Very attractive

car-wash-modified
DOUG By Guest Blogger Doug Rowat

As preferred share prices were tanking last year about as fast as Donald Trump’s female-voter approval ratings are this year, I encouraged our clients to hang in there because I saw enormous value in preferred shares, particularly over the long term. I explained that I expected preferred share prices to rally in 2016 because Government of Canada (GoC) 5-year bond yields were too low and destined to rise. Well, I was wrong: GoC 5-year bond yields have gone nowhere, but preferred share prices have still risen sharply, up almost 23% from their January lows, including dividends.

So what gives?

First, a quick primer on Canadian preferred shares. The bulk—more than two-thirds—of the Canadian preferred share market is made up of rate-resets. These are a specific type of preferred share that typically ‘reset’ their dividends every five years based on the current yield of the GoC 5-year bond yield plus a fixed percentage-point ‘gross up’. For example, you may own a preferred share that in three years’ time will reset its yield equal to the GoC 5-year bond yield plus 4 percentage points. If the GoC 5-year bond yields 2% at the reset date, for example, then the new yield on this preferred would be 6%. (The preferred may not remain at par and the preferred issuer may instead elect to ‘call’ the preferred rather than reset it, but we’ll ignore these variables for now.) What this generally means is that rate-resets are sensitive to movement in GoC 5-year bond yields—when these yields move higher, so do rate-reset preferred share prices and vice-versa. In fact, the correlation between the Canadian preferred share market and GoC 5-year bond yields has been more than 80% over the past three years.

This year, however, this correlation has broken down significantly as Canadian preferreds have skyrocketed since their January lows while the GoC 5-year yield has barely budged. Here’s what’s been driving preferred shares higher:

  • The market has been anticipating higher interest rates. While the economy in Canada is at best lukewarm, GDP growth is still positive, inflation stable and our loonie weak. Markets are expecting that the Bank of Canada will eventually have to follow along with the US Federal Reserve, which raised interest rates once last year and is likely to raise again before year-end. To not follow the Fed risks even more Canadian dollar weakness, which could create economic instability. The chart below shows the incredibly tight relationship between the Bank of Canada and US Federal Reserve interest rate policies. Long term, the correlation is 95%. The Bank of Canada can run, but it can’t hide. Eventually it will follow the Fed’s lead.

Canada’s Interest Rate Policy Moves in Lock-Step With The US

doug-1

Source: Bloomberg, Turner Investments
  • Oil prices have rallied 89% since their February lows. Not only does this support the higher interest rate argument above because higher oil prices are positive for our economy, but there are a significant number of pipeline and energy infrastructure companies that issue preferreds, so higher oil prices are positive for them operationally.
  • New preferreds have been issued, particularly bank preferreds, with attractive current yields and favourable reset spreads (the ‘gross up’ I spoke about above). Banks have the balance sheet strength to support these yields and naturally they want high market demand for these issues. They also have to compete with an existing preferred share universe that is already yielding ~5%.
    * There has been a noticeable increase in institutional demand for preferred shares. As an example, recent Bank of Montreal new issues have been oversubscribed with very strong institutional interest. I’ll discuss why the ‘smart money’ has been gravitating to preferreds momentarily.

So, while GoC 5-year bond yields have not been the expected driver of preferred share prices this year, many other factors have emerged to fill the gap. We’re particularly encouraged by the institutional money being pumped into this asset class. We think the reason is quite simple: an absence of attractive income-generating alternatives. The yield advantage that preferred shares offer over other yield instruments is substantial. For instance, preferred share yields still vastly eclipse the yields on corporate bonds (see chart below). Globally, the percentage of bonds offering negative yields has also risen dramatically, so international options are limited. So as far as institutional money is concerned, Canadian preferreds are the best game in town.

Yield Spreads Have Compressed, But Preferreds Still Advantageous To Corporate Bonds

doug-2

Source: Bloomberg, Turner Investments

Some have argued that the preferred share market faces an upcoming wave of resets at weak spreads that will drive dividends (and ultimately prices) lower. This is a risk, but we think it’s a muted one. There are currently 191 rate-reset preferreds on the market, but only 27 (14%) face a reset next year with a relatively attractive average reset spread of 3.07%. Even fewer preferreds (24 or 13%) face a reset in 2018 at a still-reasonable average spread of 2.59%. In other words, there is likely to be only minor pressure on preferred share dividends in the future—this buys time for interest rates to move higher. Now, if you don’t think the GoC 5-year bond yield will move higher in two or three years’ time then, quite rightly, you should be cautious with preferreds.

But, as I mentioned, the current yield on the preferred share market is very attractive, so you’re getting paid handsomely to wait for even a little bit of traction with bond yields. Institutions have clearly weighed the risk-reward and decided, at least for now, to go where the juiciest yields are. We think you should too.

Doug Rowat,FCSI® is Portfolio Manager with Turner Investments and Senior Vice President, Private Client Group, Raymond James Ltd.

97 comments ↓

#1 Randy on 10.29.16 at 3:10 pm

What size Jeans is that dog wearing ?

#2 ME Here on 10.29.16 at 3:11 pm

Nice article, Doug.

