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CANADIAN CANADIANMONEYSAVER.CA
SAVERIndependent Financial Advice For Everyday Use - Since 1981
Does Your Money Have A Job?Janet Gray Page 23
DIVIDEND & COMPANY NEWS • ETFS • TOP FUNDS • DRIPS • ASK THE EXPERTS
JULY/AUGUST 2018
$4.95
MONEYRenewable Energy Michael Patenaude Page 25
BTSX: Then, Now And In The FutureDavid Stanley, Ross Grant & Matt Poyner • Page 6
BEATING THE TSX
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IN THIS ISSUE
Millennial Corner:
Millennials' Guide to Money
Barkha Rani Page 12
Mention Priority Code 045581
The MoneyShow Toronto is free to attend ! Visit www.TorontoMoneyShow.com or call 800-970-4355.
LANA SANICHARCanadian MoneySaver
ELLEN ROSEMANToronto Star
BENJ GALLANDERContra the Heard
ED REMPELCanadian MoneySaver
ED ARBUCKLEPersonal Wealth Strategies
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What Keeps Me Up at Night • Lana Sanichar
What Now? • Benj Gallander
How to Be a Good DIY Investor and When to Hire an Investing Adviser • Ellen Roseman
The Ten Silos of Disability • Ed Arbuckle
The Six Best Strategies to Minimize Tax on Your Future Retirement Income • Ed Rempel
Saturday, September 15 9:00 am - 3:30 pm
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EDITOR-IN-CHIEF: Lana SanicharEDITOR: Peter HodsonCONTRIBUTING EDITORS:Ed Arbuckle, Margot Bai, Robert Barney, Dan Bortolotti, Ian Burns, Bruce Cappon, John De Goey, Donald Dony, David Ensor, Ken Finkelstein, Derek Foster, Benj Gallander, Robert Gibb, Andrew Hepburn, Shelley Johnston, Robert Keats, Cynthia Kett, Ken Kivenko, Camillo Lento, Marie-Josée Loiselle, Alan MacDonald, Brenda MacDonald, Gina Macdonald, Robert MacKenzie, Ross McShane, Ryan Modesto, Caroline Nalbantoglu, Tim Parris, Peter Premachuk, John Prescott, Kyle Prevost, Brian Quinlan, Wynn Quon, Rino Racanelli, Colin Ritchie, Scott Ronalds, Norm Rothery, Stephane Ruah, Allan SmallDavid Stanley, John Stephenson, Brian Tang, Angelo Vicere, Becky Wong.
MEMBERSHIP RATES: All rates for Canadian residents are printed on the inside back cover. Non-residents of Canada may purchase the online edition only – at $26.95 for one year’s service.
Canadian MoneySaver (CMS) is published by The Canadian Money Saver Inc., 55 King Street West, Suite 700, Kitchener, ON N2G 4W1 Tel: 519-772-7632. Office hours: 9:30 am to 1:30 pm EST Website: http://www.canadianmoneysaver.ca E-mail: moneyinfo@canadianmoneysaver.ca
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Canadian MoneySaver publishes monthly with three double issues (July/Aug, Nov/Dec and March/April). Canadian MoneySaver is an independent, totally membership-funded magazine.
The information contained in Canadian MoneySaver is obtained from sources believed to be reliable. However, we cannot represent that it is accurate or complete. The views expressed are those of the writers and not necessarily those of The Canadian Money Saver Inc. Neither the information nor any opinion expressed constitutes a solicitation by us for the purchase or sale of any securities or commodities. Canadian MoneySaver is distributed with the explicit understanding that Canadian MoneySaver, its publisher or writers cannot be held responsible for errors or omissions. Shareholders of The Canadian Money Saver Inc, editors and contributors may at times have positions in mentioned investments/securities.
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® – Canadian MoneySaver is a Registered Canadian Trade Mark of The Canadian Money Saver Inc. Printed in Canada ISSN: 0713-3286
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Canada Post Publication No. 40035485
JULY/AUGUST 2018 Volume 37, Number 9
REGULAR FEATURES Shareclubs 4
Sharing With You 4
Dividend & Company News 5
Model ETF Portfolio 5
Annuities Offer Income For Life 16
Writer's Spolight 19
Ask The Experts 32
Money Digest 34
Canadian DRIPs with SPPs 35
Top Funds 36
Canadian ETFs 38
SPECIAL FEATURES
BTSX – Then, Now, And In The Future - Part 1 David Stanley, Ross Grant & Matt Poyner 6
Leave To Grow Or Withdraw Some Dough - Factors To Consider When Pondering Early RRSP Withdrawals – Part 3 Colin Ritchie 9
Millennial Introduction To Investing - Part 1 Barkha Rani 12
The Learning Curve In The New Era Don MacKenzie 15
Debunking Lease Renewal Myths – For Commercial Tenants Jeff Grandfield and Dale Willerton – The Lease Coach 17
“FLEX”ing For Profits Benj Gallander 18
Pipeline Pessimism Looks Overdone Enbridge, Transcanada Still Pumping Out Profits Richard Morrison 20
Does Your Money Have A Job? Janet Gray 23
Renewable Energy Michael Patenaude 25
Why U.S. Stocks Belong In A Canadian’s Portfolio Nick McCullum 30
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Sharing With You ShareClubsJoin any of the listed ShareClubs by contacting your local
volunteer. Like-minded members get together to share financial information. No cost. No obligation. Just an inquiring mind. The agenda for each group is shared by all group members, i.e. it is not just the responsibility of the contact person. ShareClubs are unlike investment clubs because they are meant to share investing information only. Contact MoneySaver and volunteer to start a ShareClub in your area. When ShareClubs are filled, they are delisted.
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Ron Beaton South Delta, BC www.tlshareclub.comLukas Vitalijus Kelowna/Okanagan lukas.vitalijus@gmail.comAlejandro Gidi Maple Ridge alexgidi@gmail.comDave Hicks New Westminster, 778-875-2615Brian Pearson Prince George brian.pearson@xplornet.comKaren Karefoe Queen Charlotte Is. karefoe@qcislands.netBruce Lines Salmon Arm salmonarmshareclub@gmail.comUta & Vic Parks Salt Spring Island uvparks@telus.netSue Groom Sidney deerpark0411@gmail.comBob Lee Ctrl. Vancouver rjlee@portal.caRobert Gibb Victoria gibb_robert@hotmail.comRussell Page Victoria/Sanich rsvpage@shaw.caLeslie Broatch White Rock broatch@telus.net
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John Richards Fredricton johnr1016@hotmail.com
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Frank Driscoll Charlottetown 902-569-3601
PeterPeter Hodson
W ell, here we are at the start of another summer.
We hope you enjoy it, and here's to better weather (in Ontario at least) than last year.
The economy is strong. Jobs are plentiful. Stock markets continue to do well. For investors, not much is going wrong these days, or this year. Sure, we had the quick correction in February, and the Canadian market continues to lag world markets. Diversification—where have we heard that before?—continues to be your friend.
Yet, everywhere we see, investors are pessimistic: 'the bull market CAN'T continue', they say. 'Trump is going to kill the market', others will chime in. 'Interest rates will destroy the housing market', more will opine.
We never have figured out why most investors are typically pessimistic. Sure, everyone has been burned on a lousy stock, or two or three, in their investment career. But just because you owned one loser doesn't mean 'everything' needs to be suspect.
Companies such as Shopify, Constellation Software, Great Canadian Gaming, The Stars Group and Dollarama continue to show that money can be made, even after a nine-year stock market run. And these are the Canadian examples. In the US, we could give hundreds of examples of companies that continue to reward investors with great investment returns, even when many think the market is 'overvalued'.
It's summer. It's sunny out. The market is strong. Maybe just enjoy it for awhile. Sure, there will be a correction one day. But it doesn't need to be this month, this week, or this year. Even if it is, if you have chosen your investments well, you need not panic.
You have invested well: stress less, and have some fun.
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MoneySaver DIVIDEND& COMPANY NEWSIn this column we list recent news, events, dividend income news and any other relevant information for
MoneySavers. News items are those received after our last publication date.
Canadian MoneySaver MODEL ETF PORTFOLIOETF SYMBOL CATEGORY PRICE # OF
UNITS TOTAL % OF PORTFOLIO
iShares 1-5 Year Laddered Corporate Bond CBO Fixed Income 18.33 506 9,274.98 6.6%
iShares DEX Universe Bond XBB Fixed Income 30.59 166 5,077.94 3.6%
iShares S&P/TSX Canadian Preferreds CPD Fixed Income 14.13 460 6,499.80 4.7%
iShares S&P/TSX Capped Composite XIC Equity: Canada 25.60 980 25,088.00 18.0%
iShares S&P/TSX Cdn. Div Aristocrats CDZ Equity: Canada Div. 25.57 613 15,674.41 11.2%
iShares U.S. High Yield Bond Index ETF XHY Fixed Income 19.05 350 6,667.50 4.8%
Vanguard FTSE Emerging Markets Index VEE Equity: Emerging 34.81 194 6,753.14 4.8%
Vanguard FTSE Developed Europe All Cap VE Equity: Interntional 29.62 304 9,004.48 6.5%
SPDR S&P 500 SPY Equity: U.S. 270.94 29 10,179.87 7.3%
Vanguard Div. Appreciation Index VIG Equity: U.S. Div. 101.88 74 9,767.68 7.0%
iShares Russell 2000 Growth IWO Equity: U.S. Growth 202.88 45 11,828.31 8.5%
BMO Covered Call Utilities ZWU Equity: N.A. Div 12.41 437 5,423.17 3.9%
Vanguard Information Technology Index VGT Equity: U.S 183.01 27 6,401.91 4.6%
Consumer Discretionary Select Sector SPDR XLY Equity: U.S 105.76 43 5,891.97 4.2%
Cash Cash Cash 6,034.24 4.3%
Total Portfolio 139,567.40
Exchange Rate 1.30 $ Gain/(Loss): 39,567.40
Inception value: 100,000.00 % Gain/(Loss): 39.57%
Inception date: October 18, 2013 % Annualized: 8.25%
Prices are at market close on May 31, 2018. Individual prices are in USD$. Portfolio values, $Gain/(Loss), % Gain/(Loss), % Annualized all reflect USD$ values are converted to CAD$
CURRENT NOTES: none
OTHER NOTES: Keep in mind all investors are different. This portfolio is designed as a guide in setting up your own personal portfolio. Unique considerations and adjustments need to be made to reflect your personal situation. Please perform your own due diligence before making investment decisions. For use by Canadian MoneySaver subscribers only. Not for redistribution.
Please direct portfolio questions to moneyinfo@canadianmoneysaver.ca
• Andrew Peller (ADW.A) raises dividend by 14%
• National Bank (NA) raises dividend by 3.3%
• BMO Financial (BMO) raises dividend by 3%
• Activist fund Clearwater Capital urges AutoCanada to undergo strategic review
• Canadian government blocks the takeover of Aecon Group
• Kinder Morgan Canada TransMountain Pipeline is taken private by Canadian government
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Beating The TSX
I am Dave Stanley back from retirement to share with you some great results from our BTSX experiment and mention some changes the column is undergoing. We now have 30 years’
worth of data and I hope it will excite you as much as it has us. First, though, I think it might be worthwhile to go back over the history of how this all developed.
I wrote the first BTSX column in 1996, a year after I took advantage of an early retirement package. A friend had given me a subscription to the CMS as a gift which led me to contact the Editor, Dale Ennis, with some criticisms on an article dealing with dividends. He asked me if I thought I could write on this subject and I accepted Dale’s offer, leading to 20 years of columns and a great deal of learning on my part.
In the beginning I knew virtually nothing about investing other than buying savings bonds and mindlessly handing my money to mutual funds salespeople. What I hoped to do was to be able to construct some method that would allow me to control my own investing. Given my lack of knowledge in the area it would have to be simple to understand, easy to implement, inexpensive, and offer the hope of sustainable above-average results. So, when I read ”Beating The Dow” by Michael O’Higgins it struck a receptive chord.
Mr. O’Higgins wrote that simply by selecting on a yearly basis the top ten yielding stocks in the blue-chip Dow 30 Industrial Index an investor consistently could achieve higher results. Amazing! He produced convincing
BTSX – Then, Now, And In The Future– Part 1 –
David Stanley Ross Grant Matt Poyner
data as well as having skin in the game, making his work very believable (as an aside I agree with Nick Taleb that with most things, but especially finances and investing, if someone tries to persuade you of a particular course of action and cannot cite honest data as well as having some skin in the game then you are listening to or reading just another opinion with no reason to think it is superior to your own.)
I could think of no reason why O’Higgins’ approach should not work with our Canadian stocks and so the BTSX system was born by pure plagiarism. As I look back now it was mistake to assume this perfect compatibility; U.S. and Canadian blue-chip indices are very different and I should have allowed for that.
In any case, no matter how flawed, BTSX worked for more than 20 years and worked well. Let’s look at our results.
Figure 1 shows total return data for the full 30 years in two segments: the oldest data is mine and the newer part is Ross Grant’s. Note how the two segments overlap quite well. What strikes me about this graph is the large change in amplitude from year to year. As investors we must get used to such gyrations since, although in general the overall trend of the market is upwards, taken on a yearly basis we see great and unpredictable variations.
So, did we beat the TSX? Yes, and quite convincingly. Over our first 30 years the average yearly return for BTSX was 12.4% compared to 9.6% for the index, an almost
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Fig. 1. Results (% Total Return) of BTSX from1987 to 2017. First seg-ment 1987-2014; Second segment 2001-2017.
Fig. 2. Value of $1000 invested in BTSX, or the blue-chip total return index (several were used, most recently XIU), or the TSX Composite In-dex (dividends included but not reinvested) from 1987 to 2017. Where BTSX data overlapped (see Fig. 1) an average of the two was used.
Fig. 3. Ratio of the cumulative returns of the BTSX portfolio to that of the total return index.
30% difference. If an investor could beat the index by this wide a margin over a 30-year time period I predict a quite pleasant retirement would lie ahead.
Over the years we have had to use several indexes for comparison to our results and it was only when the iShares S&P/TSX 60 ETF (XIU) appeared that we could access reliable data that was not considered by the provider to be proprietary. But all the data we used were total returns of a Canadian blue-chip index. It is important when viewing investing results, especially marketing-based information, to verify that proper comparisons are made.
While our results are gratifying, the whole emphasis of BTSX throughout its existence has been long-term success. In Figure 2 we present data showing how a $1000 investment grew over 30 years. Immediately it is apparent that BTSX produced over twice the wealth as the index. It is also obvious that the larger TSX Composite Index, with dividends included but not reinvested placed a distant third. I am going to predict that there is not a mutual fund or ETF that invests in Canadian large-cap, blue-chip stocks that can match our record over this time period. The most important aspect of Figure 2 is that we can see clearly the advantages of compounding dividends. Never have I found a better example of compounding that used real data.
