5 Commonly Overlooked Fixed Income Opportunities
Brett Creed started in the Investment Industry in 1998 after graduating from the University of British Columbia. He went on to complete his CFP, Options, and Life Insurance licenses. Brett specializes in implementing financial strategies that other advisors often overlook.
His philosophy is that good investments should be a complement to a tax efficient financial plan. Brett is committed to educating the public and retirees' groups on different financial topics, and regularly gives presentations to a wide variety of groups and associations across the province. Brett joined forces with Peter Fink and moved to National Bank Financial in May 2012, bringing 30 years of defensive portfolio management experience to Creed Wealth Management Group. Contact him at 604-643-2805 or brett.creed@nbc.ca.
5 Commonly Overlooked Fixed Income Opportunities
#1 Dividend and bond ETFs instead of mutual funds
• ETF management fees are usually much much lower
• On a $10DK investment you could save:
o Around $800 per year on a bond ETF over a mutual fund
o Around $1200 per year on a dividend ETF over a mutual fund
• ETF performance is often better
o ETFs are attracting the better managers right now as this is where the capital is going
o Lower management fees to eat into your returns
o ETFs are fully invested all the time, mutual funds may hold 5-10% in uninvested cash to handle redemptions, etc.
• ETFs trade faster - settle in one day instead of three
#2 Real Return Bonds
• Erases inflation risk - adjusts automatically with the CPI rate
• Government Guaranteed!
• Low cost to manage, hands off investment until maturity
• Low rate of return, but at least not negative real rate of return like other guaranteed investments today
#3 Perpetual Preferred Shares
• Great yields compared to fixed income
• Dividend not subject to fluctuation like with common stock
• Cumulative issues means if the issuer misses a payment, they have to make up for missing payments
• Issuers like Canadian banks, insurance companies have very, very low chance of default or missed payments
#4 Loan Portfolio ETFs
• Great yields compared to fixed income
• Very new product to Canada, been tried and tested in the US for quite some time, huge market
• Protection against rising interest rates, linked to LIBOR rate
• Senior loans, linked directly to collateral assets, paid out before other creditors in case of default
• Low management costs
#5 Covered Call Strategies
• Generate extra income over and above dividends and capital gains
• Good for those with larger portfolios who hold large positions in blue chip stock (ie. Financials)
• Many who hold mutual funds may already be 20-40% invested in Canadian banks already
• Risk is that you are forced to sell your stock at a gain if your option is called