Given that Preferreds have gone up considerably despite a stagnant GoC Bond rate, does this mean that Preferreds would start fast gains once concrete rumours of a rate raise or is this priced in already?

#3 Context on 10.29.16 at 3:18 pm

Welcome back Sir Lew and what are your thoughts about buying a basket of preferred shares whereby the resets are professionally managed and diversified?

#4 Solomon Grumdy on 10.29.16 at 3:23 pm

CPD down 0.5% YTD (excluding dividends)

#5 Andrew Woburn on 10.29.16 at 3:40 pm

Thank you, Doug, for this informative article.

Over the long term, investors might be better off with Canadian bank common shares.

Could you comment on your view of the pro’s and con’s of holding major bank rate reset prefs versus owning their common shares over the next five years.

#6 stanley on 10.29.16 at 3:59 pm

Hillary now has Dickieleaks, not just Wikileaks

#7 the other white meat (pork) on 10.29.16 at 4:06 pm

No wonder Mr T employs you. Thanks for the education and positive outlook. Please continue with your contributions to the blog, it’s always nice to see how the other half thinks.

Reading the comments here in the peanut gallery can be educational too, but they often leave me wanting to open up my wrists and take a nice, hot bath.

#8 Brian Ripley on 10.29.16 at 4:08 pm

Oil prices have rallied 89% since their February lows… not only does this support the higher interest rate argument… Doug Rowat

My chart of the TSX indexes of Energy, Real Estate, Financial Services, Gold and the Bank of Canada Commodities http://www.chpc.biz/tsx-indexes.html

….demonstrates that the energy sector has put in lower highs and lows since 2011 and lower highs since the peak in 2008. That trend has not turned up unless you call the recent Opec-Non-Opec-headlines-excitement a change in trend.

90 months of ZIRP & NIRP have not achieved the Bank of Canada’s inflation target of 2% http://www.chpc.biz/real-interest-rates.html … just the opposite… total CPI has been putting in lower highs since 2011.

The effect of ideologued control of interest rates has led to inflation in financial and material assets like bonds and real estate, cars, art, and jewelry… not in the productive elements of the economy. In fact Canadian investors seek yields on their capital outside of Canada net of foreign capital seeking a return in Canada http://www.chpc.biz/household-debt.html

Hello Japanada.

#9 Freedom First on 10.29.16 at 4:12 pm

Yes. 5%-6% dividends on my ETF preferreds. Excellent part of a liquid balanced rebalanced diversified Freedom First lifestyle.

The trick is, never “have to/be forced to” sell any asset, always have cash, cash flow, income streams, and be debt free. Also, and this is huge, so don’t ever forget it, never ever ever ever give anyone access to your a$$et$. Right? Brad Pitt? Johnny Depp?…….etc. etc. etc?

Lastly, if you absolutely must get married/live common law, remember, the majority of women don’t much care for stocks, bonds, liquidity, they are obsessed with items like jewelry and houses, yes, basically, all hard assets.

I am very very very appreciative of all of my girlfriends from my teenage years to the present and future.

I am Blessed.

#10 mark on 10.29.16 at 4:31 pm

So what is a good preferred rate reset “etf”
ZPR?

#11 Marty mcfly on 10.29.16 at 4:33 pm

I always get a little nervous when something is up 23% from the lows have we already missed the boat on this on.? I beleve rates will rise but maybe this is already priced in.

#12 rock beats paper on 10.29.16 at 4:39 pm

Doug,

Very inventive story telling. You would make a good business journalist finding just the right reason why something happened after the fact.

The prefs were sold buy brokers to unwitting retirees at expensive prices. The trade got crowded with codgers. The prefs were sold down in a 2015 panic after the two BoC surprise interest rate drops. Then the shorts piled on allowing the brokers to call the codgers to encourage tax loss selling. Thus we had a strong deep undervaluation for the end of 2015.

When sentiment strikes, correlations are out the window. Now that the elastic has bounced back, your correlation with interest rates will come back into play.

#13 bigtowne on 10.29.16 at 4:41 pm

The Federal Government is on a path to twin infrastructure spending with Private Funds so before we all get out our wallets for some highly esteemed introducing broker we will forgo the amount but use derivatives to climb the wall of negative interest rates.

My Ukrainian Grandfather who settled into Moose Jaw, Saskatchewan back in the early part of the 20th century kept a pantry of cans under the beds…the pogroms and the Russians were not far enough from the sunflowers. He grew his own food in the back yard…a real off the grid before the term was coined. Today he would be a fixture on facebook.

#14 Context on 10.29.16 at 4:44 pm

I see that Doug is back as thought Sir Lew was going to take center stage.

#15 BS on 10.29.16 at 4:52 pm

This year, however, this correlation has broken down significantly as Canadian preferreds have skyrocketed since their January lows while the GoC 5-year yield has barely budged. Here’s what’s been driving preferred shares higher

The preferred share ETF CPD is exactly where it was 1 year ago and way down from 2 and 3 years ago. Sure in tanked in January from where it was in November 2015 and then recovered but so did most equities. Both had more to do with weak oil prices at the start of the year over anything else. If oil prices tank again look for preferreds to go down, along with BoC interest rate (which cuts the reset prefs yield), along with the CAD. Prefs do not provide the safety or negative correlation to equities most people need from fixed income. They do not even guarantee the income part with rate resets. Personally I would not go over 5% of a portfolio in Canadain rate reset prefs at this point. Too much risk for limited upside return.