Canadian investors need to understand the value of compounding and how it can work in their favour. What this means in practice is that BTSX is just a workable methodology to be used in order to build up, over time, a portfolio of high-dividend paying, blue-chip Canadian stocks bought at a reasonable price. Let’s say you purchase an initial ten stocks; the next year several drop off the list, maybe some of them because the price has gone up, meaning the yield has gone down, but the price going up is a good thing! If you like the stock and have done your research there is no real reason to sell it. Rather, why not keep it as part of a long-term portfolio, DRIP the dividends into new shares, and let compounding work for you.
The final graph, Figure 3, is based on a suggestion from Jack Bogle, the founder and former CEO of the Vanguard Group. He says that in order to determine whether there are real practical differences between two data sets you should simply divide one set by the other and graph the result. Figure 3 convinces me that there is indeed a true advantage to the BTSX approach to investing. However, it also
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shows a big flaw; around the turn of the decade a large drop in the curve can be seen. At the time I was on the verge of abandoning BTSX until it dawned on me what had happened. The indices we deal with are market-cap weighted, meaning that the higher the share price and the more shares that are issued the greater weighting the company has in the index. Around 2000 Nortel’s share price was soaring until, at its highs, Nortel, which didn’t pay a significant cash dividend, represented more than 40% of the S&P/TSX 60 index. There was no way a BTSX portfolio could offset the Nortel effect, but after the stock crashed and burned (sadly leaving many investors and employees in the lurch) the problem solved itself.
David W. Stanley, Guelph, Ontario
Matt Poyner is a DIY investor based in Whitby, ON. matt.poyner@gmail.com
Ross Grant is the e-book Author of Destination: Early Financial Independence, available on Amazon and Kobo for $5.99. Free e-reader software is available for PCs, MACs, etc. to view the book. Please email Ross if you need the links. You can reach him at RossGrantEFI@gmail.com
Book Excerpt
Use Of Trusts In Disability Ed Arbuckle
Trusts have several purposes when it comes to disability, as shown in Figure 5.1.
Figure 5.1: The Purpose of Trusts Relating to Disability Trusts
• To retain social assistance benefits (Henson trusts)• To manage ownership of property for a person who is not
legally able to do so• To make distributions to a beneficiary for day to day living
costs • To accommodate favourable tax treatment including the
transfer trust assets to others when the trust is no longer needed
• To hold a residence for a person with a disability in a trust• To receive RRSP and RRIF plan proceeds on the death of a
parent or grandparent (Lifetime Benefit trust)• To hold inherited assets as exempt assets under provincial
social assistance rules (inheritance trust)• To receive life insurance proceeds on death (Life insurance
trust)• To have access to graduated tax rates (qualified disability
trust)
There is a serious lack of knowledge about trusts by families involved with disability. In the end, trusts are flexible vehicles for holding property that will be managed by trustees under rules in the trust document as dictated by the person who established
the trust (settlor). Beneficiaries enjoy the assets of the trust through distributions they receive from the trust. Trusts are effective vehicles for managing the distribution of your wealth according to your rules when you are unable or no longer wish to do so or after you die.In disability planning, trusts are usually discretionary—this means that trustees have full power to decide, if, when and how much will be distributed to a beneficiary. The beneficiaries have no absolute rights to distributions nor are any trust assets set aside for them. Once the trust has fulfilled its mandate to supplement the income of a beneficiary with a disability, the trust is usually terminated and any remaining trust assets are distributed to surviving family members or sometimes to a charity.It is sometimes thought that a Henson is unique to disability, but this is not the case. A Henson trust is simply a discretionary trust with the core purpose of preserving social assistance for a beneficiary. Although a Henson trust is primarily used to fulfill that mandate, it can be used for many other purposes such as owning a home, avoiding the Public Trustee or getting better tax treatment.
Excerpted from The Family Guide to Disability and Personal Finances (Page 92) by Ed Arbuckle, CPA, FCA, TEPCopyright © 2018. All rights reserved.www.thefamilyguide.ca
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Legal And Big Picture Planning
Leave To Grow Or Withdraw Some Dough –Factors To Consider When Pondering Early RRSP Withdrawals – Part 3
In this article, I’ll pick up where I left off at the end of my last article, fleshing out some of the things to keep in mind when deciding what to do with your Registered Retirement Savings
Plans (RRSPs) and Registered Retirement Income Funds (RRIFs). For those of you coming late to the party who have not read the first two parts of this series, I suggest doing just that. Part 1 does some basic mathematical calculations showing how early RRSP withdrawals can mean big savings later in the right circumstances, while Part 2 starts explaining why. For those of you who have been with me since the beginning, the end is now in sight. Let’s cut to the chase.
• Guaranteed Investment Supplement (GIS) and Other Benefit Planning.
People expecting to have very little taxable income during retirement may end up paying a lot more tax on the RRSP withdrawal by way of lost government benefits and government subsidies. If you expect to earn GIS benefits in future, each $2 in RRSP withdrawals can cost you about $1 in GIS benefits. Likewise, some provinces offer subsidies on drug costs during retirement based on income levels. Perhaps most importantly to some Canadians, the cost of public retirement facilities is based on income levels. Accordingly, reducing your tax hit prior to moving into an assisted-living facility may reduce your care costs later. These are just some potential examples.
• Poor Health or Life Expectancy.
One of the biggest factors against withdrawing money early from your RRSP can be the lost profits you would have received on the money that you have to pay now in taxes that would have remained
Colin RitchieLIND
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invested inside your RRSP if you do nothing. Although those lost profits will also eventually be taxed, some of them would still find their way into your back pocket. The less time between when you trigger taxes early compared to when you would have had to otherwise pay them anyway, the less time these extra profits would have had to grow inside your RRSP.
For example, if you withdraw $50,000 from your RRSP a year earlier than necessary at a 30% average tax rate rather than waiting and paying 50% on the same dollars the next year, although you’d only have $35,000 to work with initially, you’re probably still farther ahead of where you’d be if you let it ride for an extra year. Even assuming your investments grew at 20% and were taxed completely as interest at 50% in both cases, I’d much rather settle for getting $3,500 after taxes on the $35,000 I withdrew early (or $37,500 after taxes) than paying 50% tax on $60,000 in my RRSP a year later and keeping only $30,000 after the Canada Revenue Agency (CRA) gets its cut. Of course, the benefits of early withdrawal are far more pronounced if the non-registered money is invested more tax-efficiently. For example, if the $35,000 went into a Tax-Free Savings Account (TFSA) and still made 20%, the early withdrawer would earn $7,000 after tax that year while procrastinator would only make $5,000 after tax despite having $15,000 more before tax to sink into the market.
Ultimately, if you knew when you were going to pass on or that you wanted to use more than just the minimum amount you’d need to withdraw from your RRIFs in a few years, can get it out at a low tax rate, and can invest it tax-efficiently, it might make sense to bite the bullet.
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• Tax Deductible Investment Fees
If you pay investment fees inside your RRSP or RRIF, you can’t deduct them each year. Although you still pay them from inside your accounts and will get the same thing as a deduction eventually since you won’t have as much money to be taxed on, you need to wait until withdrawal to get this benefit. If instead, you have a non-registered portfolio and pay a percentage annual or monthly fee to your broker, you can deduct this fee each year. This works particularly well if you are earning dividends, capital gains or return of capital, which are taxed at lower rates than the deduction you receive from paying your fees. Thus, you get to deduct your fees now if in an open account rather than later and get to deduct them against investment income that likely won’t be taxed as heavily as it would if invested inside your RRSP.
• Potential Estate Disparity When Using Beneficiary Designations.
If naming multiple beneficiaries on an RRSP or RRIF, the survivor gets the whole thing if the other(s) don’t outlive you. This can be a problem if you name your children jointly but would want grandkids to inherit in their parents’ place. To make things even worse, the surviving children would get the money tax-free most of the time and your estate would be the one paying the piper. That would mean that if your grandkids inherited their deceased parents’ share of the rest of the estate that they would get a smaller piece of that pie as well, as their share of the estate would be net of the tax bill on the RRSPs that went to their aunts and uncles. Obviously, you can update your beneficiary designations if necessary if you are still healthy, but if you are not, this cannot usually be done through a Power of Attorney. Thus, if you are sick for many years, you are banking on the fact that nothing happens to any of your children during that time.
An easy solution is leaving the RRSPs etc. to your estate and accepting that this means probate fees and exposure to will and estate issues. For larger registered plans, consider leaving them to a trust that can stipulate what happens to a deceased child’s share while still avoiding probate fees and estate challenge issues. Unfortunately, many people just rely on the simple beneficiary designations for their registered plans. Accordingly, I wanted to make sure my readers are aware of this problem.
Factors Discouraging Early Withdrawals
Most of the considerations mentioned in this and my first two articles in favour of pulling your RRSP money out early suggest keeping your RRSP intact should the necessary conditions not apply. For example, you might be better off taking some money out now if you are in a lower tax bracket, love dividends, have poor health and don’t expect to draw down your RRSP before death. Conversely, if you are in great health, may use all your RRSPs during your lifetime and love interest-based investments, you might be better off leaving things alone for now.
Here are a few other things to keep in mind that might suggest you keep your RRSPs intact for as long as possible:
• RRSPs and RRIFs have creditor protection, which might be useful for those unlucky few facing bankruptcy or a nasty lawsuit;
• The first $2,000 of RRIF money for those over 65 qualifies for the pension income credit. Accordingly, some of us with smaller RRSPs might be better off (depending on whether they are getting GIS or other income-based benefits) to take their RRIF money out $2,000 at a time. Assuming that it all comes out this way over time, it essentially means you can get your RRIF money out with little tax owing. As well, your money gets to compound for longer as you wait, which can mean more money to you over the long term;
• RRSPs and RRIFs have beneficiary designations, which is an easy way of avoiding probate and potentially estate creditors. You can get this protection within TFSAs, segregated funds or other planning techniques if owned outside of your RRSP or RRIF, but it might also require a bit more effort and work on your part to put this in place;
• If you have a financially dependent, disabled child or grandchild, you may be able to roll over up to $200,000 of your RRSP or RRIF to that person at your death, minus any other contributions made to their plans during their lifetime; and
• It is easier for you to budget when inside your RRSP / RRIF. Some of us, such as those who are spenders or have a hard time saying no when children ask us for money, may benefit from keeping the cash in the RRSP / RRIF as long as possible if it helps with budgeting or makes it a bit harder to write that cheque for a child that is not truly in need.
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MoneyTip
ConclusionDon’t get me wrong – I love RRSPs, particularly for
clients in high tax brackets now who expect to be in lower tax brackets later. It’s just that I think about them in the same way that I think about investing – it’s all about having an exit strategy. If I can cash in registered money on the cheap, deploy it more tax-efficiently afterwards and also increase my financial flexibility, then, why wouldn’t I? Although it probably means looking at a smaller pool of investable assets in the short and also perhaps the medium term, it all comes down to how much is left after taxes and what I can do with the money rather than the size of my account before the tax man has received his due. Finally, life and circumstances are always changing and are rather complex. I like to be financially nimble and to be able to raise cash without worrying about triggering a huge
RRSP withdrawal tax bill unless the costs of withdrawing more of my RRSP money now simply don’t make sense.
Accordingly, rather than relying on principles like it’s always good to defer RRSP withdrawals or to always take the money and run, it really depends on individual circumstances and usually requires revisiting your planning from time to time to see if yesterday’s advice still holds true today. Thus, I must, unfortunately, return to where I began two long articles ago. If asked whether it makes sense to withdraw RRSPs early, my answer still remains: it depends. Now, at least, I hope you know why.
Colin S. Ritchie, BA.H. LL.B., CFP, CLU, TEP and FMA is a Vancouver-based fee-for-service lawyer and financial planner who does not sell investment or insurance, just advice. To find out more, visit his website at www.colinsritchie.com.
No One Will Care More About Your Financial Future Than You Will
I’ve often heard people say, “If only someone coached me earlier on in my life, I would have started to invest earlier. It wasn’t a priority then. I had time on my side.”
The challenge is time slips by in the blink of an eye. Ask any parent who wakes up and suddenly realizes they are a grandparent and wishes they had the wisdom of today that a 30-year-old can't begin to comprehend.
Here are a few strategies to help you avoid sabotaging your financial future:
Recognize the sooner you increase savings and downgrade lifestyle choices, the sooner you will develop good habits that will serve you for a lifetime. I’m not suggesting you don’t enjoy life, but make sure it’s balanced.
If you paid off your debt, don’t wait to invest. The sooner you invest, the better, as it will allow time and compounding to work for you. Extended periods of investing coupled with years of earning income on top of income can help to secure a very nice financial future. Investing takes time and patience.
Starting the investing process is half of the battle. Make the effort to understand diversification and market
efficiency and then come up with some simple rules that work for you. Billionaire investor Warren Buffett, for example has stated, “If I cannot understand it, I will not invest in it.”
The younger you are when you invest, the more time you have on your side. This also suggests you can take on a little more risk. I appreciate it is hard for a first time investor to see a paper loss. The true message here is to buy quality and recognize $50 today will not buy you the same basket of goods 30 years down the road given the impact of inflation. So you have to ensure your money is working for you. If your money sits in cash, you will be losing money after taxes and inflation. That is one sure way to sabotage your financial future.
You have heard this quote before – “a goal without a plan is just a wish.” This is so true in all elements in life but especially true when it comes to your financial future. Wish all you want for financial success but it won't happen without goals, a plan and investment strategy.
By Pattie Lovett-Reid
Source: BNN
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Intro To Millennial Investing
Millennial Introduction To Investing - Part 1
This is your introduction to the Millennial Investing Series. Throughout this series, I will walk you through some basic definitions, what you need to know before
investing, mistakes made during investing, how to diversify, types of accounts, the mindset to hold while investing and so forth. This is the first of many articles of the series and I hope you will join me through this journey of learning and benefit from it.
Let’s Begin The Journey...People who can make money through various income
streams while working for 40 hours per week are smart. Investing gives you the opportunity to make and grow wealth while you continue to work on your passions and careers.
Everyone talks about investing and business channels such as Bloomberg and CNBC have a ticker of prices and alphabet symbols going— which make no sense. The problem is, you don’t know what the symbols mean and what to invest in. It might seem overwhelming with the amount of information and the talk about stocks, revenues and depreciation. However, the truth is: Anyone can invest, including YOU.
You don’t need to be scared to lose your money, nor feel like you are missing out on making a good return on your money. If you continue reading my series, you will know the basics of investing and how to get started. I will guide you through the process of investing through my investing series.
What Is Investing And Why?In simple words, investing is trading your money
today for (hopefully) more money tomorrow. Investing is not limited to the stock market. Buying a house,
Barkha Rani
building a business and buying assets are also considered investments.
Let’s look at how a section of the market (TSX Composite Index) has performed over time.
TSX Composite Index: Annual ReturnsYear Percent Year Percent Year Percent
2000 1.7 2006 17.4 2012 4.0
2001 -12.2 2007 7.8 2013 9.6
2002 -12.8 2008 -35.5 2014 7.4
2003 19.3 2009 30.7 2015 -11.1
2004 13.9 2010 14.4 2016 17.5
2005 22.9 2011 -11.1 2017 6.0
The annual gain or loss in the TSX Composite Index from 2000 to present. Dividends are not included.
