Is it possible to over-sell the benefits of one of the handiest investment products to come along in years?
I wondered about this when a reader recently asked whether he was too old to invest in balanced exchange-traded funds. Balanced ETFs are fully diversified portfolios of bonds and Canadian, U.S. and international shares bundled into a single fund. There are balanced ETFs for conservative, balanced and aggressive investors. Pick your profile, pick your ETF and let it ride.
But what if you’re a senior who is well into retirement (this reader withheld his age) and is much more interested in income than growth? With their differing blends of stocks and bonds, balanced ETFs are more about growing portfolios over the long term than about delivering a steady stream of dividend and interest income. The Vanguard Conservative ETF (VCNS), with a mix of 40 per cent stocks and 60 per cent bonds, has a yield based on recent distributions of just 1.6 per cent.
A relatively new balanced ETF, the Vanguard Conservative Income ETF Portfolio (VCIP), sounds like it might be of interest to income-seeking seniors. Vanguard says the objective of this fund is to provide a “combination of income and some long-term capital growth.” But with 80 per cent of the assets in bonds, it’s hard to see this balanced fund producing much income. These days, the FTSE Canada Universe Bond Index has a yield to maturity of only about 2.3 per cent.
Alternatives to a balanced ETF for an income-seeking senior include diversified monthly income funds like the BMO Monthly Income ETF (ZMI) and the iShares Diversified Monthly Income ETF (XTR). ZMI’s yield was round 4.4 per cent in mid-May, while XTR was around 5.5 per cent. Both lack the simple construction of balanced ETFs – ZMI’s holdings include covered call funds, while XTR has high yield bonds.
Another balanced ETF alternative for the income-seeker is the Canadian dividend ETF, which offers tax-advantaged dividend income in a non-registered account. Dividend ETFs blended with guaranteed investment certificates are a sort of DIY balanced fund for the income hungry investor.
See also: Rob Carrick’s ETF Buyer’s Guide 2019: The complete series
– Rob Carrick, The Globe’s personal finance columnist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
Stocks to ponder
Waste Connections Inc. (WCN-T). This stock appears on the positive breakouts list (stocks with positive price momentum) with the share price closing at a record high on Wednesday. This is a stock that has been resistant to recent market volatility. Fundamentally, the company had delivered strong operational results, and over the years, the company has reported a string of better-than-expected quarterly earnings results. While the stock appears to be fairly valued at current levels, acquisition and organic growth could lead to positive earnings revisions and further upside potential in the stock price. Jennifer Dowty reports (for subscribers).
Laurentian Bank (LB-T). The bank has taken a small hit lately. Although still profitable to the tune of $40.3-million this past quarter, that was a big drop from $59.7-million in the same period last year. This was also the third straight quarter with an earnings miss. Big short sellers including Steve Eisman have the bank on their radar. But the Contra Guys aren’t giving up. There is no question that turning around this ship will take time. But with a handsome dividend, accompanied by the dividend tax credit, it makes for a pretty juicy return, they say. (For subscribers).
The Rundown
Response to Uber’s IPO reveals a trend at play in tech investing
When shares of Uber Technologies Inc. began trading last week following a much-anticipated initial public offering, the ride-hailing company joined the list of unprofitable companies debuting on the stock market this year, drawing comparisons to the nutty peak of the dot-com era. But wait: Is profitability really so important for relatively young companies with a lot of opportunity ahead of them? Given the success of companies such as Amazon.com Inc., Netflix Inc., Ottawa-based Shopify Inc. and others, perhaps not. David Berman reports (for subscribers).
By buying into Amazon, Warren Buffett rethinks what it means to be a value investor
Earlier this month, Warren Buffett revealed to the world that Berkshire Hathaway Inc. had taken on its first stake in the e-commerce juggernaut Amazon.com Inc. A regulatory filing on Wednesday confirmed how much: 483,300 shares, or US$860.6-million worth of stock, as of March 31. For years, the billionaire value investor famously avoided high-flying tech stocks such as Amazon, which have dominated index returns for the past year-and-a-half. Mr. Buffett said the decision to buy Amazon stock was very much based on value-investing principles. That’s because, as he put it, all investing is about value. You put money to work now with the hope of getting more back later. John Reese explains.
The week’s most oversold and overbought stocks on the TSX
There are 14 oversold, technically attractive benchmark members by Relative Strength Index (RSI) this week, led by Magna International Inc.. Canfor Corp. is the second most oversold stock, followed by SNC-Lavalin Inc., Toromont Industries Ltd., AG Growth international Inc. and Fortuna Silver Mines Inc. There are 23 technically extended, overbought index stocks this week. WestJet Airlines Ltd is well above the RSI sell signal of 70 with a level of 87. Air Canada, Thomson Reuters Corp., Boyd Group Income Fund, Element Fleet Management Corp and Hydro One follow. Scott Barlow reports (for subscribers).
Canada is about to get its first e-sports ETF
Video game enthusiasts looking to take their investments to the next level may soon be able to with Canada’s first global e-sports exchange-traded fund. Evolve Funds Group Inc. filed a preliminary prospectus Thursday for the Evolve E-Gaming Index ETF. Trading under the ticker HERO, the fund aims to track the Solactive Electronic Gaming Index – a basket of stocks involved in hardware, software and services connected to the e-sports industry. Clare O’Hara reports.
Others (for subscribers)
Top stock picks from the biggest hedge funds and mutual funds
‘Stagnation trades’ are outperforming
Our favourite valuation metric helped uncover these U.S. dividend stocks
Friday’s analyst upgrades and downgrades
Friday’s small-cap stocks to watch
Thursday’s Insider Report: CEO pockets over $1.6-million after this stock soars to a record high
Thursday’s analyst upgrades and downgrades
Others (for everyone)
Luckin Coffee, China’s aspiring Starbucks rival, serves up a hot U.S. IPO
Q1 U.S. earnings wrap: When nothing is better
How the promise of a $120-billion Uber IPO evaporated
Commodities for the Trump-China trade war: The winners and losers
Globe Advisor
A less risky way to play the IPO boom
Five big trends and the ETFs that track them
Join us for a Globe Advisor roundtable chat
Are you a financial advisor? Register to Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation – a powerful tool to help you manage your clients’ portfolios.
Ask Globe Investor
Question: How does one go about protecting a 100-per-cent guaranteed investment certificate (GIC) Portfolio from hyperinflation?
Answer: There is no way to directly protect locked-in GICs from hyperinflation, of the type Venezuela is currently experiencing. But the chances of that happening in Canada are extremely remote. We have a sound financial system and a strong central bank, which, if needed, would take drastic action to avoid any such situation here.
Although GICs, bonds, and similar securities would lose value in a hyperinflation scenario, you could invest in a form of insurance by buying an offsetting amount of gold. Its price would rise if the value of paper currency drops.
–Gordon Pape
Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.
What’s up in the days ahead
The Virgin Mary, Dublin’s first non-alcoholic pub, opened earlier this month. You don’t have to be Irish to think this merits attention. The new teetotaler’s paradise highlights one of the challenges facing the global booze business - as well as its investors. Ian McGugan will explain.
Click here to see the Globe Investor earnings and economic news calendar.
More Globe Investor coverage
For more Globe Investor stories, follow us on Twitter @globeinvestor
Click here share your view of our newsletter and give us your suggestions.
You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.
Compiled by Gillian Livingston