#16 Ppp on 10.29.16 at 5:00 pm

# Freedom First

You spend here as much time making the same comments over and over again as if you were married to a frigid woman for twenty years.

#17 betamax on 10.29.16 at 5:03 pm

“To not follow the Fed…could create economic instability”

To follow the Fed and raise rates in Canada will absolutely cause economic instability.

Your missing another disconnect here. Looking at past market behaviour and extrapolating into the future isn’t a reliable method of prediction in volatile times, which is what we are now in.

#18 mike from mtl on 10.29.16 at 5:14 pm

#4 Solomon Grumdy on 10.29.16 at 3:23 pm
CPD down 0.5% YTD (excluding dividends)
=====================================

Not to mention -23% 3yr and ZPR almost -30%!! Man I would be pissed if I held these from then. A decade or so of dividends would be needed to just recoup these equity losses.

Yea yea I know it’s only a loss of sold but still who here really believes BoC will rase rates at some point before 2030?

#19 Vlad on 10.29.16 at 5:14 pm

To eliminate the risk of any potential interest rate movements, here is an idea for a balanced & income-generating portfolio with a yield of over 5%: 50% preferred shares ETF+50% REIT ETF. ;)

#20 Mark on 10.29.16 at 5:21 pm

“90 months of ZIRP & NIRP have not achieved the Bank of Canada’s inflation target of 2%”

Precisely. And this will continue for many years to come as housing prices continue to deflate nationwide. Along with consumer spending.

Canada over-invested in export capacity in past few decades (particularly in O&G), and it is the strength of this investment in export capacity that will power very low interest rates, minor deflation, and a rising CAD$ for many years to come.

Contrast this with the USA which has chronically under-invested in export capacity (spending most of the past 2 decades “investing” in domestic consumption). The USD$ will weaken, and interest rates will rise to re-align their economy back towards exportable production. Thus working towards repaying their accumulated trade deficit.

So yes, Canadian and US interest rates can disconnect and remain disconnected for an extended period going forward. Just because they’ve been correlated in the not so distant past does not mean they need to be perpetually tightly correlated.

#21 Cecil Henry on 10.29.16 at 5:25 pm

I still don’t get the appeal of preferreds.

CPD is down -2% since 2011. YOu have lost money for the past 5 years now.

And its supposed to be an income source??

I try to get it. But I’m still not convinced.

#22 Pottiehippen on 10.29.16 at 5:29 pm

Are there any preferred shares you recommend buying…………..anyone?

#23 Toronto_CA on 10.29.16 at 5:32 pm

Yield pigs will be slaughtered.

#24 TCContrarian on 10.29.16 at 5:35 pm

I’ve never owned ‘preferreds’ ETFs.

Care to list a few that you’d suggest I have a look at?

Thanks

TCC

#25 Doug Rowat on 10.29.16 at 5:51 pm

#2 ME Here on 10.29.16 at 3:11 pm

Nice article, Doug.

Given that Preferreds have gone up considerably despite a stagnant GoC Bond rate, does this mean that Preferreds would start fast gains once concrete rumours of a rate raise or is this priced in already?

Some upside in bond yields may be priced in, but not much in my view. It all depends, of course, on how high bond yields actually move. The longer term average yield for the GoC 5-year is a not-very-demanding 2%. It’s conceivable they approach this average over the next year or two. A move to 2% is definitely not priced in. Higher bond yields literally equate to more money for rate-reset holders, so even though preferreds have rallied, a positive relationship between yields and preferred prices will always exist over the long term. And you’re getting paid 5% to wait–and not many other yield vehicles are able to compete with this at the moment.

–Doug

#26 Doug Rowat on 10.29.16 at 5:54 pm

#5 Andrew Woburn on 10.29.16 at 3:40 pm
Thank you, Doug, for this informative article.

Over the long term, investors might be better off with Canadian bank common shares.

Could you comment on your view of the pro’s and con’s of holding major bank rate reset prefs versus owning their common shares over the next five years.

Historically this is true. However, in our portfolios, preferreds have the specific purpose of offering diversification and protection against higher interest rates.

–Doug

#27 conan on 10.29.16 at 5:56 pm

What if the Bank of Canada is being open and transparent about interest hikes, but the Fed is just playing games?

If that is the case, the Fed is just BS-ing about raising rates. For what purpose….. F with Russia?

I stopped listening to Dances with wolves Yellen many moons ago.

BTW, “Never cry wolf” Janet will need a new box of tissues.

#28 Doug Rowat on 10.29.16 at 6:06 pm

#13 BS on 10.29.16 at 4:52 pm

Prefs do not provide the safety or negative correlation to equities most people need from fixed income. They do not even guarantee the income part with rate resets.