Savings Account
Chequing Account
Investment Account
0.70% 0.05% 7%
Sure the market has had its ups and down, however, on average, your annualized returns would be much higher than when you leave the money sitting in the bank. The 2008 crash doesn’t seem as bad now, does it? (The market recovered within 18 months).
Now let’s us look at how your money would compare if you put $1,000 in your savings, chequing or investment account over the span of 25 years. The average rates of return on your savings, chequing and investment accounts are 0.7%, 0.05% and 7% (20-year Annualized return) respectively.
The chart on the next page shows a $1,000 investment over 25 years in various accounts. The dollar value gains over 25 years shows that with your savings account, you can expect to gain of only $191, a negligent amount with
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a chequing account, and over $4,000 if you had invested in Canadian market. With a Canadian index investment account, you can expect to earn over 443% more as compared to your checking account and over 356% more as compared to your savings account.
What Is A Portfolio?The collection of financial assets you own is your
portfolio. Your investment accounts, savings and chequing accounts, house, other assets and retirement accounts are all part of your portfolio. Building a good and strong portfolio takes time can ensure you reach your desired financial goals. Just as characteristics or investments can vary, so does the risk that comes with them. Investments and risk go hand-in-hand, and it is important to realize that and diversify accordingly.
Your portfolio should contain various assets with different characteristics. Diversification using different asset classes is the most important component of achieving long-term financial goals while minimizing risk. By investing in various asset classes that would react differently to different market conditions, you maximize your returns.
“A good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies.” – Harry Markowitz
Now that we know the importance of investing and building your wealth, let’s jump into some definitions of words you would come across and consider often when investing.
Some Basic Definitions:Securities: When you invest in the financial markets, you receive a paper right to the asset. The term security includes bonds, share certificates, and other financial instruments that is a tradeable financial asset.
Guaranteed Investment Certificates (GICs): When you buy a GIC, you are agreeing to lend the financial institution your money for a specified number of months in exchange for interest your money will earn. At the end of the specified duration, you get the entire amount deposited plus the interest. As a general rule, the longer the term, the more
interest you earn. However, one point to keep in mind is you cannot withdraw before the expiration of the term or you will be heavily penalized for withdrawing from GICs before the end of the term.
Stocks: A stock is a share in the ownership of a company. It represents a claim on the company’s assets and earnings. Owning stock gives you the right to vote in shareholder meetings, receive dividends if they are distributed and gives you the right to sell your shares to somebody else.
Dividends: A dividend is a distribution of a portion of a company’s earnings, decided by the company to be paid to its shareholders. Dividends can be issued as cash payments or as shares of stock. Many stocks do not pay out dividends, and instead reinvest profits back into growing the company.
Index: A stock index is a measurement of a section of the stock market and is often used as a benchmark for performances. It is computed by taking a weighted average of selected stocks (depending on what kind of index). For example, the most popularly used Standard and Poor’s 500 Index (S&P500) is calculated by combining 500 large-cap U.S. stocks into one index value. Each stocks weight is calculated by dividing the market capitalization of each stock by the total market capitalization of S&P500 (calculated by adding market capitalization of all 500 large-cap U.S. stocks).
Outstanding shares: Outstanding shares refer to a company’s stock currently held by all its shareholders. Shareholders include all investors and shares held by company’s insiders and board of directors.
Market Capitalization: Market Cap (or Market Capitalization) refers to the total value of all a company’s shares of stock. It is based on multiplying the stock price of a stock and the shares outstanding of the company.
Mutual Funds: A mutual fund is an investment vehicle made up of a collection of stocks, bonds, or other securities owned and managed by an investment
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company. When you put money into a mutual fund, it is added into the pool of money that is used towards buying these securities.
ETF: An Exchange-traded fund (ETF) is a tradeable security that tracks an index, a commodity, bonds or a basket of different indices. Unlike mutual funds, an ETF trades like a common stock on a stock exchange and can have price fluctuations throughout the day.
Commodities: An interchangeable good or material, bought and sold freely as an article of commerce of the same type. Commodities include agricultural products, fuels, and metals and are traded in bulk on a commodity exchange or spot market.
What Is A Stock Market And How Do I Participate?
A stock market is a place where shares or other securities are bought and sold. Share prices fluctuate for various reasons including current economic conditions, buying and selling activity and company news/growth.
To be able to participate in buying and selling, you need to set up a brokerage account. A brokerage account is an arrangement between an investor and a licensed brokerage firm permitting the investor to deposit funds with the firm and place investment orders through the brokerage. Many Canadians simply go to the bank they are already using as their brokerage firm.
Three Main Asset Classes:
In the stock market, you are looking at three main asset classes:
• Cash: Cash investments include chequing and savings accounts, fixed-term deposits such as GICs and any currency you hold in hand.
• Equities:
Equity investments include common shares, equity-based derivatives (warrants, options, futures), convertible bonds and convertible preferred shares.
• Fixed Income: Fixed income investments include government and corporate bonds, preferred shares and other debt instruments.
You can hold your investments in a registered or non-registered account. Each type of account comes with its own applications, features, uses, eligibility requirements
and restrictions. It is important to understand which account (or accounts) suits your needs, provides advantages and helps your current situation.
Registered accounts can offer tax advantages and here are the two main registered account options:
Tax-Free Savings Account (TFSA) is a savings account registered with the federal government that lets your savings grow tax-free. You make contributions to the account with after-tax dollars and are not taxed further on your investments. There is a limit to how much you can contribute to a TFSA per year, but if you don’t make the full contribution, you can carry forward the unused amount to the next year. Your TFSA contribution limit is recorded on your income tax Notice of Assessment.
Registered Retirement Savings Plan (RRSP) is an account registered with the federal government and is intended to help you save money for retirement since your contributions are tax-deferred. In other words, you don’t pay tax on your income used for contributions, but withdrawals are fully taxable at your marginal tax rate, depending on what tax bracket you fall into when you make the withdrawal.
There is a maximum you can contribute to a RRSP in a year. If you don’t make the full contribution, you can carry forward the unused amount into the next year. Your RRSP contribution limit is recorded on your income tax Notice of Assessment, but if you have a registered pension plan with your employer, your contribution limit will be less.
I hope this has helped you learn about some basic investing definitions. Please feel free to connect with me on my twitter account @5iBarkha to keep up to date with the latest news that catches my attention. I would like to end this article with this quote of Peter Lynch, my role model:
“In the long run, it’s not just how much money you make that will determine your future prosperity. It’s how much of that money you put to work by saving it and investing it.” – Peter Lynch
Keep learning and investing peeps!
Barkha Rani, Investment Analyst at 5i Research. barkharani@5iresearch.ca, @5iBarkha
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Readers Write
The Learning Curve In The New Era
Don MacKenzie
Iam going to assume that you noticed most of the best points in my first two articles were things you already knew to be true. What is left for me to do then is draw attention to how my approach is most
different from common practice. What has worked for me in the past [14.5% 2002-2017] might continue to work for me and might be of help to you. Forget for a moment that overconfidence is one of the most common errors made by investors. I am an optimist and happy to be where I am. It is my fondest hope that my investment approach has something to do with my good returns. I am going to continue this approach, modifying it when experience, new facts, or reason show that to be necessary.
If you showed my portfolio to a professional advisor you would get many sceptical and negative comments:
• Having an equities-only portfolio is too risky.
• Having 90% invested in Canadian stocks is regional bias run amuck.
• Ignoring whole sectors of the economy increases volatility and risks missing an opportunity.
• Having five holdings making up 55% of a portfolio is too risky.
• This portfolio is too small to allow for diversification.
Diversity has a good name. Rarely is a bad word spoken about it. Diversification is why most investors prefer balanced funds. I have heard it called the only free lunch in investing, the only 'no cost' way of protecting yourself from downside risk. Diversification protects you from downside risk in hard times by moving your returns toward the middle. In better years it also moves your profits toward the middle.
The long-term trend in equities is up. I don't want to protect myself from that. As a stock picker, I prefer to search out individual stocks which demonstrate an ability to beat the index. They will help in down times and build a better cushion of profits in good times. Because such stocks are difficult to identify, a portfolio of them is going to contain fewer stocks than most. All the better, say I. My life is going to be easier
because I will have fewer stocks to keep track of and should be able to make better decisions about which ones to keep and which ones to let go. The short answer is that I prefer the protection of good performance over the protection of diversity.
Having almost exclusively Canadian stocks is another way to keep things simple. I don't have to deal with exchange rates, conversion fees, or foreign tax complications. I held US stocks as part of my portfolio for over 10 years. My gain was less than 1% per year. The exercise was a distraction from what I am good at, picking successful Canadian stocks. There is no reason for me to pursue an area where under-performance is so clear.
I much prefer a low turnover rate in my portfolio, but I have done an embarrassing amount of trading in the last twelve months. The most significant sells were: Norbord (realizing a long-term profit as it rose to fair value), Home Capital (a long-term holding which had clearly deteriorated), and Shopify (which was my in-and-out mistake for the year). The proceeds were immediately re-invested, mostly in stocks I already owned. Additional portfolio purchases were funded from a cash infusion (equivalent to 25% of the existing portfolio) from the sale of a rental property. The net result was a slightly more diversified and conservative portfolio and an increase in holdings from 15 to 16. My portfolio of a year ago was 99.73% invested in Canadian equities. Today the portfolio remains all in equities but now has a 10% international component. Where I previously had one mutual fund (6% of the portfolio), today I have three mutual funds (12% of the portfolio). It seems that I am entering a new era in my investing life. A review of my past situations shows that a similar claim could have been made in 2002, 2007, 2009, 2012, 2015, 2016, and now in 2017. A new era is likely underway right now. It is best to pay attention and to make careful use of your portfolio guidance.
A Snapshot Of My Current Portfolio Guidance:• Always be fully invested.
• Invest all in equities.
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• Pick Canadian stocks with a long history of out-performance and significant exposure to other markets.
• Favour stocks having dual class shares.1
• Aim for a low turnover.
• Favour stocks held by successful mutual funds also having a low turnover (see Mawer).
• Avoid commodities.
• Keep an investing diary.
• Use a portfolio tracker.
• Track several model portfolios.
• Use no-load mutual funds to provide diversification outside of Canada2.
• Read the news.
• Ignore the news.
• Be open to modifying your process, but be reluctant to do so.
I hope that helps.
A Final Tidbit:Financial Advisors: Financial advisors market themselves as investment specialists. They offer “beat-the-market” strategies to manage your portfolio. This is so difficult to do that they direct most of their energies toward the easier job of managing investors.
Good advisors are like psychiatrists.
a. They dig out the essence of the person and situation.
b. They help the client define goals and identify obstacles.
c. Advisors then work with clients to overcome those obstacles and achieve their goals.
This is a lock-step process requiring precision and documentation. The sequence cannot be changed; the order of importance is fixed, and no step can be omitted. Any review necessarily begins again with a) and moves through c).
Don Mackenzie, Retired teacher (1998), Landlord (1993-2017). Set up investment portfolio in 2002; lifetime gains 14.5%/yr. to Dec. 2017. Resides in St. Catharines, Ontario. Email: succinctscribe@gmail.com
1 Why Family Businesses Outperformhttps://beta.theglobeandmail.com/report-on-business/rob-magazine/why-family-businesses outperformtheir-publicly-tradedrivals/article36727765/
2 “The Lowdown On No-Load Mutual Funds”https://www.investopedia.com/articles/mutualfund/07/no-load.asp
Annuities Offer Income For Life
Prescribed Annuity Rates: $100,000 10-year Guarantee
1. Male Single Life Prescribed Annuity ages 65, 70, 75 and 80
2. Female Single Life Prescribed Annuity ages 65, 70, 75 and 80
3. Joint Life Prescribed Annuity Male/Female ages 65, 70, 75 and 80.
Annuity income values were obtained from highly rated Canadian insurers and are for illustration purposes only.
Annuity rates change daily. Income and tax rate will depend when the annuity contract is issued.
Rino Racanelli, independent annuity advisorracanelli@sympatico.ca
Male age at purchase
Annual income
Annual Taxable Amount
65 $6,008 $1,077
70 $6,890 $993
75 $7,767 $766
80 $8,937 $823
Female age at purchase
Annual income
Annual Taxable Amount
65 $5,605 $1,185
70 $6,362 $1,036
75 $7,211 $738
80 $8,375 $625
Joint age at purchase
Annual income
Annual Taxable Amount
65 $5,119 $1,300
70 $5,735 $1,148
75 $6,574 $961
80 $7,751 $859
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Real Estate
Debunking Lease Renewal Myths – For Commercial Tenants
Jeff Grandfield and Dale Willerton – The Lease Coach
R eaders of our new book, Negotiating Commercial Leases & Renewals FOR DUMMIES, will learn (in part) that many lease renewal myths exist. Considering
that the average commercial tenant only negotiates a couple of leases in their lifetime (and sometimes with the same landlord), it’s easy to understand how leasing myths can persist. Occasionally, these myths are created and propagated by the landlord, but also by real estate professionals looking to serve their own interests.
Here are a few myths to beware of:
Myth #1: You must exercise your renewal option to extend your lease. 98% of the successful lease-renewal deals that The Lease Coach completes for tenants don’t exercise the renewal-option clause. If they did, everything except the rental rate would have been off the table for negotiation. All of your negotiations on a renewal term should be done well in advance of your current lease expiring. If your landlord is unwilling to negotiate with you or you’re unable to achieve the terms you’re looking for, that’s when you consider your renewal option. If you play your lease-renewal cards in the right order, you may be able to negotiate for all kinds of inducements and changes that you were not aware of when you signed your first lease agreement.
Myth #2: Rental rates can only go up. We hear this all the time from tenants: “The landlord wants an increase on my lease-renewal term”. Of course the landlord wants an increase, but that doesn’t necessarily mean he is going to get it. Rental rates vary across the country and property to property. One important factor to consider is the Consumer Price Index (CPI) or inflation. The inflation rate for various cities differs, and sometimes the economy is in a period of deflation or recession. It’s unfortunate that so many tenants who negotiate their own lease
renewal and avoid a rent increase think they’ve won the battle, when a rent decrease was achievable if they knew how to negotiate.
Myth #3: Landlords won’t provide inducements on renewals. Typically, inducements, or leasing incentives, include free rent, tenant allowance, and landlord’s work to the premises. The Lease Coach negotiates these common inducements for tenants on their initial lease agreements; those same tenants are often shocked to learn inducements are also potentially available on lease-renewal terms. Most landlords tend to take their existing tenants for granted; however, it can be argued that any inducements or incentives the landlord is prepared to pay to acquire a new tenant can also be offered to existing tenants on their renewals – the existing tenant is the proven long-term customer of the landlord. Sure, a landlord can take a risk on a new tenant, but why wouldn’t they provide incentives to keep their existing tenants who already have a proven rent-paying track record? Of course, you have to know how to ask for incentives to get them; the landlord won’t simply offer them out of goodwill.
Myth #4: Next year will be better than last year. We don’t know why, but entrepreneurs seem to think that next year is always going to be better than last year. Just because you get a rent reduction on your lease-renewal term, business is not guaranteed to improve. In many cases, your problem isn’t that your rent is too high, but that your customer count is too low for your location.
