Gentlemen: Preferreds….and Bonds

Posted on: April 8, 2011 in: Fixed Income, Preferred Shares with 0 comments

Claymore S&P/TSX CDN Pref Share     ( Ticker: CPD )

We love bonds. But with their yields at 30 year lows, its only a matter of time before they hurt us. Unlike bond holders, bond ETF investors can’t even hold on till maturity for par: bond ETFs are priced to market daily.

Preferred shares – the bond-equity hybrids – offer some solace. First, their yields are much better. Claymore’s TSX Preferred Share ETF (CPD) yields 4.8% vs 3.9% on iShares Corporate Bond ETF (XCB). The lower tax on dividends puts CPD even further ahead. While a rate rise will hurt CPD’s price, it won’t hurt as much as on bonds.

The average credit quality on CPD’s 119 holdings is slightly below XCB’s, but 80% of CPD is in TSX  blue-chips and half of it is in fixed/floaters whose rates reset with the market.

So why not go all preferreds? Preferred’s low liquidity is one factor. Worse, in a crunch, preferreds behave like equity. CPD fell 28% in 2008 (but didn’t miss a dividend); XCB fell 7.4%.

As part of a tactical shift, we recently replaced some bond ETFs with CPD.

 

Charts for CPD

archerETF Metrix CPD
Category Cdn Equity
Benchmark TSX 60
Total Holdings 119
52 Week High $17.40
Recent Price $17.37
52 Week Low $15.35
Avg Daily Volume 0.06 Million Shrs
Avg Daily Volume ($) $1.08 Million
Total Market Cap $656.52 Million
ETF Annual Fee 0.48%
ETF Trading Currency 0
ETF FX Exposure 0
Annual Volatility 8.54%
Correlation to S&P 500 12.10%
Return to Risk Ratio Not Available
Use of Leverage No
Use of Futures No
6 month Return 3.15%
1 Year Return 12.21%
2 Year Return 31.29%
3 Year Return 14.50%
Dividend Yield (TTM) 4.77%

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archerETF offers Global Tactical Portfolio Management.

Our outlook is Global: we invest across countries, sectors, commodities and other asset classes to improve returns. Our management is Tactical: we strive to select the right opportunities at the right times in response to changing market conditions to manage and minimize portfolio risk.

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© 2011 archerETF Portfolio Management is a division of Bellwether Investment Management, a discretionary portfolio manager registered with the Ontario Securities Commission. This report is provided for information only and does not constitute investment advice. While we believe the information to be accurate and timely, we make no claim or warranty to that effect. Please seek professional advice before making any investment decision. We may hold positions in any or all securities discussed in this report.

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