Are you saying preferred shares are supposed to be Government of Canada bonds? They’re not and we don’t tell our clients they are. What we do tell them is that preferreds are still attractively valued, provide good yield and offer protection against rising interest rates.

–Doug

#29 TFW took my job on 10.29.16 at 6:18 pm

The rich get richer meanwhile the 99% work for peanuts.

#30 Freedom First on 10.29.16 at 6:25 pm

#14

Frigid woman? Who would stay with a frigid woman, married or single men? No means “go away/I’m using you”.

As for my comments? Listen and learn Grasshoppers, Feminazis, White Knights, SJW’s.

Then say thank you. No charge.

007
Freedom First
PHD/Freedomonics

#31 Jungle on 10.29.16 at 6:26 pm

Garth told me to wait for this post but exactly what benchmark or product are you using to measure performance of 23%? The biggest ETF tracking preferred shares CPD is only up 3.96%, TYD including dividends.. how does one get 23%? I hope its not from stock or cherry picking.

Nobody needs preferred shares just indexes are fine. Read on couch potato adding more complexity doesn’t increase your return. In this case, it appears those holding preferred shares have lowered their return while the TSX comp has soared this year.

I not sold on this.

#32 Polls R Phake on 10.29.16 at 6:30 pm

Here is one of many reasons why Trump will win. Trump voters are passionate about wanting to vote. They are up at 3 in the morning and will line up for 4 blocks to vote. Hillary supporters need to consider where having a Starbucks Latte or voting is more important. Lining up for 4 blocks to vote? hahahaha….fugetaboutit……

#33 BC_Doc on 10.29.16 at 6:50 pm

I understand how a stock works and a bond works– equity etfs, bond etfs, and GICS all make sense to me. Preferred rate resets? Not so much. They’re strike me as the bastard child of Mr. Stock snd Miss Bond.

The “juicey 5% yield” sounds enticing but I’m also reminded of the caveat, “There are no free lunches.” To me buying preferred rate reset shares seems like chasing yield.

#34 AACI Homedog on 10.29.16 at 6:57 pm

Does that 23% rise include dividends being reinvested monthly ?

#35 Context on 10.29.16 at 6:59 pm

The preferred shares have taken a run already so not attractive enough for me and the bond market sucks.

#36 Julian Assange on 10.29.16 at 7:01 pm

Hello from the Ecuadorian embassy everyone! I’m here to announce the upcoming “November Surprise” where we release Donald Trump’s emails. We haven’t so far because apparently he can afford better security than the DNC, Hillary’s private server, or Abedin, Weiner, and Podesta’s emails combined. But thanks to a disgruntled employee Trump groped the other day we have them now! Here they are:

#37 Smoking Man on 10.29.16 at 7:19 pm

Dougie your post was a bit to dry, not alot of soul, guess your a bit intimidated knowing an Alien lurks in this room. Fear not brother.

I’m at a Halloween party at Seneca, exclusive invite for morons that piss away 170k Every 6 months.

Ask Garth to up your expense account, come down and throw some loot away.

This place is Holly grail of prospects. Rich idiots.

Many know I’m a former Bay street dude and want to throw their money at me. To invest for them.

I always direct them to Turner investments, none ever follow through. 8% a year is too boaring for them. Losing 8% is way more fun.

Not to many people are dressed up. The ones that are. Witches. Who would have guessed

I’m here as Smoking Man. Black tee shirt with me on it, a dinner jacket, tight jeans, old ladies dig it. And flip flops, with a wade of hundreds in my front pocket. And those grand mothers flirting with me.

The sundowner is a fifteen min drive from here.

What a drag it is getting old.

#38 Wallflower on 10.29.16 at 7:21 pm

I am pleased to see the weekend warriors have embraced the critical aspects to these missives, such as, picture perfect pooch.

#39 TurnerNation on 10.29.16 at 7:28 pm

Canadian housing sickness:

Two people I’ve worked with for many years, around my age group; each, owning a house in demand area which has more than doubled in price, with attractive wives and two healthy kids apiece, household incomes near 250k, no longer can control me – I continue to work on freeing my mind, my body and soul (hi Freedom First). And keeping my mouth shut at work.
So they’ve begun trying to control what others think of me: asking “why do you hang out with him? [me]?

They happen to be addicts (smokers too). If they asked me for help or wisdom I’d bend over backwards – we are our brother’s keeper after all – but they chose to snipe me from afar. They’ve lost the War of Mind Control which is upon us
The elites have pacified us: Taught the Golden Rule. Should I “Turn the other cheek”?
Ya right. I look them in the eye – take it or leave it – and move on. Nothing to hide.

Sick sick Kanadians. Time to Starve the Beast (system).

Yours, M40ON

#40 HAM R Us on 10.29.16 at 7:31 pm

Just remember Two Things:

1. Nothings stays there forever. Everything reverts to mean eventually. Interest rates and bond yields WILL revert to mean.

2. When 5 year bond yields rise to 2%. CPD will be at $20 easily. Just like when it came out. ZPR will be greater than $15. More than it’s IPO price not long ago.

Stop over thinking. Just buy, buy buy!