Dale Willerton and Jeff Grandfield are Commercial Lease Consultants who work exclusively for tenants. DaleWillerton@ TheLeaseCoach.com
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The Uncommon Investor
“FLEX”ing For Profits
Benj Gallander
In Benj’s best-seller, The Uncommon Investor III How to Earn Superior Returns in the Stock Market Despite Everything, there is one whole page where it states, “Without discipline you
have no method.” Yet, when Flex Ltd. hit the initial sell target of $18.74 in November, we did not sell, nor when it broached that value by almost a dollar in January. What gives?
First, it should be stated that discipline remains our mantra. But sometimes there are “conflicts” in the rules. For example, we dislike selling big winners in November or December as that means that the tax people must be paid the following April. By waiting until at least January, tax can be deferred, which is a wise investing decision. That enables us to use the funds in our possession for a longer period of time and hopefully, earn money on money so to speak.
Second, Flex often does well at the end of the year and first few months of a new one. Part of this is likely stock specific but on a macro scale, the end of the year often features the Santa Claus Rally and the January Effect, both pushing markets higher. While that does not happen every year, probability dictates that it is likely.
Next, it is rare that our initial sell target is lowered, but this one was pushed down from $26.24 in 2013, as that price was deemed extravagant. Yet, somewhere in the back of our brains, we wonder if that number was indeed so out of whack, especially since virtually every stock that we sell continues to climb, sometimes by quite a bit. The diminished share count, which was around 821 million in 2010, has fallen dramatically to the 528 million range and gives us reason to pause. That indicates that if the earnings are the same now as in 2010, the Earnings per Share (EPS) will be much greater due to the reduction. That often sparks stock price appreciation.
This share buyback, which might have made sense when the stock price was far lower, is a questionable use of
cash. Many companies love to do this, but given that the book value is $5.65 why in heck would an enterprise pay triple that or so to repurchase? It boggles our minds. We have suggested to management that dispersing dividends is wiser, but they have chosen not to act on our desire. Alas, it is not the first time that we have howled in the wilderness.
For the most part, Flex is firing on all cylinders. The bottom line has been black since 2009, there is about $1.3 billion in the kitty, and a major deal with Nike that was signed in 2015 has progressed reasonably well. The latter has required a major investment from Flex and is a primary reason that the debt load has grown by about $1 billion since the agreement was inked. Fortunately, the company’s balance sheet was in excellent shape and while this muddies the it somewhat, the debt tally remains quite reasonable.
Like many stocks, Flex’s stock price was slashed during the downturn. While second guessing has naturally occurred, at the end of the day, we remain content with our decision and no thought was given to selling at a lower price.
One email that arrived recently during the February market carnage asked “Hold and prosper? Sell. Or Pray!?” Often though it seems illogical to many people, doing nothing is the best action, which is our modus operandi here. Well a little prayer will not likely hurt.
With any luck, perhaps some if not all this position that is the oldest in the portfolio, circa 2006, will be dispensed shortly. While not counting on that, if markets resume their uptrend, Flex likely will too. Selling it would make the portfolio much younger, kind of like Botox for our collection of stocks.
Benj Gallander, MBA, Co-editor of "Contra the Heard", Toronto, ON gall@pathcom.com, www.contratheheard.com
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WRITER'S SPOTLIGHT
Ed Rempel is a fee-for-service financial planner who strives to help fellow Canadians better understand how to manage their financial life. He has 24 years of experience as a financial planner, as well as 33 years as a tax accountant. He offers a high-end “Full Service” for people that want to be confident every area of their financial life is managed optimally.
Ed has written nearly 1,000 Financial Plans to help Canadian families live the life they want, read hundreds of finance books, and has extensively researched many finance topics. This has given him a unique insight into financial planning and investment methods that actually work, which is often different from the conventional wisdom.
Ed took a speed-reading course from the world’s fastest reader to keep up with all the new information. He even watches videos at double speed.
Ed Rempel has significant experience with many investment and tax strategies, including but not limited to the 8-Year GIS Strategy for seniors, Lifecycle Investing for Millennials, the Cash Flow Dam for business owners and landlords, the Rempel Maximum for aggressive wealth-builders, and the Smith Manoeuvre for homeowners saving for retirement.
Before beginning his work as a financial planner, Ed Rempel acted as Controller at Simmons Canada for twelve years. He has also worked as an accountant for Bank of Canada, Winnipeg Building & Decorating, and Settlers Saving & Mortgage Corporation. Ed completed the Certified Hedge
Fund Specialist program, where he earned the highest mark in Canada.
In his work as a financial planning professional, Ed urges his clients to use “unconventional wisdom” when it comes to financial matters, which is a topic he often blogs about. His favourite quote is: “To have unconventional success, you can’t be guided by conventional wisdom.” In fact, his blog - Unconventional Wisdom - is Canada’s number one financial blog for a full service financial planner.
On his blog writing and with his clients, Ed Rempel often warns of the dangers of following more conventional financial and investment wisdom. In particular, he strongly dislikes what he calls “financial quackery” – his term for financial advice that’s really just a sales pitch.
Aside from his success as a blogger, Ed has started a series of podcasts, and also written for The Globe and Mail, The TaxLetter, The National Post, Toronto Star, Yahoo! Finance, Seeking Alpha, Findependence HUB, Costco Connection and Canadian MoneySaver. He is also a regular speaker featured in webinars, seminars, and conferences committed to helping Canadians better manage their finances. As a notable example, Ed was honored to be a speaker at the 2017 Canadian Financial Summit, an event that featured other experts in Canada’s financial community, and he will be speaking at the Money Show in September 2018.
In his spare time, Ed enjoys reading, the theater, fine dining, and cruises. He also loves anything involving physics and space. He is a loyal fan of the Toronto Argonauts and the Leafs.
Ed Rempel
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Sector Focus
Pipeline Pessimism Looks Overdone Enbridge, Transcanada Still Pumping Out Profits
Richard Morrison
It’s been a miserable year for shareholders of Canada’s two largest pipeline companies. As of June, Enbridge Inc. is down about 20% on the year and TransCanada Corp. is down 11%.
For long-term investors seeking income, however, the downturn represents a buying opportunity.
Investors fear higher interest rates will hurt both companies, which have borrowed heavily to finance growth. As well, investors worry that more pain might be inflicted by the effects of a U.S. Federal Energy Regulatory Committee (FERC) decision to reverse tax-favoured status for master limited partnerships, often used by companies with pipeline interests in the United States.
All this pessimism means that Enbridge, at a current price of just $40, is selling for the same price it was in 2012, while TransCanada, at $54, is at a two-year low. In my opinion, the pessimism is overdone.
Thanks to environmental and political hurdles, building a new pipeline anywhere in North America has become time-consuming and difficult, creating high barriers to entry for new players in the industry. The same obstacles also protect companies that already own pipelines, such as Enbridge and TransCanada.
Similarly, government regulations involving governments in Canada and the United States, together with provincial and state governments, discourage new investment in the sector. At the same time, long-term contracts provide stable returns that help insulate the incumbent pipeline companies from volatile oil and natural gas prices.
Both Enbridge and TransCanada have a long history of paying out and increasing their dividends, and the recent slump in the share prices has increased the dividend yields. Their dividends appear safe, as well. Both
Enbridge and TransCanada have healthy and growing levels of Distributable Cash Flow (DCF), a key measure of dividend sustainability. Even if DCF were to slip, the boards of both companies are more likely to reduce head count, sell off assets or freeze the dividend at current levels for a few quarters than reduce the dividend and anger the "widows and orphans" who rely on the payout.
Disclosure: My wife and I have held both Enbridge and TransCanada in our Locked-In Retirement Accounts for many years, and we both subscribe to their dividend reinvestment plans.
Enbridge Inc. (ENB/TSX)Enbridge, based in Calgary, is the sixth largest company
in Canada, with a market capitalization (number of shares times share price) of $67.9-billion. Enbridge operates a huge crude oil and natural gas transportation system in North America, with 27,388 km of what it calls “active pipe.” The company’s pipelines transport 28% of the crude oil produced in North America. Enbridge also transports, processes and stores natural gas across North America and the Gulf of Mexico. Enbridge’s natural gas distribution network includes about 3.7 million retail customers in Ontario, Quebec, New Brunswick and New York State. Its renewable energy portfolio includes 12 wind farms, four solar energy operations, and a geothermal project.
Enbridge has an 84.6% economic interest in Enbridge Income Fund, a 34.9% stake in Enbridge Energy Partners, L.P. and a 75% of Spectra Energy Partners, both based in Houston, Texas. Its workforce totals 15,400 people.
Enbridge, launched in 1949 as Interprovincial Pipe Line Company, became IPL Energy in 1994, and became Enbridge— a blend of energy and bridge — in 1998. Since shares of Enbridge and its predecessor companies
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began trading more than 50 years ago, its shareholders have enjoyed an average 13.5% annual return, the company says.
Enbridge’s 2017 annual report lists total debt of $92.3-billion (including $60.9-billion in long-term debt) against $162.1-billion in assets. Enbridge is working to improve its debt position. At its annual meeting on May 9, 2018, Enbridge announced it would sell its indirect subsidiary, Midcoast Operating LP natural gas unit for US$1.12-billion, and that it would also sell 49% of some of its renewable power assets to the Canada Pension Plan Investment Board (CPPIB) for $1.75-billion as part of its plan to reduce debt.
In March, Enbridge said there would be no material impact from the U.S. FERC move.
Last year, Enbridge had Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) of $10.3-billion, up 49% over the previous year, while DCF was up 51% to $5.6-billion or $3.68 per share, with the per-share DCF down 10% as more shares had been issued. Adjusted earnings were $2.98-billion or $1.96 per share, down 14% from the previous year.
Enbridge increased its dividend by 15% in 2017, its twenty-third consecutive year of dividend hikes. Enbridge has paid a dividend since 1954. Over the past 20 years, the company has increased its dividend at an average compound annual growth rate of 11.7% and has generated total annual returns of about 13%. The dividend should grow by 10% per year through 2020, Enbridge’s site says.
In May, Enbridge reported first-quarter 2018 Distributable Cash Flow of $2.31-billion, up dramatically from the $1.215-billion reported in the first quarter of 2017. Adjusted earnings climbed to $1.375-billion or 82c per share, up from 57c per share in the first quarter of 2017.
In Mid-May, Enbridge announced plans to acquire all the shares it does not already own of Spectra Energy Partners, Enbridge Energy Partners, Enbridge Energy
Management and Enbridge Income Fund Holdings for $11.4-billion or 272 million Enbridge common shares. Enbridge said the transactions would not affect its three-year financial guidance and would help its post-2020 outlook. The acquisitions are part of Enbridge's plan to streamline and simplify its corporate structure, which analysts said was a concern for investors.
All this relatively good news has been ignored. At a current share price of $40, the annual dividend of $2.68 yields 6.7%. This appears unsustainably high, yet Enbridge’s target dividend payout is less than 65% of
adjusted cash flow from operations. The company’s dividend reinvestment plan allows shareholders to reinvest their dividends in more shares at a 2% discount to the market price.
A total of 12 out of 22 analysts who follow Enbridge see it as a buy, while 10 say hold and none see it as a sell, as listed by the Wall Street Journal.
TransCanada Corp. (TRP/TSX)
TransCanada’s market capitalization is about $48-billion, making it the thirteenth largest company in Canada. The company has a 91,900 km network of natural gas pipelines, supplying about 25% of the gas used in Canada, the United States and Mexico, together with 653 billion cubic feet of storage capacity. The company’s Keystone Pipeline, opened in 2010, transports about a fifth
of western Canada’s crude oil production to the U.S. Midwest and ports on the Gulf of Mexico.
TransCanada also either owns or has interests in 11 electrical power plants with a combined capacity of 6,100 megawatts. It employs 7,500.
Like Enbridge, TransCanada is based in Calgary and has a long history of providing excellent returns to shareholders, achieving an average return of 14% since 2000.
In April, TransCanada increased its annual dividend by 10.4% to $2.76, the eighteenth consecutive annual hike. The company said it expects annual dividend growth to continue between 8% and 10% through 2021.
Like Enbridge,
TransCanada is based in
Calgary and has a long
history of providing
excellent returns to
shareholders, achieving
an average return of
14% since 2000.
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At $54, shares of TransCanada Corp. are down about 11% on the year. The low share price means the annual dividend of $2.76 yields 5.1%. Like Enbridge, TransCanada offers a dividend reinvestment plan that allows shareholders to buy more shares at a 2% discount to market.
In 2017, TransCanada achieved record cash flow and earnings, with net income of nearly $3-billion or $3.44 per share.
In the first quarter of 2018, TransCanada reported comparable Distributable Cash Flow of $1.4-billion or $1.64 per share. Net income attributable to common shares increased by $91-million to $734-million or 83c per share. Comparable earnings for first quarter 2018 were $870-million or 98c per share compared to $69-million or 81c per share for the same period in 2017, an increase of $172-million or 17c per share.
A total of 17 out of 20 analysts who follow TransCanada see it as a buy, while three say hold and none see it as a sell, as listed by the Wall Street Journal.
CONCLUSIONThere are hundreds of giant, blue-chip corporations
in the United States but only a few in Canada. (In fact, there is an old joke among Americans that in Canada, a small-cap company becomes a mid-cap one when a third man jumps into the back of the pickup truck.)
Enbridge and TransCanada are among only a dozen or so Canadian companies whose market capitalizations exceed $40-billion. The limited menu of Canadian blue chips means Canadians may already own stakes in both pipeline companies, either directly or through mutual, index or pension funds. Both Enbridge and TransCanada have been a drag on portfolios this year, and while there is no guarantee their shares are not going down further, adding to positions should at least lower their average cost.
Richard Morrison, CIM, is a former editor and investment columnist at the Financial Post. richarddmorrison@yahoo.ca
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Personal Finance
Does Your Money Have A Job?
Job. Defined as : 1) a specific duty, role, or function or 2) something that has to be done i.e. a task.
Why does my money need a job? I have a good income and I have a surplus at the end of each month. I have no debts and I pay all my bills on time. Ideally, everything should have a job or a function or task because it’s the easiest way to measure its worth or usefulness. Without setting a goal or expectation, how can you measure success? How do you know that you have arrived at the point you needed/wanted to get to?
We start setting goals from a young age (I want to play in the NHL, I want to be a doctor.) Goals can be daily and small sometimes (I want to have a cappuccino) or larger and less frequent (I want to buy a house.) Jobs/tasks are the actions necessary to complete our goals.
Money is the trading value (currency) we earn from our physical or mental activity so that we can exchange it for objects or experiences that we need and want. You may have heard that most Canadians spend more than they earn which is indicative of more planning and goal setting needed by many Canadians.
Let’s start at the beginning when your money first comes to you via pay cheque or other earnings. Okay— it’s in my bank account. Now what?
