Inter Pipeline - LP with interests in crude pipelines and nat. gas extraction facilities in Western Canada. Great cash flow with moderate payout ratio of ~75% and has increased distribution 6 times since 2004 keeping steady in 2008/2009. Current yield ~5.8%
Rate Reset Preferred Shares – Issued by various companies with investment grade credit qualities.
Enbridge 6.3yr Reset Preferred Share at 4.00% with 237bps spread (interest equivalent of 5.36%)
Dividends vs. S&P/TSX Composite Index Dividend paying stocks outperform the market Canadian Annualized Portfolio Performance by Dividend Attribute
Dividends vs. S&P 500 Composite Index Dividend paying stocks outperform the market U.S. Annualized Portfolio Performance by Dividend Attribute
Dividends vs. S&P/TSX Composite Index An important part of total market returns Dividends have comprised between 25% and 45% of total returns over the last 20 years. Source: RBC GAM, data as of Dec. 31, 2010. An investment cannot be made directly into an index. Chart and table do not reflect transaction costs, investment management fees or taxes which would lower returns. Past performance is not a guarantee of future results. 75% 64% 55% Capital Gains 25% 36% 45% Dividend Returns 20 Year 10 Year 5 Year Returns as a percent of total
1. Higher return potential than other fixed income investments
2. Higher current yields / higher coupons than investment grade debt and
3. Defensive features relative to dividend-paying equities
• Secured and unsecured investments rank senior in the capital structure
• Tighter covenant protection afforded to investors against deteriorating credit
4. Lower interest rate sensitivity
• Senior secured floating rate high yield bonds have no interest rate duration
• When interest rates rise, high yield bonds tend to have a negative
correlation to government bonds
5. Credit cycles give active managers an opportunity to add value
Why Invest In High Yield/Corporate Bonds? FIVE BEST/WORST YEARS: HIGH YIELD & INVESTMENT GRADE CORPORATE BONDS (1987 – 2010) 5 Worst Years 5 Best Years
WHY INVEST IN CORPORATE BONDS ATTRACTIVE RISK/RETURN PROFILE 5-YEAR RETURN ANALYSIS: CORPORATE BONDS AND OTHER MAJOR ASSET CLASSES *BofA Merrill Lynch US High Yield Master II Index. **BofA Merrill Lynch US Corporate Master Index. As of October 31, 2011 ANNUAL RETURN STANDARD DEVIATION SHARPE RATIO High Yield Bonds* 7.9% 14.1% 0.50 US Corporate Bonds** 6.7% 7.3% 0.72 BMO Small Cap Blended 3.8% 23.0% 0.20 S&P/TSX Composite 2.7% 17.2% 0.13 Russell 2000 0.7% 24.5% 0.09 S&P 500 0.25% 18.9% 0.03 MSCI World -0.5% 20.5% 0.01
Higher yields offer downside protection when rates are rising - Period 1994 – June 2011
iShares XGB – All Government Bond Index 3.166% yield with 6.75yr Duration and 218 holdings.
RBC Global High Yield Fund – Mainly US/Emerging Market High Yield Bonds with 5.6yr Duration, hedged back to CAD and a running yield of ~5.00%
Mackenzie International fund Pairing – 50% Mac Cundill Value and 50% Mac Ivy Foreign Equity. Upside capture of 77% and downside capture of 61% with a very low 0.32 correlation to the MSCI Index over 10yrs . 55% US and rest scattered among UK, Japan, France, Netherlands, Switzerland, Canada, Italy.
Investor Emotions “ Be fearful when others are greedy and greedy when others are fearful” -Warren Buffet “ A bear market is a temporary interruption of a permanent uptrend -Nick Murray “ You’ve got to be careful if you don’t know where you are going because you might not get there” -Yogi Berra
The Cycle of Market Emotions Point of maximum financial opportunity Optimism Excitement Thrill Euphoria Anxiety Denial Fear Desperation Panic Capitulation Despondency Depression Hope Relief Optimism Point of maximum financial risk “ Wow, I feel great about this investment.” “ Maybe the markets just aren’t for me.” “ Temporary setback. I’m a long-term investor.”
Patience will be rewarded By staying invested you will not miss the best days Source: RBC Global Asset Management Inc. An investment cannot be made directly in an index. Graph does not reflect transaction costs, investment management fees or taxes. If such costs and fees were reflected, returns would be lower. Past performance is not a guarantee of future results. Performance data as of December 31, 2010.
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Investment Policy Statement :
Ensure your “Investment Policy Statement” is clear on the asset allocation and the type of securities that will be held within your portfolio. This will help you understand the quality of the securities that are held and the maximum or minimum exposure you will have to any volatile securities.
Will & Estate Review :
Update Wills & Power of Attorneys (Including Business Will if required)
Taxes upon death- Income tax (Deemed Disposition) & US Estate Tax (if applicable)
Probate Taxes- .5% on first $50,000, & 1.5% over $50,000.
Transferring your Estate: Trusts, Hold Co’s, Gifting, Joint Ownership, Beneficiaries, Insurance.