#41 TurnerNation on 10.29.16 at 7:34 pm

Caption to yesterday’s photo:

“Sic!” [sic].

#42 Smoking Man on 10.29.16 at 7:39 pm

#27 TFW took my job on 10.29.16 at 6:18 pm
The rich get richer meanwhile the 99% work for peanuts.
…..

Being in the 1% or the 99% is a choice.

Balls guts and glory vs. fear and cowerdness.

It’s that simple. Thank your teachers in you’re in the 99%. They made you fear everything but doing you home work making you a good obedient slave.

I should run for politics.

#43 Gasbag Boomer on 10.29.16 at 7:50 pm

Thanks so much Doug, for the clarity and insight about preferred shares.
It is greatly appreciated.
GB

#44 Smoking Man on 10.29.16 at 7:53 pm

The wife says to me tonight. We should get involved in a charity give back, we’ve been lucky you know.

Wtf lucky..

She has know idea of what I do, bet the farm twice a year on a sure thing. Some times the bet is not as fast as my mind. And I go through torcher thinking you realy FD up now.

But it always works out.

What charity dogs? I have no clue on this topic.

I’m thinking dog shelter but knowing her. The dogs will all find a home on James Street.

That place is small.

#45 Smoking Man on 10.29.16 at 8:12 pm

Takes guts to chase a dream. What makes 99% fail. Fear of judgement form others that would never chase a dream.

It’s so easy if you put your mind to it.

Problem, most people don’t own there minds. It’s an image planted in your head at a young age by other successful dreamers that fear competition.

There goes my Bilderburg and Devos invite.

Fk em.

#46 Tom from Mississauga on 10.29.16 at 8:17 pm

Yah, you guys keep going on about resets but there are lots of perpetual preferred that give that 5% rate that are good here like EMA.PR.E or GWO.PR.H.

#47 Smoking Man on 10.29.16 at 8:24 pm

DELETED

#48 Smoking Man on 10.29.16 at 8:34 pm

#44 Smoking Man on 10.29.16 at 8:24 pm
DELETED

Knew that was coming. I’m in the zone now.

#49 Joan Simpson on 10.29.16 at 8:50 pm

To TFW took my job

I’m a 22 year old working 50 hours a week, 6 days a week making $36,200 a year gross which is only 22% higher than minimum wage.

I refuse to pay for stuff and spend money on stupid things I don’t need or want to waste time on. The so called rich you despise control means of production, services to a point but they can’t force you to use or buy all their stuff.

I never am and will never will be in debt. I have been doing all this for about 3 years and have now $51,000 stashed away. No credit card debt, no car loan debt, no mortgage debt, no payday loan debt, no debts period of any type.

This $51,000 today and remember no new money added to this figure, a one time investment will be easily $400,000 to $500,000 by retirement. I am not making big bucks but I am just smart about handling my hard earned 2,600 a hours a year worked for money.

I am too busy maxing out my TFSA, RRSP of $12,000 a year and boosting my savings every month. I literally save and invest about 45% of my gross income which is $16,200 a year.

My income taxes, C.P.P., E.I., living expenses are around $20,000 a year which covers more than enough.

I am so far beating my goal and am actually $1,800 a head almost 11 months in the year by finding innovative ways of cutting expenses and getting aside job once and awhile.

#50 Smoking Man on 10.29.16 at 8:51 pm

When you See a thin chick on the dance floor doing a solo. Your instinct wants you to go keep her company. Get into the hip slinging Grove.

Then you see waves of hidden fat pulse our of her back pockets. Danger alerts to the brain.

Stop drinking is all the voice inside your head is screaming.

You turn to the voice look the bastard into the eyes.

Fk you I’m on book two..

#51 leftygroove on 10.29.16 at 8:51 pm

#38

Here’s 2 more things to remember:

1) CPD is down 24% since this time 5 years ago.. Can we not just be adults and admit it was a horrible call then and a horrible call now??

2) ‘Reverts to mean’ is a lame argument.. Across 10,000 years of human civilization ‘the mean’ has been serfdom and tenement housing. Not cherry-picked ’80s interest rates.

#52 Context on 10.29.16 at 9:09 pm

#37 TurnerNation: Do me a favour and promise to never bend over backwards to anyone as there might be unexpected consequences.

#53 What charity on 10.29.16 at 9:16 pm

# Smoking Man

Clinton Foundation? Heard it has Canadian roots.

#54 Yield Beast on 10.29.16 at 9:36 pm

I guess I got lucky buying the CPD at $12.57…gives me a 26% ytd return plus div…..around 30% all in….but that’s just me. Was a bit higher when it touched over $13. So far so good.

The basket of individual prefs I held got whacked when our goofy Poloz was attacking the loon, but they’ve all recovered save one which is within a nickel of its par.

#55 Ponzius Pilatus on 10.29.16 at 9:47 pm

Usually, I refer to women as being “attractive”.
But’s o.k. Doug.
To each it’s own.

#56 acdel on 10.29.16 at 9:48 pm

This article is a contradiction to every so called smart comment I have ever read on this blog including the blog; besides the obvious; I am completely convinced that nobody knows what the hell is going on; it is all a selling game, buy me, sell me, screw it, Smoking Man has the right idea! Believe what you want to believe; if it makes you feel better, then I say “good on you”, live life!