Usually, the first thing to do is to pay your bills including fixed expenses like housing and utility bills. These costs occur regularly (monthly or biweekly) and are often the same amount each time, or they only vary slightly. To save time and effort, and so as not to forget, you can often set up auto-payments on these items. The job here is to pay your bills and other costs you incur on a regular basis. You can also include regular contributions to savings like Registered Retirement Savings Plan
Janet Gray
(RRSP), Tax-Free Savings Account (TFSA) or Registered Education Savings Plan (RESP) etc. More to follow on this below.
At the same time, you need to pay your variable expenses. This job includes items that are spent regularly but the amount will vary according to consumption. Items like groceries, gas, entertainment/dining out, adult beverages, pocket money. The individual amounts may vary but it’s likely that the total amount in this category will overall remain constant notwithstanding seasonal variations. Groceries are one of the areas where there is a lot of ‘leakage’ from the budgeted amount and little tracking or accountability done. Note: Canadians spend about $200 -$250 average per adult on food per month.
The next job is the items with irregular costs that occur throughout the year or just once a year. Think of car or home repairs. You can set aside a monthly amount to accumulate the funds needed for a project or to have on hand for emergencies. This is easily accomplished using online savings accounts. Also consider categories like gifts, healthcare, travel, annual fees if you pay insurance or property taxes once a year. Some of these costs are necessary (car repairs, taxes) and others are discretionary (gifts, travel.) This also can supplement some of the seasonal variations in your variable spending such as additional food and beverages around family occasions. Many people underestimate what they spend throughout the year on items like activities, gifts, clothing. Give each category the job of gathering and holding your money until needed. The added bonus is less stress and worry when you finally need the money to pay that bill that inevitably turns up.
You have a job in this also. You need to be aware of your numbers of your expenses in all categories. Start with the numbers you can grab from your bank or credit card statements for regular expenses.
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Then estimate what you expect to spend in the next one-year period in categories like hobbies or travel. For example, all your hobbies and activities might add up to $2400 for the 12 months coming. You don’t always pay that amount in one lump payment but sporadically throughout the year. It’s much easier to save $200 monthly and allow it to accumulate until needed, rather than possibly create debt at payment time. The job of the $200 monthly is to be ready to spring into action when called upon.
Once you have assigned multiple jobs to your money to meet the responsibilities of your fixed, variable and annual needs/goals, you will have a surplus amount to also give jobs to. This assumes that you are still living within your means and only spending money you earn, without using credit.
These jobs should be linked to your goals and values with things that will make you happy and help you to reach the future outcomes you and your family deem important. For example, serious items like your kids’/grandkids’ educations, your retirement, a legacy after your death, or fun things like travel or hobbies. This is also where you are not just saving money short-term, you are investing this money for a longer-term result. It’s still a job. Just a full-time job instead.
And since we know that investments can be found in many locations like RRSPs or TFSAs, again refer to the above goals/needs to further clarify the location of the investments and the timeline of when the funds may be needed. It will become more obvious what you need your money to do and how much you will need. This is the basis of investment planning which should also be goal-centred. It helps with your risk allocation and
maybe even the tax planning around your investments in terms of which investment products (RRSP, TFSA or Non-registered) are better suited. For example, your goals help to clarify what amount needs to be liquid for immediate jobs like bill payment and what amounts should be invested for mid- or long-term savings goals. The job of investments is to help you achieve your goals and live the job (life) you want.
The results of some jobs are more visible and accountable than others (mostly due to the more immediate nature like paying bills soon after getting paid) versus investing for a goal in 20 years (which takes patience and persistence.)
And with anything or anyone, once the parameters and outcomes have been defined, the job is clear and everyone and everything knows what needs to be done.
Don’t forget that part of your job is to monitor the goals against the actual results. Review on a regular basis (monthly is best) to course-correct as needed. Perhaps you have new information that will change the direction you had been going in. Maybe there are new tax laws or factors outside of your control. The more often you check your progress, the less disruptive the corrections will be.
Many will agree on the importance of financial planning and all its aspects around taxes, estate, investments and cash flow management. Don’t forget to take the extra step of giving all your money a job so you can be confident that it’s being used in the most meaningful and effective way that allows you to obtain your goals.
Janet Gray, B.A., B. Admin., CFP®, CHS, EPC, CPCA, Fee for Service FinancialPlanner/MoneyCoach with Money Coaches Canada
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Secular Trends and Investing
Renewable Energy
Michael Patenaude
The Trend
R enewable energy has existed in passive forms for as long as energy from the sun has reached planet earth. Humans first began harvesting renewable energy by
using biomass to create fire for heat and cooking. Wind power has been used to power sailing craft for thousands of years. In the mid-nineteenth century the first form of non-renewable energy came into use: coal. That was quickly followed by oil and gas, the triumvirate of carbon-based fuels.
Renewables include energy produced from the sun, hydro, wind, tides, rain and geothermal heat. They are used to create electricity, heating and cooling, energy for transportation and for off-grid energy generation.
Given the massive importance of carbon fuels as an energy source it is always noteworthy when one of the largest oil and gas producers in the world, ExxonMobil, has whiplash. In 2015, then CEO Rex Tillerson said at his company’s annual meeting that ExxonMobil had not invested in renewable energy because: “We choose not to lose money on purpose.” By February 2018, the current CEO Darren W. Woods said: “We are committed to being part of the solution by investing in new technologies that can provide economic solutions on a globally scalable basis.” ExxonMobil is now investing $1 billion per year ($8 billion cumulative) into researching alternative forms of energy.
ExxonMobil is not alone in hedging against the expected displacement of 8 million barrels of oil per day by renewables over the next few years. For example, Total SA and Royal Dutch Shell are also investing in alternative energy.
Some FactsAccording to the International Energy Agency’s
Renewables 2017 report, “…renewables accounted for almost two-thirds of net new power capacity around the world in 2016, with almost 165 gigawatts (GW) coming online. This year’s renewable forecast is 12% higher than last year, thanks mostly to solar PV [photo voltaic] upward revisions in China and India. For the next five years, solar PV represents the largest annual capacity additions for renewables, well above wind and hydro.”
Again, according to Renewables 2017, China is the leader in renewable energy growth worldwide, followed by India and the United States. These three countries will account for two-thirds of renewable energy expansion over the next five years. The share of renewables in power generation will reach 30% in 2022, up from 24% in 2016.
According to Germany-based Kaiserwetter Energy Asset Management, as reported in Forbes, the production costs of renewable energy has fallen below that of fossil fuels, from $35 to $54 per MWh for renewables compared to $49 to $174 for fossil fuels.
The US Energy Information Administration states: “Renewables are the world’s fastest-growing energy source, with consumption increasing by an average 2.3%/year between 2015 and 2040.”
The UN Environment Programme and Bloomberg New Energy Finance’s report Global Trends in Renewable Energy Investment 2018 states: “The proportion of world electricity generated by wind, solar, biomass and waste-to-energy, geothermal, marine and small hydro rose from 11% in 2016 to 12.1% in 2017. Global investment in renewable energy edged up 2% in 2017 to $279.8 billion. Solar power rose to record prominence in 2017, as the world installed 98 gigawatts of new solar power projects,
more than the net additions of coal, gas and nuclear plants put together. The leading location by far for renewable energy investment in 2017 was China, which accounted for $126.6 billion, its highest figure ever and no less than 45% of the global total… [with] solar investment of $86.5 billion, up 58%. Clean energy share prices rose in 2017, by about 28% on the WilderHill New Energy Global Innovation Index, or NEX.”
While the majority of governments worldwide are publicly committed to combatting climate change, as evidenced by the Paris Climate Agreement, perhaps more importantly, the underlying economics appear to be increasingly driving the growth in the renewable energy sector.
RisksThree key risks for growth in the sector are the
potential for government policy changes (e.g., the U.S. withdrawal from the Paris Accord and energy deregulation leading to cheaper oil and gas), the reduction/elimination of government subsidies for renewable energy and rising
interest rates making investments more expensive. More recently, a 30% tariff on solar panels imported into the U.S. will raise costs for Americans. All of these could be negative in the medium term for the sector.
There are also single-company risks in the renewables space evidenced by the bankruptcies of SunEdison and Abengoa SA.
As with any area of emerging technology and growth uneven performance is to be expected. The PowerShares Global Clean Energy ETF (PBD) tracks the NEX index referenced above. Over the last 10 years the ETF has seen a total negative return of 48%, while in the last five years it has risen 54%.
Nevertheless, the growth in renewables is clearly going to continue for the foreseeable future which should lead to increasing equity values given a long enough time horizon.
Ideas for Further ResearchAccording to ETFdb.com, there are 12 Exchange Traded
Funds (ETF) in the alternative energy space. They have an average expense ratio of 0.65% with asset values ranging between a tiny $17M USD to as large as $396M USD. Table 1 shows a breakdown of seven of these ETFs with asset values of about $100M USD or more. Note they all track different indexes and this drives the focus of their holdings (i.e., solar vs. wind vs. all clean energy).
Table 2 identifies some of the publicly-traded
Table 1 – Largest Renewable Energy-themed Exchange Traded Funds
Security Assets Under
Management
Top Geographic
Regions
No. of Holdings
Benchmark Index
1 Year Total
Return
5 Year Total
Return
Expense Ratio
Beta (5 Year)
Guggenheim Solar ETF (NYSE:TAN)
$396M USD Americas 44%; Europe 30%; Asia 26%
26 MAC Global Solar Energy TR USD
46% 43% 0.70% 1.789
iShares Global Clean Energy ETF (NASDAQ:ICLN)
$178M USD Americas 38%; Europe 23%; Asia 39%
46 S&P Global Clean Energy NR USD
20% 37% 0.48% 1.268
PowerShares Cleantech Port-folio (NYSE:PZD)
$162M USD Americas 56%; Europe 41%; Asia 3%
58 AMEX Clean-tech PR USD
16% 79% 0.68% 1.232
PowerShares WilderHill Clean Energy ETF (NYSE:PBW)
$118M USD Americas 90%; Europe 3%; Asia 7%
40 WilderHill Clean Energy TR USD
22% 19% 0.70% 1.241
First Trust NASDAQ Clean Edge Green En-ergy Index Fund (NASDAQ:QCLN)
$92M USD Americas 97%; Europe 2%; Asia 1%
40 NASDAQ Clean Edge Green Energy TR
17% 73% 0.60% 1.308
First Trust ISE Global Wind En-ergy Index Fund (NYSE:FAN)
$91M USD Americas 17%; Europe 55%; Asia 28%
45 ISE Clean Edge Global Wind Energy TR USD
10% 106% 0.60% 1.152
VanEck Vectors Global Alterna-tive Energy ETF (NYSE:GEX)
$91M USD Americas 63%; Europe 22%; Asia 14%
36 Ardour Global Extra Liquid TR USD
9% 65% 0.63% 1.274
Sources: ETFdb.com, YCharts, as of April 29, 2018.
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Table 2 – Select Canadian, US and US-listed Foreign Renewable Energy Companies
Select Canadian Renewable Energy Companies
Company Sector Market Cap
P/E Ratio (Forward 1 Year)
Debt / Equity Ratio (Quarterly)
Return on Equity
(TTM)
1 Year Total
Return
3 Year Total
Return
5 Year Total
Return
Dividend Yield (TTM)
Beta (5 Year)
Algonquin Power (TSX:AQN; NYSE:AQN)
Utilities $5.4B CDN
15.75 1.134 7.43% 1% 48% 105% 4.83% 0.32
Ballard Power Systems (TSX:BLDP; NASDAQ:BLPD)
Industri-als
$751M CDN
-- 0.00 -6.67% -6% 56% 344% 0.00% 3.048
Boralex (TSX:BLX) Utilities $1.8B CDN
31.82 4.057 3.29% 14% 88% 164% 2.58% 0.3021
Brookfield Renew-able Energy Part-ners (TSX:BEP.UN; NYSE:BEP)
Utilities $12B CDN
48.98 0.00 -1.28% -2% 16% 66% 6.3% 0.0242
Canadian Solar (NASDAQ:CSIQ)
Technol-ogy
$920M USD
9.094 2.411 10.61% 20% -58% 196% 0.00% 2.666
Innergex Renewable Energy (TSX:INE)
Utilities $1.83B CDN
41.36 7.254 9.29% 3% 41% 73% 4.87% 0.4427
Just Energy (TSX:JE; NYSE:JE)
Utilities $786M CDN
11.78 -7.459 -128.9% -31% -2% 22% 9.43% 0.7736
Pattern Energy Group (TSX:PEGI; NASDAQ:PEGI)
Utilities $2.3B CDN
22.9 1.764 -1.64% -17% -21% 25% 6.82% 0.4621
Pinnacle Renewable Holdings (TSX:PL)
Basic Materials
$190M -- 12.44 -- -- -- -- 0.00% --
TransAlta Renewables (TSX:RNW)
Utilities $2.9BCDN
12.89 0.4826 0.43% -22% 10% 57% 6.59% 0.8761
Select US and US-listed Foreign Renewable Energy Companies
Company Sector Market Cap
P/E Ratio (Forward 1 Year)
Debt / Equity Ratio (Quarterly)
Return on Equity
(TTM)
1 Year Total
Return
3 Year Total
Return
5 Year Total
Return
Dividend Yield (TTM)
Beta (5 Year)
Albemarle (NYSE:ALB) Basic Materials
$10.7B USD
16.63 0.50 1.46% -10% 71% 79% 1.34% 1.663
Ansys (NASDAQ:ANSS) Utilities $13.7B USD
30.89 -- 11.63% 48% 88% 109% 0.00% 1.015
BorgWarner (NYSE:BWA)
Consumer Cyclical
$10.5B USD
10.41 0.588 12.37% 19% -15% 35% 1.25% 1.808
Cree (NASDAQ:CREE) Technol-ogy
$3.8B USD
62.51 0.0544 -4.95% 75% 17% -31% 0.00% 0.6191
Daqo New Energy ADR (NYSE:DQ)
Technol-ogy
$592M USD
6.084 0.5865 28.58% 193% 96% 1,010% 0.00% 1.962
Eaton (NYSE:ETN) Industri-als
$33.4B USD
13.43 0.4493 18.77% 4% 23% 52% 3.23% 1.361
Energy Company of Minas Gerais ADR (NYSE:CIG)
Utilities $3.1B USD
6.326 1.058 0.78% -9% -45% -57% 5.1% 1.818
First Solar (NASDAQ:FSLR)
Technol-ogy
$8.2B USD
23.16 0.0857 -3.14% 164% 23% 77% 0.00% 1.961
Johnson Controls Inter-national (NYSE:JCI)
Industri-als
$31.9B 11.32 0.6087 7.58% -15% 0% 34% 2.96% 0.8471
Table continues on the next page >
Canadian renewable energy companies and some top U.S.-listed American and international holdings found
in the ETFs in Table 1. Clearly there are a lot of options for single-company equity investments.
