go above $51.50 in 4 years time especially as they grow their business organically, reduction in short interest and their share buybacks. That means that you not only are earning a decent fixed income rate, you have the ability to take advantage of equity out-performance of fixed income should the bull market continue. If not, you hold onto it as a debenture and not convert and continue getting paid interest and eventually get paid back.

Yes this is a much riskier bet than government bonds, but I think if you understand the health and cash flows of a company, it is a well-placed safer bet than straight equity.
https://web.tmxmoney.com/options.php?qm_symbol=EIF.DB.I
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xgbsSS wrote: Have you considered debentures? I like them for companies I am not worried about their ability to pay off their debt.
...
Yes this is a much riskier bet than government bonds, but I think if you understand the health and cash flows of a company, it is a well-placed safer bet than straight equity.
https://web.tmxmoney.com/options.php?qm_symbol=EIF.DB.I
Well we only have corporate bonds now (individual and in ETFs), so it’s not a concern that the debentures are riskier than government bonds :) I heard about them, but, practically speaking - how do you buy them? Do they have tickers like stocks and preferred shares? As at Questrade, there’s a differeent process for buying bonds and GICs - need to call in with a CUSIP#. But haven’t seen debentures in their FI bulletin..
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freilona wrote: Well we only have corporate bonds now (individual and in ETFs), so it’s not a concern that the debentures are riskier than government bonds :) I heard about them, but, practically speaking - how do you buy them? Do they have tickers like stocks and preferred shares? As at Questrade, there’s a differeent process for buying bonds and GICs - need to call in with a CUSIP#. But haven’t seen debentures in their FI bulletin..
Notice the symbol I gave you? If they are traded on the TSX, you type it in similarly to any stock :)
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xgbsSS wrote: Notice the symbol I gave you? If they are traded on the TSX, you type it in similarly to any stock :)
Ah, silly me.. :) thank you! :)
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I received the notification, but don’t see the post from @wolfie55. Not sure if he deleted it or it’ll show up later, but thnk it’s similar to MUB recommended earlier:
How about BMO ZST - BMO Ultra Short-Term Bond ETF

I'm not sure what the difference between above the accumulating units are:
ZST-L - BMO Ultra Short-Term Bond ETF (Accumulating Units)


Don’t know what the differences are other than the Inception Dates (L is newer), but both don’t have much in Net Assets, and ZST’s chart looks like the stairway to.. umm.. hell (sorry, have been binge-watching Lucifer :))
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OP, I understand that you already have preferred shares.

As one gets older they trend towards income generators with more security than many 'what-if's'

In the old days brokers would have their clients in something with a higher return than an HISA or GIC, generally a solid 'granny & orphan' stocks or Bonds ...the Bell Canada, Railways & Banks that are the foundation of Canadian business.

At one time (John) Templeton (good ole boy) & his growth fund was all the rage, now its Franklin Templeton I believe

I understand todays wizardry where with the advent of the internet, all these ETF that have blossomed in the past 10 - 15 years that a nice balanced or bond fund may work for some.

On individual picks, mutual funds, ETF fixed income, convertible debentures to preferred shares, the way that my wife & I have gone is 'best fixed income with some built in guarantees'. There is risk no matter what you do.

Looking into the Canadian institutions, companies with great assets or huge assets under management, I have followed Power Corp & Power financial, both whom have a good track record as well as decent preferred shares, something a retiree could put in their portfolio mix without having to pay an MER.

My two 'look at's' that are paying 5%+

https://web.tmxmoney.com/quote.php?qm_symbol=PWF.PR.I, even with the premium price

https://web.tmxmoney.com/quote.php?qm_symbol=POW.PR.c

The big question is

a) is a solid 5%+ enough?

b) do you want something with a higher yield that waffles & could go in either direction?

Age dependent 'where do you draw the line'?
Last edited by Guest37273939 on Feb 25th, 2018 8:01 am, edited 1 time in total.
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porticoman wrote: As one gets older they trend towards income generators with more security than many 'what-if's'
Personally, don’t need the income yet (and won’t need it for a while as even if I do retire in the next year or two - my husband plans to keep working for 10 more years or so) So at this point I’m more interested in a portfolio diversifier - either benefiting from higher interest rates or not interest rate sensitive.