#57 Bytor the Snow Dog on 10.29.16 at 10:13 pm

@48 Joan Simpson-

You gotta be a lotta fun at parties….assuming you have a life.

#58 Waiting on ZPR on 10.29.16 at 11:01 pm

Good article. Do you also have an explanation for ZPR going from 10.62 to 8.50 in the first 3 weeks of this year? And I believe it’s an index fund!

If you need another mystery for your next post, I’ve got one for you. MNT, which is essentially buying gold, hasn’t followed the price of gold the last couple of years. What’s up with that?

#59 HAM R Us on 10.29.16 at 11:12 pm

#49 leftygroove

Why it’s a horrible call now?

And you think rates are going to stay this low for another 5 to 10 years?

#60 NoName on 10.29.16 at 11:14 pm

#48 Joan Simpson on 10.29.16 at 8:50 pm

jo, dont take this a wrong way, there is a lot easier and more fun way, to reach that 500k trust me.
link below step by step instruction.

http://www.wikihow.com/Be-a-Trophy-Wife

#TrophyHusband

#61 Context on 10.29.16 at 11:30 pm

#48 Joan Simpson:- Now she is a catch for some lucky man as is doing very well in life. I like her attitude and approach for budgeting within her means. Going forward in life she will come out a winner.

#62 IHCTD9 on 10.29.16 at 11:41 pm

#48 Joan Simpson on 10.29.16 at 8:50 pm
To TFW took my job

I’m a 22 year old working 50 hours a week, 6 days a week making $36,200 a year gross which is only 22% higher than minimum wage.
———

22 with 50 G’s? You’re doing great, keep it up. Might as well burn the midnight oil while you’re young and fiesty. By the time you’re my age, you’ll be scheming how to work 30 hrs a week instead of 40, forget about 50+.

#63 Joan Simpson on 10.30.16 at 12:05 am

I rather be debt free and be in a great financial position than brag about what a hoot one is at so called parties and friends that come and go as life changes and people move many times in their lifetime.

I don’t want to be stressed out and be worried not able to sleep with a pile of debt be broke in my current and elder years. I guess your concerned about others having more or less friends and parties rather than real life priorities.

Live your life and I will live mine. Good luck with your endeavors.

#64 Joan Simpson on 10.30.16 at 12:25 am

Nah, with my discipline I will not settle for $500,000. I can see down the road by retirement $3.5 to $4 million dollars will be in my RRSP’s, TFSA’s, non-registered accounts.

You know what happens to trophies, they collect dust and seem less important as life goes by.

#65 NEVER GIVE UP on 10.30.16 at 12:45 am

https://www.quora.com/Why-is-Hilary-Clinton-called-a-criminal

Read about why urban myths are kept alive.

20% of Americans still believe Obama was born outside the USA.

If you just keep saying it it will stick with the mental midgets.

15% of Americans believe 9-11 was an inside job.

#66 Tom from Mississauga on 10.30.16 at 1:48 am

#48 Joan Simpson

If your making $36K don’t contribute to a RRSP. Your way better off opening a cash or margin acc’t and getting some preferred shares with it. Right Doug?

#67 Freedom Firstk on 10.30.16 at 2:00 am

DELETED

#68 Freedom Firstk on 10.30.16 at 2:09 am

#48 Joan Simpson

Good on you. A real live young female freedom first. Smart woman. Enjoy your life Joan. Leave the suffering to others.

#69 Laddered Preferred Share Index ETF (ZPR.TO) is piece of crap on 10.30.16 at 2:13 am

“preferred share prices have still risen sharply, up almost 23% from their January lows, including dividends” Doug, can you explain why BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR.TO) has been a terrible for the last few years. I bought this index a $16.97, is it ever going to reach that price again. So far its the biggest loss in my portfolio, a real dog. What’s your thoughts.

#70 Laddered Preferred Share Index ETF (ZPR.TO) is piece of crap on 10.30.16 at 2:27 am

Correction: I paid for ZPR $14.14, still a piece of crap to me, but a good investment if bought now.

#71 Smoking Man on 10.30.16 at 4:37 am

Time for bed. Problem. Don’t know what room I’m it. Words are broken, frightened to ask the desk.

When does the sun rise. Last smoke of the night.

Got like a one inch thick of 100s wtf. Getting blitzed in a casino is so under rated.

Smokey, King of the crap table. Or the atm I realy don’t know.

#72 Excellent Doug except for Oil on 10.30.16 at 4:59 am

That was excellent Doug.

Disagree on oil.

Only reason for recent rise has been due to a reduced production accord by OPEC et al.

The norm has been one of the protagonists will bolt and overproduce.

Russia starting to do this. Saudi Arabia bolted under the prior accord.

As for the future, do not expect movement until supply glut disappears.

US EIA forecast supply/demand equal by Q3 2017:

https://www.eia.gov/forecasts/steo/report/global_oil.cfm

Expect prices to move then.