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Microsemi (NASDAQ:MSCC)
Technol-ogy
$7.6B 13.66 0.9264 10.75% 38% 94% 208% 0.00% 1.182
ON Semiconductor (NASDAQ:ON)
Technol-ogy
$9.8B USD
11.92 1.062 37.23% 62% 99% 205% 0.00% 1.994
Ormat Technologies (NYSE:ORA)
Utilities $3.0B USD
21.87 0.7391 13.53% 1% 59% 183% 0.80% 1.370
Sociedad Quimica Y Minera De Chile ADR (NYSE:SQM)
Basic Materials
$14.5B USD
26.10 0.5524 19.42% 61% 187% 37% 2.55% 1.040
SolarEdge Technologies (NASDAQ:SEDG)
Technol-ogy
$2.4B USD
15.79 -- 24.99% 229% 100% -- 0.00% --
SunPower (NASDAQ:SPWR)
Technol-ogy
$1.3B USD
-- 11.23 -124.2% 29% -74% -32% 0.00% 2.575
Sunrun (NASDAQ:RUN) Technol-ogy
$1.0B USD
7.077 1.595 17.04% 75% -- -- 0.00% --
Tesla (NASDAQ:TSLA) Consumer Cyclical
$49.9B USD
151.38 2.434 -41.21% -6% 28% 474% 0.00% 1.184
Sources: TMXMoney.com, YCharts, as of April 29, 2018.
How to Invest In The Renewable Energy Trend
Whether to buy single equities or an ETF, or maybe a combination of both, depends on the investor.
ETFs are attractive for their relative diversification in companies, sub-industries, geographic regions, market capitalizations and stock style exposures. Three of the ETFs in Table 1 have more than half their holdings outside the Americas, which could be attractive given how much investment in renewable energy is occurring around the world.
Having said that, a concentrated investment in one or a handful of top performing equities could provide overall better returns than ETFs and will avoid the cost of ETF fees. This will come at a potentially higher risk if the picks don’t work out.
If the investor wishes to invest in Canadian dollars the Canadian offerings are relatively plentiful and can be fairly attractive, especially utilities, which are currently seeing depressed share prices and resulting higher yields due to rising interest rates. Some of these stocks are inter-listed on a U.S. exchange and pay dividends in U.S. dollars.
For (much) riskier investments, there are some Canadian companies listed on the Venture Exchange such as Eguana Technologies (EGT.V), EnerDynamic Hybrid Technologies (EHT.V), Finavera Renewables (FVR.V), Run of River Power (ROR.V), Shear Wind (SWX.V), Solar Alliance Energy (SAN.V) and UGE International (UGE.V).
It can be impractical for the average investor to invest non-North American equities directly, due to cost and regulatory differences of foreign exchanges, unless they are listed on a U.S. stock exchange as an American Depositary Receipt (ADR).
Concluding RemarksThe renewable energy sector would appear to hold
promising investment potential as the world continues to shift energy consumption increasingly towards alternatives to fossil fuels. Patience may be required as this is a long-term trend and there are potential headwinds in the short to medium term. Having said that, there are opportunities, especially with green utilities, to be paid dividends while awaiting potential capital appreciation. Since much of the growth in renewables will be driven by Asian countries like China and India, it may be advantageous to participate in these markets.
Michael Patenaude, BA, MA, is a personal finance enthusiast living in Ottawa. He publishes his blog, portfolio and content from the Ottawa Share Club at money4retirement.ca. He is co-founder of the McMurtryInvestmentReport.ca. Email: mrpatenaude@gmail.com. This article is not intended as investment advice nor is it a solicitation to hold or trade securities. Michael owns BEP and AQN and has added ICLN to his watchlist.
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Peter Hodson, CFAFounder of 5i Research Former Chairman of Sprott Asset Management L.P.
30 z Canadian MoneySaver z https://www.canadianmoneysaver.ca z JULY/AUGUST 2018
Investing Strategies
Why U.S. Stocks Belong In A Canadian’s Portfolio
Nick McCullum
The U.S. stock market is perhaps the most studied and well-documented financial market in the world. Despite this attention, many Canadian investors ignore the U.S. stock
market in favor of their home market – a tendency known as home country bias. In this month’s article, we’ll discuss why it is important for Canadian investors to own U.S. stocks and the actual strategies you can use to purchase U.S. stocks for your investment account.
First, let’s discuss the relative size and global importance of both Canada and the United States. The population of Canada is approximately 36 million. The population of the United States is approximately 326 million. Similarly, Canada’s gross domestic product (GDP) is approximately US$1.5 trillion while the GDP of the United States is around US$18.6 trillion.
Depending on how you measure size, the United States is around ten times as large as Canada. In a globalized world, you should own a global market portfolio. The statistics listed above argue that you should even own more U.S. stocks – even if you live in Canada.
Size aside, there are other important benefits to allocating some of your portfolio to U.S. stocks. More specifically, the American stock market has much better diversification characteristics than its Canadian counterpart.
It is no secret that the Canadian economy (and, by extension, its stock market) is heavily concentrated in two particular industries: financials and energy. For example, consider the ten largest Canadian companies by market capitalization:1. Royal Bank of Canada (RY)2. The Toronto-Dominion Bank (TD)3. The Bank of Nova Scotia (BNS)4. Suncor Energy (SU)5. Canadian National Railway (CNR)6. Enbridge (ENB)7. Bank of Montreal (BMO)8. Brookfield Asset Management (BAM.A)
9. Canadian Natural Resources (CNQ)10. Canadian Imperial Bank of Commerce (CM)
With the exception of Canadian National Railway, each of the 10 largest companies in Canada are either energy businesses or financial in nature. Make no mistake – if you’re a Canadian investor looking to bolster your exposure in either of these sectors (especially financials) then there is likely to no need to invest south of the border. Otherwise, it makes sense to consider stocks that trade on United States exchanges.
Once the decision to allocate to U.S. stocks has been made, how can you find high-quality businesses south of the border?
At Sure Dividend, we specifically look for businesses with high probabilities of paying rising dividends overtime. With this in mind, the Dividend Aristocrats Index is an excellent place to hunt for new investment ideas. The Dividend Aristocrats Index is comprised of 53 companies with 25+ years of consecutive dividend increases.
Why the Dividend Aristocrats? Well, the performance of the Dividend Aristocrats over time has been truly remarkable. Over the 10-year period ending May 31, 2018, the Dividend Aristocrats have delivered 12.0% annualized total returns. For context, the S&P 500 has delivered only 9.1% annualized total returns during the same time period. The Dividend Aristocrats have outperformed the S&P 500 by 2.9% per year over a 10-year stretch.
What’s even more remarkable is that the Dividend Aristocrats have generated this outperformance with less risk. The Dividend Aristocrats Index has had an annualized standard deviation of 14.1% over the last decade while the S&P 500’s standard deviation has been 15.0% over the same time period. The Dividend Aristocrats have also experienced much smaller drawdowns during bear markets. In 2008 – the worst of the financial crisis – the Dividend Aristocrats Index fell by 21.9% while the S&P 500 fell by 37.0%.
Importantly, the Dividend Aristocrats have a much more
Canadian MoneySaver z https://www.canadianmoneysaver.ca z JULY/AUGUST 2018 z 31
MoneyTip
balanced profile than the Canadian stock market when it comes to sector diversification. In fact, the Dividend Aristocrats Index is underweight in the precise areas that the Canadian markets are overweight – making them a perfect complement to a Canadian investor’s portfolio.
In the next section of this two-part series, we examine the details of this complimentary sector diversification and
explain the exact strategies that individual investors can use to gain exposure to the U.S. stock market.
This article was contributed by Nick McCullum of Sure Dividend, an investment newsletter provider aimed at helping people invest better through taking low-cost, long-term positions in individual stocks.
Goodbye Tax On TaxDoing income taxes can be challenging. You have to deal with both the Canadian and provincial/territorial regimes, with multiple brackets and rates for each.
Add surtaxes and it verges on a superhuman feat to calculate tax without dedicated software, let alone to understand where it’s all going and why.
PURPOSE AND PLACE FOR SURTAXSurtax is a tax on tax, but it’s not double taxation. Rather, it is a way to use a common base to calculate tax for two different purposes—or in the case of personal income tax, two different tax collectors.
Historically, many provinces calculated their taxes as a percentage of federal taxes. Today, each province applies its own calculation, though most continue to have CRA collect that revenue on their behalf.
Though surtaxes no longer serve the purpose of piggybacking off the federal calculation, they still exist in some provincial tax formulas. Provinces have modernized by weaning away from surtaxes, with only one holdout remaining after the March 2018 Ontario budget.
ONTARIO ELIMINATES SURTAXIn its 2018 budget, Ontario took the overdue step to eliminate the surtax from its personal income tax calculation. Once enacted, that will leave P.E.I as the only province or territory with a personal income surtax.
Ontario’s surtax applies to its own tax calculation based on five brackets, with surtax rates of 20% (to Ontario tax between $4,638 and $5,963) and 56% (to Ontario tax greater
than $5,936). The proposed changes would create seven brackets applied directly to taxable income, as outlined in Table 1.
Under pre-budget rates, Ontario charges 9.15% from $42,960 up to the first application of surtax at $75,653. With the new 11% bracket beginning at $71,500, there’s an extra 1.85% as soon as you break that threshold. The extra tax is about $150 by $90,000, and peaks at $221 in the top bracket.
Eliminating the surtax also reduces the value of non-refundable tax credits for those previously subject to surtaxes. For example, the basic personal credit is worth $523 in 2018, but those subject to the 56% surtax would have gotten an additional $293. Nixing the surtax makes the value of these credits the same for all taxpayers, meaning that higher earners will see their taxes owing climb.
As these changes are to be retroactive to the beginning of 2018, payroll withholding amounts to date will have been too low for some Ontarians (earners making more than $71,500 per year). To address this, withholding rates will be reset on July 1 as part of the legislative package.
OVERALL, BETTER TRANSPARENCYWhile perhaps efficient for calculation and collection purposes at one time, surtax complicates our ability to understand taxes. Even when apparently in plain sight, the net effect, in practice, can be far from transparent.
As one final example, a few years ago Ontario introduced a new top bracket that it promoted as being 2% above
the existing top rate. In truth, including the 56% surtax, it was effectively 3.12% above. Elimination of the surtax will make communication of future rate changes clearer.
Source: advisor.ca
Table 1: Removing The Ontario SurtaxPre-budget Proposed
Bracket from Tax rate Rate + surtax Bracket from Tax rate
$0 5.05% 5.05% $0 5.05%
$42,960 9.15% 9.15% (or 10.98% or 14.98%, depending on the surtax rate)
$42,960 9.15%
$71,500 11.00%
$82,000 13.5%
$85,923 17.41% 17.41% $92,000 17.5%
$150,000 18.97% 18.97% $150,000 19.00%
$220,000 20.53% 20.53% $220,000 20.53%
Doug Carroll, JD, LLM (Tax), CFP, TEP, is Practice Lead — Tax, Estate & Financial Planning at Meridian.
32 z Canadian MoneySaver z https://www.canadianmoneysaver.ca z JULY/AUGUST 2018
Q I am a retiree with about the same income every year. I am planning to sell an income property in the near future. I know that exceeding a certain income level there is a clawback with the old age pension. Therefore I would lose it all for a year. I turned 65 in December 2017. If I sell the property this year, I will apply in January 2019 with retroactivity of 11 months to be taxable in 2019 in an effort to save taxes.
After speaking with the department of old age pension; I understood that if somebody has a year with a exceptional difference in his income the clawback can be avoided. The OAS representative told me that I have to fill out a T1213OAS the year after the sale after receiving the notice of assessment of that year. I have to fill out another one a few months after in November; by doing so I will not have any clawback at all. I would like to know if it is true.
CMS Reader
A I assume you have decided to take you Old Age Security (OAS) at 65 and are now receiving it.
I mention this as it now possible to defer taking OAS to as late as 70 and, in doing so, a higher OAS can be received later.
If you have not elected to receive OAS at 65 you may wish to wait until 2019 to receive it as you will have a high income in 2018 due to the income property sale so all or a portion of the OAS you received in 2018 may be required to be paid back (i.e., “clawed back”).
Getting back to your question, I don’t agree with all your comments. Assuming you are now receiving OAS , the good news is that the OAS will only be clawed back for one year. This will be for 2018 assuming you do sell your income property and incur a significant capital gain and/or recapture of past claims for capital cost allowance (CCA, depreciation for income tax purposes).
The amount of 2018 OAS you need to repay (i.e., the amount clawed back) will be calculated as part of your 2018 personal tax return preparation. Presumably, this return will be filed in April 2019 and assessed by CRA shortly after. You will receive OAS as expected for January to June 2019.
In late June or early July 2019 you will receive a letter stating that due to the level of income your reported on 2018 personal income tax return, all - or a portion of - your OAS for the period of July 2019 to June 2020 is going to be clawed back.
However, as you know your 2019 income will not be as high as 2018 you can file the T1213OAS and request that clawback be adjusted to what it should be based (perhaps $nil clawback) on your estimated 2019 income.
The filing of the T1213OAS is optional. If you do not file the OAS will be clawed back. However, you will be made “whole” once your 2019 tax return has filed. Any clawback in 2019 that process to be in excess of what it should be will be paid to you as an increase in your 2019 income tax refund or a decrease in your 2019 tax liability.
BRIAN J. QUINLAN, CPA, CA, CFP, TEP | PARTNERCampbell Lawless LLP, Chartered Professional Accountants BJQ@CLCPA.CA
Q My wife & I own 100% of a Canadian Private Company that invests solely in ETF's. Approximately 30% of its current funds are part of the Shareholders Loan account, whose funds are from the salary & dividends declared but not withdrawn from the corporation. The investment portfolio has increased by 40% over the last few years. As part of the investment increase is attributed to the Shareholders Loan account's funds, can the Shareholders Loan be increased proportionally, to the increase in the investments?
CMS Reader
Canadian MoneySaver z https://www.canadianmoneysaver.ca z JULY/AUGUST 2018 z 33
A Sadly, the answer is “no”.
The “shareholders’ loan account” – often referred to as the “due to shareholders” liability account on the balance sheet of the corporation – can usually be removed for the corporation on a tax-free basis as it is comprised of amounts that have already been taxed. As you noted, the account has been increased by the after (personal income ) tax amounts of –
• Salary you and your wife are owed but not yet paid (despite that the gross salaries were included in your and your wife’s personal income tax returns) and
• Dividends you and your wife are owed but not yet paid (despite that the gross dividends were included in your and your wife’s personal income tax returns) .
If you and you wife had charged interest on the amounts – and not received the amounts – the unpaid interest would be added to the “due to shareholder” amount. The corporation would have received an income tax deduction for the accrued interest but you and your wife would have had an annual interest inclusion in your personal income. It is usually best not charge interest on “due to shareholder” amounts.
One way to increase the “due to shareholder” account – without incurring any personal or corporate income tax – is to have the corporation declare a “tax free” capital dividend to you and your wife. To the extent this dividend is declared and not paid to you and your wife the amount is added to the “due to shareholder” account. The amount of the corporate debt to you and your wife can be paid as the corporation’s cash flow permits and/or you and your wife have a need for the funds.
A “tax free” capital dividend can be paid to the extent of the corporation’s capital dividend account. The capital dividend account is a corporate income tax term. The dollar amount of the account represents the tax-free portion of net capital gains the corporation has realized since inception, net of capital dividends previously paid. The amount can be paid to shareholders – or simply added to the “due to shareholder” liability – on a tax-free basis upon filing of a capital dividend election (tax form T2054 plus attachments) with Canada Revenue Agency.