Plus just plain curious about new/unusual products if you wish - at least to learn about them, even if we decide they’re not worth the extra risk :)
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Motoss wrote: With Floating Rate you are taking on credit risk vs. Interest rate risk. Look how the trimark fund did in 08 ( one of the originals in Canada). Granted in 08 ppl were buying floating rate with leverage and we know what happened then. They have about a .50 correlation to equites and from what I read it should not make up more than 20% of your overall fixed income portion of your portfolio. The makenzie fund has done better vs. Some other because it held/holds some HY bonds. A “conservative” FRN fund would be the IA Claringington version.
https://www.mackenzieinvestments.com/en ... per-en.pdf
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freilona wrote: Personally, don’t need the income yet (and won’t need it for a while as even if I do retire in the next year or two - my husband plans to keep working for 10 more years or so) So at this point I’m more interested in a portfolio diversifier - either benefiting from higher interest rates or not interest rate sensitive.

Plus just plain curious about new/unusual products if you wish - at least to learn about them, even if we decide they’re not worth the extra risk :)
OK, so I'll start to throw some others at you, ones that I have either personally invested in over the past 10 years or ones that I have just plainly followed.

I have had (bought & sold) the debentures in the past

to understand the company, take a look at the common shares & financials

https://web.tmxmoney.com/quote.php?qm_symbol=boy

The debentures, which they've had several, recalled & paid out - now with the current series

https://web.tmxmoney.com/quote.php?qm_symbol=BOY.DB.A

I still say at issue price of $100 +/- a couple of bucks, the MOGO debentures (I started a thread on these) are worthy. They expire & are retractable in 2020

https://web.tmxmoney.com/quote.php?qm_symbol=mogo.db

The BMO ETF series, its just something about these that make me feel good

ZHY available in $Cdn or $US

ZWE in the $20 to $21 price range

On the US side

TQQQ for the longish (12 months) with an added covered call option, target 25% ROI. I have been in & out of this & other S&P/VIX ETF's

NLY is a financial company, strong, good financials, decent yield. Have had this one back in the early 2000's, plus AGNC, CIM, IVR, TWO.

NLY in the $10 to $10.50 range

https://web.tmxmoney.com/quote.php?qm_symbol=NLY:US

Anything that also has a hedge (covered call options) is also good

NLY-C 7.625% preferred shares look interesting, 12 million shares outstanding, good liquidity

https://web.tmxmoney.com/quote.php?qm_symbol=NLY.P.C:US
Last edited by Guest37273939 on Feb 25th, 2018 10:50 am, edited 2 times in total.
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freilona wrote: I received the notification, but don’t see the post from @wolfie55. Not sure if he deleted it or it’ll show up later, but thnk it’s similar to MUB recommended earlier:



Don’t know what the differences are other than the Inception Dates (L is newer), but both don’t have much in Net Assets, and ZST’s chart looks like the stairway to.. umm.. hell (sorry, have been binge-watching Lucifer :))
Regarding ZST and ZST.L:
What you're seeing on a regular price chart is the price drops associated with ongoing distributions. Total return, including distributions, is steadily positive.

Here's a link to total return performance for example.

Now what the .L accumulation units intend to do is not make any distributions except at the end of the year, and those will be reinvested rather than paid out. So during the year you'll have a better idea about actual performance. If you hold the units when they trigger the year end distribution, you'll still be on the hook for taxes on interest paid. If you sell before the distribution, it's a cap gain or loss. With the bid/ask spreads and trading commissions, it would be tough to really make it worthwhile but it might be interesting for certain people.

If you plot a price chart for zst and zst.l, you'll see them move in somewhat opposite directions but the total return will actually be pretty much equal.
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I was a bit hasty on suggesting the NLY-C preferred's, seems like they are retracting them in bit by bit, but for now in the short term may be a buying opportunity

https://finance.yahoo.com/news/annaly-c ... 00074.html

so, I guess its going to be the 2017 issue 6.95% F series

https://seekingalpha.com/article/409255 ... ter-option

https://web.tmxmoney.com/quote.php?qm_symbol=NLY.P.F:US
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throw in some US listed transportation/shipping - common stocks with dividends & preferred shares

Common shares

SFL at $15.20, paying 9.30% (edited)

KNOP at $20, paying 9.83%

HMLP at $17.25, paying 9.97%

Preferred shares

TNP (Tsakos Energy Navigation) have some decent 8%+ preferred shares, series B, C, D, E

HMLP-PA is an interesting one. The coupon is 8.75%, current yield over 12%

DLNG-PA is an 8%+, coupon is 9%

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