“Russian Roulette” on oil price until then.

bsant

#73 Jungle on 10.30.16 at 8:03 am

@ yield beast how can your YTD return on CPD be 26% when you bought at 12.57 and is now 12.95?

This would give a YTD return around 3% + a couple of divs.

#74 Wrk.dover on 10.30.16 at 8:48 am

#48 Joan Simpson: There is more to life than just money and work, or in your case just work and money.

I was clearing triple my normal take at a 60 hour a week gig once, and at week 19 a co-worker said, ” you are getting ugly, you had better go home for a while. ” She was right, I did, and that did feel better than money. Still does. I am posting this from home.

#75 Fed-up on 10.30.16 at 9:30 am

Canadian preferreds have skyrocketed since their January lows
__________________________________________________________________

Excellent post Doug.

To be fair preferred shares also took a terrible drop the prior year so anyone holding them before January could still be down considerably even with the yield.

#76 Doug Rowat on 10.30.16 at 9:51 am

#66 Laddered Preferred Share Index ETF (ZPR.TO) is piece of crap on 10.30.16 at 2:13 am

It’s not that ZPR is a “piece of crap”, rather it’s that it’s simply doing what you’d expect.

ZPR is made up of rate-resets, which are more sensitive to lower bond yields and falling interest rates. Most other preferred share ETFs have some ‘perpetuals’ in the mix, which are less sensitive to rate drops and lower yields.

ZPR will recover faster if bond yields rise, but carries more risk. If you want to still get the majority of the upside but hedge the risk, consider a diversified ETF like CPD.

–Doug

#77 T.J.BONES on 10.30.16 at 10:15 am

Sir Garth;
I don’t want to alarm you, Sir. Russian-Led EEU & Israel may ink free Trade pact in 2017, on RT/news. The signs are every where!! Also Vietnam has signed a free trade agreement with EEU.

#78 NoName on 10.30.16 at 10:16 am

#61 Joan Simpson on 10.30.16 at 12:25 am

You took it wrong way, it is doable to do that by your self but its twice faster and lot more fun do it with someone else.

so think about it, a bit…
https://www.youtube.com/watch?v=axnJr9P5tck

#79 Sideshow Rob on 10.30.16 at 10:21 am

#52 Yield Beast

Math is hard…

#80 leftygroove on 10.30.16 at 10:24 am

#56 Ham R Us

I’m jaded. I’ve been hearing ‘rates are going to go up in the next 5 years’ for the last 15 years or so since I bought a house.

Not saying it won’t ever happen but, Japan.

#81 Context on 10.30.16 at 11:01 am

One might be better off buying the common shares of a Canadian giant yielding just shy of CPD. I have a feeling that a stock split is coming that will give the stock price a nice bounce.

#82 The Wet Coast on 10.30.16 at 11:34 am

clever lol.

#83 Context on 10.30.16 at 12:22 pm

Needless to say the cost of money will eventually be going higher just like the Sun Also Rises and Newton’s 3rd Law of physics. There will be consequences on bonds and preferred shares. Doug makes a good essay for a longterm corporate portfolio, but the definition may differ for the individual investor. His hypothetical is sound and well done for a corporate portfolio.

#84 Zen Headspace on 10.30.16 at 12:24 pm

#66 Laddered Preferred Share Index ETF (ZPR.TO) is piece of crap

“I bought this index a $16.97, is it ever going to reach that price again. So far its the biggest loss in my portfolio, a real dog. What’s your thoughts.”
——————————————————————–

Buy low. Sell high. Not the other way around.

#85 AB Boxster on 10.30.16 at 12:29 pm

Re: Preferred Share ETFs

————————————-
Seems to me that CPD and ZPR hold primarily Canadian preferred shares.

XPF holds about 50% in US (and some global) preferred shares.

All of them pay in the 5%+ range. but XPF does seem to have had less volatility over the past few years.

It is of course down, as all preferred funds are, but nowhere near as much as CPD and ZPR.

Any time one can have more exposure to US instruments, seems to be a good thing.
While the US Fed has pushed recent rate hikes down the path, at least there is a reasonable possibility of a rate hike in December and more to come.

Companies in the US still have perpetual preferred shares, though 60% are now floating.
At least their economy has some growth.

In Canada, the economy sucks badly, and the 5 year GOC rate is so pathetic and has fallen so much, that CDN preferred ETF’s have taken a kicking.

So in hindsight, more diversification to the US is a better thing. Hence GT’s advice to lessen CDN exposure today.

For the future, once the FED begins to raise rates, and Canada eventually follows, the Canadian preferred ETF’s will do very well.

So if you got in on CDN preferred share ETF’s 5 years ago, bad luck.

But if you can afford to buy them now, (OK, maybe wait until after the polozmeister tries to stimulate our limp dick economy with another last gasp rate cut) they will pay you 5%+ today, with an excellent chance of appreciation for the future.

#86 Victor V on 10.30.16 at 12:30 pm

Doug, do you advise clients to balance their pref holdings to give US exposure in addition to Canadian (ie: XPF)?

#87 Ogopogo on 10.30.16 at 12:30 pm

I’ve owned CPD for a number of years now and though I’m technically in the red at present, the amount of dividends DRIPped into my margin account has nearly offset the “losses” (no real losses of course, unless I were to sell).