BRIAN J. QUINLAN, CPA, CA, CFP, TEP | PARTNERCampbell Lawless LLP, Chartered Professional Accountants BJQ@CLCPA.CA
You must accompany your inquiry with your Membership Number (ID) and telephone number or e-mail to have your question reviewed. Inquiries are responded to directly and the Q&A may be published here later. Hundreds of Q&As are found on www.CanadianMoneySaver.ca
Q I currently have a US dollar margin account that I invested in 4 Vanguard ETFs: VTI (50%), VXUS (25%), BND (20%), and VNQ (5%). I feel that this is a well diversified and very low cost portfolio that generates about $3500 US each year (before withholding taxes) and is up 20%. I am wondering if there are any tax advantages and an opportunity to generate more annual US dollars by shifting into a portfolio of ~15 US dividend achievers (eg. Johnson & Johnson, Procter & Gamble, Pepsi, Coca-cola, K-Mart, etc.)? Thanks for your advice.
CMS Reader
A While we like the idea of holding a basket of blue-chip types of dividend stocks, there are some tradeoffs here. First, switching from an ETF to individual stocks does create more concentration risks where performance becomes more sensitive to results from any single stock. This can work both ways as well though, as it could also lead to higher returns than the ETF might provide. There is a time cost to this strategy as well, since it will require a bit more monitoring than a more passive ETF strategy. Some of the big 'wins' that a switch like this can lead to is no fees being paid at all, the portfolio can be tilted to higher dividend payers than what the ETF might be providing, and the return potential (along with risk) can be higher.
Overall it is really a personal decision and this looks like it is a bit of a style change (passive to more of an active tilt), so an investor needs to make sure this fits their disposition. We are ok with this strategy in general terms but there are additional risks compared to an ETF that need to be understood and embraced.
RYAN MODESTO, CFACHIEF EXECUTIVE OFFICER, 5I RESEARCH INC.
34 z Canadian MoneySaver z https://www.canadianmoneysaver.ca z JULY/AUGUST 2018
WHAT A DIFFERENCE A DECADE MAKES
always be devised. But most do not survive, because they cannot create a name for themselves and cannot acquire the substantial asset base indexers need to turn a profit.
That indexing goes hand-in-hand with industry concentration may be witnessed by the numbers. In 2008, three of the 10 largest-selling funds were indexed, with the other seven being actively managed. Today, that three has ballooned to nine. Among the 10 funds that brought in the most assets in the decade through December 2017, only PIMCO Income (PIMIX), in the number-7 spot, is actively run.
The Mightiest of Kings
The sales success of the largest funds, and the dominance of indexing, intersect in Valley Forge, Pennsylvania. Vanguard is not only larger than any U.S. fund company has ever been (although it is not the largest overall money manager; that title is held by BlackRock), but it also boasts a larger market share than any U.S. fund company has ever held. The fund-industry's pie has never been heftier, and Vanguard's slice is the widest ever cut...
Better or Worse?
The natural question is whether these changes have been beneficial. I believe so. Twenty-five years ago, the fund industry touched bottom. It had ballooned from its modest beginnings, which possessed the advantages of simplicity and relatively low cost, into something huge, costly, and overcomplicated. New fund categories came and went. Fund marketers pitched high-concept funds that attracted billions of dollars if marketed at the right time, despite having no track records.
Today's trends run in the opposite direction. While it is still huge--in that most funds proceed rather than fold--the fund industry is effectively shrinking. The biggest funds have become more meaningful, in the sense of determining the aggregate performance of shareholders. Meanwhile, the smaller funds matter less. As for cost and complexity, index funds have addressed those issues. They are far cheaper and more to the point than the funds that they replaced.
There remains the legitimate concern that index funds in general, and Vanguard specifically, have become dangerously large. In past columns, I have downplayed those worries by pointing out that active managers still control more assets than not and by questioning just how much damage a passive investment strategy that has gradual inflows and outflows can inflict on the financial markets. Those arguments continue to be valid. However, each year strengthens the prevailing trends--meaning that, at some point, the anxieties may be valid. Sometimes, there can be too much of even a good thing.
Source: John Rekenthaler, columnist for Morningstar.com and a member of Morningstar's investment research department. John is quick to point out that while Morningstar typically agrees with the views of the Rekenthaler Report, his views are his own.
On Twitter, my boss marveled at how thrifty index-fund buyers have become. Indexers have always watched their pennies; such is their nature. However, in recent years their penchant for paying the least has developed into a demand. Over the past decade, revealed Jeff Ptak, the cheapest 10% of S&P 500 funds received more than 100% of that sector's net inflows. Every one of the remaining nine deciles suffered net outflows.
That surprised both of us. We knew that investors had become more cost-conscious, such that the 366 index mutual funds that carry expense ratios exceeding 1% were headed for extinction. What we had not understood was how discerning fund consumers had become. In fact, when poring over the numbers, Ptak learned that being among the low-cost 10% wasn't enough. Only the cheapest 5% of S&P 500 funds enjoyed net sales. The next 5% had outflows, too.
In that spirit, I will offer what I think have been the three most notable trends in the U.S. fund industry over the past decade. (While this material is U.S.-only, it may nonetheless be relevant for overseas markets, which often follow American patterns.) With this exercise, I have combined mutual funds and exchange-traded funds, as the two fund types are largely interchangeable and serve similar customers.
The Biggest Funds Have Prospered Most
Today's most-popular funds receive a higher percentage of inflows than did their predecessors.
Entering 2008, the 10 best-selling funds over the previous decade (that is, from January 1998 through December 2007) had received just under 20% of total industry net inflows. ("Industry," once again, is defined as mutual funds plus ETFs.) For the trailing 10 years ended December 2017, that figure jumped to almost 31%. In short, the industry is consolidating. The big sales winners are getting more, and the other funds are receiving less.
The consolidation appears even larger when looking at the raw dollar amounts, because sales have increased over the years. In 2008, American Funds Growth Fund of America (RGAGX) was the top-selling fund, attracting $107 billion of net new assets over the previous 10 years. Nice work if you can get it, but outdone by five funds during the next decade, including two that exceeded $200 billion in net sales...
The Reason Is Indexing
You probably have guessed why more money is going into fewer funds: indexing. There are many ways to invest actively--enough to support several thousand funds that can credibly claim to be different (and better) than others. In contrast, there are far fewer paths for indexing. To be sure, new indexes can
This column offers excerpts from published and online sources to provide other viewpoints.
Canadian MoneySaver z https://www.canadianmoneysaver.ca z JULY/AUGUST 2018 z 35
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gr:
We
have
add
ed t
he fi
ve-y
ear d
ivid
end
grow
th ra
te t
o ou
r cha
rt, i
nfor
mat
ion
obta
ined
from
Blo
ombe
rg L
P.Ea
rnin
gs a
re fo
rwar
d ea
rnin
gs e
stim
ates
. Yi
eld
= Di
vide
nd d
ivid
ed b
y cu
rren
t pr
ice.
Pay
out
rati
o =
divi
dend
div
ided
by
earn
ings
per
sha
re (
EPS)
. Th
e di
vide
nd p
ayou
t ra
tio
is s
impl
y ca
lcul
ated
by
divi
ding
the
com
pany
’s d
ivid
end
by i
ts f
orw
ard
(est
imat
ed)
earn
ings
. If
a c
ompa
ny w
ith
a lo
w p
aym
ent
rati
o ex
peri
ence
s an
ear
ning
s de
clin
e, i
t m
ay c
onti
nue
to p
ay t
he s
ame
divi
dend
. Or
, at
leas
t, it
may
wea
ther
the
dow
ntur
n w
itho
ut c
utti
ng t
he
divi
dend
. A h
igh
divi
dend
pay
out
rati
o of
100
% in
dica
tes
that
the
div
iden
d pa
yout
is e
qual
or a
bove
the
com
pany
’s e
arni
ngs.
The
refo
re, o
ne s
houl
d be
ver
y vi
gila
nt a
nd p
lace
the
sto
ck o
n yo
ur “
wat
ch”
list.
Calc
ulat
ion
for
inte
rest
equ
ival
ent
of d
ivid
end
yiel
d fo
r el
igib
le s
hare
s: (
100
- m
argi
nal r
ate
for
divi
dend
s) d
ivid
ed b
y (1
00 -
mar
gina
l tax
rat
e on
reg
ular
inco
me)
. Fo
r ex
ampl
e, a
n On
tari
o ta
xpay
er w
ith
ordi
nary
inco
me
of $
65,5
14 u
ses:
(10
0 –
11.7
2) d
ivid
ed b
y (1
00 –
31.
15)
is a
ppro
xim
atel
y 1.
2822
. The
refo
re, a
sto
ck w
ith
a Ca
nadi
an d
ivid
end
yiel
d of
5.0
% h
as a
n eq
uiva
lent
inte
rest
retu
rn o
f 5.0
x 1
.282
2,
whi
ch is
app
roxi
mat
ely
6.41
%.
Divi
dend
incr
ease
s: B
MO
(+$0
.03)
, H (
+$0.
01),
NA
(+$0
.02)
.
36 z Canadian MoneySaver z https://www.canadianmoneysaver.ca z JULY/AUGUST 2018
TOP FUNDSTO
P FU
NDS
RAN
KED
BY F
IVE-
YEAR
RET
URN
AS
OF J
UN
E 11
, 201
8
Fund
Nam
e1
Mon
th
Retu
rn
(mth
-end
)
3 M
onth
Re
turn
(m
th-e
nd)
6 M
onth
Re
turn
(m
th-e
nd)
YTD
Ret
urn
(mth
-end
)1
Year
Ret
urn
(mth
-end
)3
Year
Ret
urn
(mth
-end
)5
Year
Ret
urn
(mth
-end
)10
Yea
r Re
turn
(m
th-e
nd)
15 Y
ear
Retu
rn
(mth
-end
)
Yiel
d 12
M
oM
ERM
gmt
Fee
Tota
l Ass
ets
($M
il)
CAN
AD
IAN
FIX
ED I
NCO
ME
Com
pass
Con
serv
ativ
e Ba
lanc
ed P
ort
Sr O
0.99
1.27
1.21
1.11
4.10
5.49
7.43
7.68
7.69
2.72
0.03
-48
70.0
2CI
BC B
alan
ced
Inde
x Pr
emiu
m1.
792.
030.
900.
973.
824.
606.
89-
-3.
520.
390.
7563
0.19
Fide
lity
Bala
nced
Inc
ome
Priv
Poo
l F0.
921.
230.
941.
691.
613.
766.
67-
-0.
340.
850.
6030
10.7
8SE
I In
com
e 40
/60
Cl O
1.20
1.39
0.92
1.25
3.12
4.09
6.57
5.64
6.42
1.17
0.21
-55
8.00
Quad
rus
Mod
erat
e Fo
lio N
0.67
0.94
0.36
0.75
2.08
4.08
6.23
--
1.93
--
239.
87N
EI E
thic
al S
elec
t Cn
srv
Port
Ser
I0.
970.
820.
280.
732.
183.
936.
15-
-1.
44-
-15
9.09
Man
ulif
e Si
mpl
icit
y M
oder
ate
F0.
910.
38-0
.09
0.30
2.09
3.66
6.02
--
2.48
1.14
1.00
278.
23Ax
iom
Bal
ance
d In
com
e Po
rtfo
lio C
lass
F1.
201.
220.
530.
822.
573.
855.
844.
89-
1.79
1.20
0.90
139.
62N
atio
nal B
ank
Mod
erat
e St
rate
gic
Port
1.17
0.55
0.41
1.18
2.69
3.53
5.50
4.35
5.01
0.00
-1.
65-
Sym
met
ry C
onse
rvat
ive
Port
F0.
790.
670.
380.
502.
303.
825.
50-
-0.
271.
030.
7517
76.8
2M
acke
nzie
Inc
ome
F0.
850.
58-0
.19
0.27
0.97
3.54
5.49
5.06
5.81
2.38
1.01
0.75
1147
.34
Mer
itag
e M
oder
ate
Inve
stm
ent
Port
F1.
201.
09-0
.05
0.42
1.78
3.69
5.40
5.21
-1.
591.
220.
9020
3.67
Har
mon
y Co
nser
vati
ve P
ortf
olio
Wra
p Se
r1.
051.
140.
831.
211.
773.
335.
314.
93-
2.67
0.42
0.00
57.9
4Le
ith
Whe
eler
Inc
ome
Adva
ntag
e Se
ries
B0.
440.
59-0
.11
-0.4
12.
834.
675.
30-
-1.
950.
851.
0083
.78
Man
ulif
e Si
mpl
icit
y M
oder
ate
Adv
0.82
0.14
-0.5
7-0
.10
1.09
2.74
5.10
3.91
-2.
232.
131.
7527
8.23
HSB
C W
orld
Sel
ecti
on D
vrs
Mod
Cns
rv I
nv0.
620.
50-0
.40
-0.3
51.
593.
165.
063.
90-
1.15
1.69
1.50
372.
14N
EI S
elec
t Co
nser
vati
ve P
ortf
olio
Ser
F0.
760.
37-0
.45
-0.0
31.
473.
084.
89-
-3.
741.
120.
7525
9.20
Mer
itas
Inc
ome
& G
row
th P
ortf
olio
F0.
960.
890.
240.
761.
023.
234.
86-
-1.
181.
150.
8037
1.38
Dyna
mic
Edge
Def
ensi
ve P
ortf
olio
Ser
ies
I0.
610.
480.
050.
661.
723.
214.
84-
-5.
520.
190.
7023
9.46
Tang
erin
e Ba
lanc
ed I
ncom
e Po
rtfo
lio1.
090.
77-0
.10
0.39
0.43
2.60
4.82
4.34
-0.
001.
070.
8037
4.29
CAN
AD
IAN
FO
CUSE
D E
QU
ITY
Fide
lity
Cana
dian
Gro
wth
Com
pany
Sr O
4.44
5.08
10.6
610
.90
20.6
414
.48
19.9
112
.12
14.0
90.
000.
01-
4951
.22
Fide
lity
Cana
dian
Gro
wth
Com
pany
Sr F
4.34
4.80
10.0
610
.40
19.3
313
.22
18.5
810
.86
12.7
70.
001.
120.
8549
51.2
2M
acke
nzie
Can
adia
n Gr
owth
F2.
233.
645.
976.
8110
.30
11.6
417
.35
8.97
10.5
50.
381.
331.
0016
00.4
9M
acke
nzie
Can
adia
n Gr
owth
A2.
133.
345.
366.
309.
0510
.36
16.0
47.
779.
350.
302.
462.
0016
00.4
9Br
ande
s Ca
nadi
an E
quit
y I
-0.8
90.
51-0
.07
-0.1
51.
5610
.70
15.2
812
.67
8.46
0.00
0.00
-45
.60
Uni
ted
Cana
dian
Equ
ity
Grow
th C
orp
Cl W
0.63
4.65
2.36
1.73
3.32
7.58
13.8
19.
