In a few different ways, the financial sector has been a rather dismal place for investors in recent months.
Bank stocks have been laggards, and both corporate bonds and preferred shares issued by financial companies have been roughed up. If you're open to the rebound potential in these corners of the financial sector, here's a thought. Investigate the iShares Canadian Financial Monthly Income ETF (FIE-T), which in late March offered a yield in the 7.5-per-cent zone.
A yield that high is a worrying sign, especially when it's associated with an ETF that holds stocks and bonds issued by the country's biggest banks and insurance companies. But here's the thing: FIE is about 21-per-cent weighted to preferred shares, which have been slammed over the past year or more. Another 11 per cent is held in corporate bonds, which have lost a little ground in the past 12 months. Bank shares are another major holding, and they've also been weak. Usually when buying high yield securities, your biggest worry is that dividends or interest payments will be cut or suspended. But with blue chip financial companies, that's unlikely as long as we don't fall into a severe recession or global financial crash.
FIE was down 8.8 per cent for the year to March 24, but it popped almost 8 per cent in the past 30 days. A recovery may be at hand, or not. If you take the long view on the financial sector, it doesn't really matter when you're receiving a reasonably secure yield near 7.5 per cent.
Two other considerations with FIE are its cost and its distributions. The management expense ratio is 0.85 per cent, which is extremely high. You're basically paying a stiff convenience fee to have a few different assets wrapped into a single package. As for distributions, FIE's monthly income payments have in the past had a heavy return of capital component. This is something to consider if you're investing in a non-registered account. On the plus side, there's steady income. FIE has been paying 4 cents per share monthly since May 2010.