Speaking of which, tomorrow is pay day for CPD. Come to papa, baby!

#88 The other Doug, in London on 10.30.16 at 12:46 pm

@ TFW took my job, post #29:
The rich get richer meanwhile the 99% work for peanuts.
——————————————————————-
That’s probably because the rich scoop up assets when they are on sale, such as buying preferred share ETFs when they were on sale earlier this year and last year. Meanwhile the 99% bellyache about how much they “lost” if they haven’t sold yet, or how much they actually did lose if they sold when they should have been buying more instead.

#89 traderJim on 10.30.16 at 1:51 pm

ABC poll that had Hillary up by 12 points 4 days ago now has her ahead by only 2. This is before the latest FBI bombshell.

Two possibilities for that: 1) the polls to date were incredibly inaccurate, whether deliberate or not I leave to you

or 2) Trump has incredible, never before seen momentum (10 points in 4 days on no news? wow)

Hillbullies remarkably quiet since they started getting called out and their ‘team’ stopped looking like a sure thing.

I’m still supporting the libertarians, I sure as hell don’t want to have to own either Hillary or Trump after this is over. I can live with my guy not knowing what a Leppo is. It helps that he will never be seen or heard from again.

Hillary is a guaranteed disaster, even if she can stop stuffing her pockets for a minute. Her relentlessly bad judgment in everything she does, and in the people she surrounds herself with, makes it as sure a bet as any of Smoking Man’s MXP trades.

Trump is just a total unknown, a big risk, who the hell knows what he’s capable of. Many of his basic ideas are good, but he’d never get to institute even one of them.

So I still hope Hillary wins, as then the media will turn on her viciously, to show their power in making and breaking people. She will have the absolute worst term in history. No jail, but impeachment a certainty. I’d say that’s a form of karma.

Too bad women had to get stuck with her as a representative. Can you imagine if it had been Michelle vs the Donald? That really would have been the biggest landslide ever.

But after this, Michelle will never run. Who on earth will run after this horror show?

Only people who will be able to survive the scrutiny in future will be extremely religious tight assed lunatics or grammas who think we should all just be nice to one another.

I really should stop joking about all this, I have a close relative in the armed forces, and it’s very clear that if you want to avoid a war, Trump is the far better choice.

If you don’t think Hillary will start shooting down Russian planes over Syria within 90 days of taking office, you are not paying attention.

#90 Context on 10.30.16 at 2:23 pm

Trump is in Vegas and has changed his play book with a very impressive speech. Obama is considering enacting an emergency measure to suspend or delay the election. We are living in interesting times and have some cash ready as this market cannot be predicted.

#91 CL on 10.30.16 at 2:58 pm

#48 Joan Simpson

We believe you. We do not use debt for consumption purposes only,if there is some type of advantage for us but it’s rare if we do. Use visas but we pay them off every month without fail.

We also……shocker….live within our means. Even when we could have easily spent more we were making six figures and then some but we still live like we make minimum wage. If we tell people how low our expenses are nobody believes us and the funny part is nobody even tries. Yet we too can still max out our TFSA and other investments and still live a decent life without great financial stresses.

It can be done easily. It’s all about choice. Buying an overpriced home using debt (renting money instead of an apartment) then complaining about how life is so expensive falls on deaf ears when I’m around.
We have always lived within our means and we raised 2 children while doing so. We were never financially stressed even with lower incomes. It is all entirely possible with the will to do so.

#92 NoName on 10.30.16 at 3:31 pm

As we all know tomorrow Halloween projected spending this year 6+ bilion. 3 big pumpkins today on fire sale 3$ each, i should probably wait get them tomorrow…

http://www.1069thex.com/2016/10/16/the-economic-impact-of-halloween/

#93 TRT on 10.30.16 at 4:18 pm

Clintons lead over trump is about 4% right now according to polls.

If 2 out of 100 people are lying to polls to save face, then they are tied in popular vote.

You think 2 of a 100 said Clinton instead of secretly supporting Trump? Said it because socially accepted….

#94 Jungle on 10.30.16 at 4:41 pm

I have also noticed on financialwebring the old people have a weird obsession with preferred shares and have been talking about them for a long time since I started reading 10 years ago.

Many say they are the last to cut dividend. I remember reading the horror stories of those holding yellow media.

I still don’t see why.

Look at the long term of the dex universe bond index, tsx, s&p 500 and msci eafe. This is all you need.

#95 maxx on 10.30.16 at 5:58 pm

#48 Joan Simpson on 10.29.16 at 8:50 pm

Brilliantly done Joan…..and there’s also the time factor which will grow your wealth.
Canada would be loaded with MMs if we all lived this way.
Congrats and best wishes for a smooth road on the way to becoming a millionaire.

#96 Larry1 on 10.30.16 at 11:28 pm

Enjoy it while it lasts before them preferreds gets called

#97 RocDoc on 11.01.16 at 8:33 pm

Joan Simpson!
Way to go! You are doing so well for your age. You will be very comfortable and wealthy at retirement. You have a good plan. Stay the course.