80-
0.56
0.22
-17
7.84
Man
ulif
e Di
vide
nd I
ncom
e Pl
us F
4.22
2.31
10.2
65.
7225
.92
11.6
013
.72
--
0.19
1.18
1.00
1004
.44
NEI
Nor
thw
est
Cana
dian
Equ
ity
Seri
es I
2.66
2.03
2.64
3.20
11.2
19.
6512
.73
9.23
-2.
11-
-23
7.31
Cano
e Eq
uity
Cla
ss S
erie
s F
1.62
4.07
2.74
2.33
7.14
7.15
12.7
2-
-0.
701.
291.
1019
2.28
Sun
Life
Sen
try
Valu
e Cl
ass
I2.
334.
341.
211.
297.
188.
0412
.57
--
1.16
0.06
-96
.41
CI S
igna
ture
Sel
ect
Cdn
Corp
Cl I
T5
3.20
3.60
3.46
2.03
13.9
99.
4912
.26
7.97
-0.
93-
-10
97.3
6U
nite
d Cd
n Eq
uity
Gro
wth
Poo
l Cla
ss F
0.51
4.32
1.64
1.14
1.93
5.98
12.0
98.
12-
0.00
1.25
1.50
256.
46Be
utel
Goo
dman
Nor
th A
mer
ican
Foc
us E
q D
1.23
0.58
0.38
-0.0
96.
679.
7911
.97
8.18
8.93
0.50
1.51
1.25
45.9
8RB
C N
orth
Am
eric
an V
alue
Ser
ies
O2.
692.
421.
190.
668.
818.
4711
.56
--
0.97
0.03
-32
18.2
8St
eady
hand
Equ
ity
2.29
3.79
0.90
1.73
5.02
7.16
11.5
26.
91-
0.58
1.42
1.42
108.
94N
BI C
anad
ian
All C
ap E
quit
y F
0.62
4.46
1.73
0.88
1.68
7.00
11.4
4-
-0.
001.
351.
0079
2.69
Thor
nmar
k En
hanc
ed E
quit
y3.
282.
156.
434.
6815
.32
9.06
11.3
54.
6312
.45
15.7
91.
941.
35-
Sent
ry D
iver
sifi
ed E
quit
y I
1.40
3.29
1.01
1.33
4.59
5.97
11.2
7-
-0.
000.
13-
118.
97In
vesc
o Ca
nadi
an P
rem
ier G
row
th C
l I1.
794.
082.
833.
013.
786.
1011
.24
6.93
10.9
72.
55-
-33
6.51
Uni
ted
Cdn
Equi
ty G
row
th P
ool C
l A0.
424.
061.
140.
710.
924.
9210
.96
6.99
-0.
002.
922.
5025
6.46
Canadian MoneySaver z https://www.canadianmoneysaver.ca z JULY/AUGUST 2018 z 37
TOP FUNDSTO
P FU
NDS
RAN
KED
BY F
IVE-
YEAR
RET
URN
AS
OF J
UN
E 11
, 201
8
Fund
Nam
e1
Mon
th
Retu
rn
(mth
-end
)
3 M
onth
Re
turn
(m
th-e
nd)
6 M
onth
Re
turn
(m
th-e
nd)
YTD
Ret
urn
(mth
-end
)1
Year
Ret
urn
(mth
-end
)3
Year
Ret
urn
(mth
-end
)5
Year
Ret
urn
(mth
-end
)10
Yea
r Re
turn
(m
th-e
nd)
15 Y
ear
Retu
rn
(mth
-end
)
Yiel
d 12
M
oM
ERM
gmt
Fee
Tota
l Ass
ets
($M
il)
ASI
A P
ACI
FIC
EQU
ITY
Fide
lity
Asia
Star
Ser
ies
O3.
461.
935.
787.
0420
.97
12.4
415
.34
9.56
-0.
00-
-10
3.26
RBC
Asia
n Eq
uity
Sr O
2.23
0.82
4.38
5.35
14.9
511
.49
13.9
45.
54-
0.00
0.04
-83
.69
Fide
lity
Asia
Star
Ser
ies
F3.
361.
635.
166.
5219
.54
11.0
913
.94
8.21
-0.
001.
230.
8510
3.26
Fide
lity
Asia
Star
Cla
ss F
3.36
1.62
5.15
6.51
19.5
511
.09
13.8
78.
06-
0.00
1.21
0.85
11.0
1In
vesc
o In
do-P
acif
ic F
-1.7
9-2
.94
0.63
-0.1
59.
359.
3313
.72
8.93
10.4
40.
001.
431.
0053
.66
CIBC
Asi
a Pa
cifi
c2.
970.
280.
533.
2612
.04
10.6
013
.22
7.23
7.95
0.00
2.75
2.50
143.
86RB
C As
ian
Equi
ty S
r F2.
160.
603.
944.
9813
.98
10.5
312
.82
4.52
7.24
0.00
0.90
0.75
83.6
9Fi
delit
y As
iaSt
ar S
erie
s B
3.26
1.34
4.56
6.01
18.1
99.
8212
.63
6.98
-0.
002.
371.
8510
3.26
Fide
lity
Asia
Star
Cla
ss B
3.26
1.33
4.57
6.01
18.2
39.
8412
.61
6.91
-0.
002.
341.
8511
.01
RBC
Asia
n Eq
uity
Sr D
2.14
0.53
3.79
4.85
13.6
610
.22
12.5
34.
26-
0.00
1.18
1.00
83.6
9Fi
delit
y As
iaSt
ar S
erie
s A
3.25
1.29
4.46
5.92
17.9
69.
6012
.39
6.75
-0.
002.
572.
0010
3.26
Fide
lity
Asia
Star
Cla
ss A
3.25
1.30
4.48
5.94
17.9
99.
6312
.38
6.68
-0.
002.
542.
0011
.01
CIBC
Asi
a Pa
cifi
c In
dex
Prem
ium
0.19
-0.7
41.
802.
899.
447.
7612
.25
--
1.81
0.63
0.75
46.0
9FÉ
RIQU
E As
ia0.
55-1
.64
1.62
2.33
10.1
77.
9712
.16
6.20
7.92
1.44
1.25
1.75
156.
37In
vesc
o In
do-P
acif
ic-1
.92
-3.3
3-0
.15
-0.8
07.
627.
7212
.08
7.39
8.84
0.00
2.97
2.00
53.6
6In
vest
ors
Pan
Asia
n Eq
uity
Cla
ss J
DSC
1.54
-0.0
12.
603.
1311
.27
7.72
11.7
5-
-0.
402.
461.
7036
.06
Dyna
mic
Asi
a Pa
cifi
c Eq
uity
Ser
I2.
281.
516.
265.
4219
.47
7.64
11.4
69.
61-
1.16
0.16
1.00
152.
98CI
Pac
ific
Cla
ss F
0.30
-1.6
62.
942.
356.
236.
3310
.23
4.98
8.33
1.27
1.35
1.00
35.4
5Dy
nam
ic A
sia
Paci
fic
Equi
ty S
er F
2.22
1.27
5.69
4.90
18.0
96.
3910
.10
8.02
10.3
10.
231.
321.
0015
2.98
Scot
ia P
acif
ic R
im2.
501.
125.
765.
0119
.09
5.84
8.75
2.55
5.83
0.00
2.33
1.75
18.7
5
CH
ART
NO
TES
For
info
rmat
ion
on t
he c
ateg
ory
defi
niti
ons,
ple
ase
visi
t ht
tp:/
/ww
w.c
ifsc
.org
/en/
inde
x.ph
p. F
ront
loa
d fu
nds
(Frn
t) c
harg
e a
fee
to i
nves
tors
whe
n un
its
are
purc
hase
d; d
efer
red
load
fund
s (D
ef)
char
ge a
fee
whe
n un
its
are
rede
emed
. Fro
nt lo
ads
may
be
redu
ced
(in
per c
ent
term
s) a
s th
e si
ze o
f the
inve
stm
ent
incr
ease
s;
defe
rred
load
s m
ay d
ecre
ase
as t
he t
ime
elap
sed
betw
een
purc
hase
and
rede
mpt
ion
leng
then
s. S
ome
fund
s ha
ve e
ithe
r a fr
ont
load
or a
def
erre
d lo
ad (
FnDf
). O
ther
s
have
no
load
fee
(Non
e). D
efer
red
sale
s ch
arge
s al
so k
now
n as
a b
ack-
end
load
, the
se d
efer
red
char
ges
typi
cally
go
dow
n ea
ch y
ear y
ou h
old
the
fund
, unt
il ev
entu
ally
they
reac
h ze
ro. D
efer
red
sale
s ch
arge
s gi
ve in
vest
ors
an in
cent
ive
to b
uy a
nd h
old,
as
wel
l as
a w
ay t
o av
oid
som
e sa
les
char
ges.
n Y
ear R
etur
n -
The
aver
age
annu
al
com
poun
d (a
nnua
lized
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38 z Canadian MoneySaver z https://www.canadianmoneysaver.ca z JULY/AUGUST 2018
Specialty ETFsTOP EXCHANGE TRADED FUNDS RANKED BY FIVE-YEAR RETURNS AS OF JUNE 11, 2018 Fund Name Ticker Mkt Tot Return
YTD(Current)
Mkt Tot Ret 1 Mo
(Current)
Mkt Tot Ret 3 Mo (Current)
Mkt Tot Ret 12 Mo
(Current)
Mkt Tot Ret 3 Yr
(Current)
Mkt Tot Ret 5 Yr
(Current)
Mkt Tot Ret urn Since Incept
(Current)
iShares S&P/TSX Capped Info Tech ETF XIT 20.48 7.31 8.09 23.44 15.58 19.63 3.66
BMO NASDAQ 100 Equity Hedged to CAD ETF ZQQ 8.72 5.43 1.61 20.29 15.86 19.15 17.85
iShares NASDAQ 100 ETF (CAD-Hedged) XQQ 8.65 5.53 1.53 20.19 15.75 19.00 16.94
PowerShares QQQ ETF QQC.F 8.64 5.59 1.44 20.42 15.89 18.92 18.56
BMO China Equity ETF ZCH 10.14 4.92 3.32 22.66 10.52 18.82 9.99
First Asset TecGntsCovCallETF Comm(CADH) TXF 9.25 6.40 2.38 23.58 19.47 18.69 16.65
BMO S&P 500 ETF (CAD) ZSP 5.04 3.40 1.12 9.39 11.98 17.62 20.03
Vanguard S&P 500 ETF VFV 5.03 3.36 0.94 9.37 12.06 17.61 20.09
Horizons S&P 500 ETF HXS 4.98 3.18 0.76 9.40 12.00 17.59 16.95
iShares Core S&P 500 ETF XUS 5.06 3.26 1.06 9.36 12.06 17.58 -
BMO US Dividend ETF (CAD) ZDY 3.66 1.97 2.46 7.23 13.35 17.54 -
iShares Edge MSCI Min Vol USA ETF XMU 3.12 2.25 2.15 3.81 11.45 16.51 17.13
BMO Low Volatility US Equity ETF (CAD) ZLU 0.33 0.20 0.63 -1.88 8.68 16.30 -
iShares US Fundamental ETF Comm CLU.C 2.69 2.32 1.17 6.84 9.50 15.29 16.73
BMO India Equity ETF ZID -2.05 0.29 -1.65 4.99 9.11 15.05 7.27
BMO Eq Wght US HlthCare Hdgd to CAD ETF ZUH 1.52 2.28 -0.79 11.48 4.79 14.98 -
iShares S&P/TSX Capped Cnsmr Stpls ETF XST -4.29 0.32 -0.44 -5.01 6.57 14.76 15.41
iShares MSCI World ETF XWD 3.54 1.61 0.63 6.66 8.86 14.00 12.51
iShares India ETF XID -1.06 -0.23 0.54 0.53 7.18 13.57 -
iShares Global Water ETF Comm CWW -0.67 1.05 2.13 1.62 8.08 13.45 6.49
iShares Edge MSCI Min Vol Global ETF XMW 2.43 1.15 0.86 2.14 8.25 13.34 13.86
BMO Equal Weight Banks ETF ZEB -1.19 1.72 0.08 13.57 12.22 13.33 11.85
First Asset Mstar NatlBk Québec ETF Comm QXM 0.47 3.75 3.66 12.72 7.14 13.22 13.86
BMO Eq Weight US Banks Hedged to CAD ETF ZUB 1.34 -0.70 -4.37 22.68 13.84 13.05 -
BetaPro S&P/TSX 60 2x Daily Bull ETF HXU -1.69 6.35 8.39 11.88 6.98 13.01 3.51
iShares China ETF XCH 4.87 0.93 -0.03 14.83 2.40 12.85 -
BMO S&P 500 ETF (USD) ZSP.U 1.89 2.60 0.40 14.08 10.60 12.36 14.78
Horizons Active Global Dividend ETF Comm HAZ -2.36 1.92 -0.63 0.20 6.65 12.31 -
iShares Equal Weight Banc&Lfco ETF Comm CEW -2.49 0.37 -0.46 12.76 10.42 12.31 8.31
Vanguard S&P 500 ETF CAD-H VSP 1.16 2.30 -0.11 13.15 9.84 12.23 14.52
iShares Core S&P 500 ETF (CAD-Hedged) XSP 1.15 2.30 -0.13 12.83 9.79 12.21 3.80
BMO US Dividend ETF (USD) ZDY.U 0.87 1.16 0.32 12.32 11.90 12.20 -
BMO S&P 500 Hedged to CAD ETF ZUE 1.06 2.30 -0.12 12.85 9.84 12.17 -
BMO Low Volatility Canadian Equity ETF ZLB -0.83 1.65 2.35 3.00 6.50 12.16 13.63
BMO US Dividend Hedged to CAD ETF ZUD -0.01 0.71 1.28 11.03 11.15 12.08 -
Vanguard US Total Market ETF CAD-H VUS 1.97 2.65 0.83 13.76 9.59 11.98 14.09
iShares Edge MSCI Min Vol EAFE ETF XMI 3.66 -0.16 1.05 1.31 6.51 11.88 -
iShares S&P/TSX Capped Financials ETF XFN -1.80 1.30 0.59 10.82 9.63 11.78 9.53
BMO Dow Jones Ind Avg Hdgd to CAD ETF ZDJ -1.47 1.15 -2.51 16.97 11.94 11.70 -
iShares US Small Cap ETF (CAD-Hedged) XSU 6.31 5.99 8.20 19.36 9.95 11.59 6.10
©2018 Morningstar. All Rights Reserved. The information, data, analyses and opinions contained herein (1) include the confidential and proprietary information of Morningstar, (2) may include, or be derived from, account information provided by your financial advisor which cannot be verified by Morningstar, (3) may not be copied or redistributed,(4) do not constitute investment advice offered by Morningstar, (5)are provided solely for informational purposes and therefore are not an offer to buy or sell a security, and (6) are not warranted to be correct, complete or accurate. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, this information, data, analyses or opinions or their use. This report is supple-mental sales literature. If applicable it must be preceded or accompanied by a prospectus, or equivalent,and disclosure statement.
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