Cash Call for Jan/Feb and shareclub notes

[selkirk]

Last year was asked to present some item on a reguluar basis for our shareclub. the main priority is to share info/opinions once a month.

so started something called cash call, which talked about high GIC/CD rates, and bonds, fixed income ect... as this is often overlooked by most investors including myself.

here is Jan and Feb Cash Call

Cash Call January 2009

Last year we started Cash Call going over a few income ETFs and explaining why they are a good investment, so since not much has changed in a year:

The first two are core positions for Canadian investors, the third one is higher risk/reward and should be watched and maybe purchased in the 2nd or 3rd/4rth quarter.

XSB Ishares Cdn. $28.85 52wk low 28 52 wk high 29.12 yield 4.09% div $1.179
short bond index fund ETF (exchange traded fund)
This tracks the scotia short term bond index. Avg. maturity 2.56 years, hold bonds that are 1-5 year in term.
MER (management expense ratio) .30%


XBB $28.83 52 wk low 27.80 52 wk high 29.50 yield 4.50% Div $1.296
tracks the scotia bond index avg. maturity 9.21 years, holds bonds from 1-30 years. Number of holdings 201
71.82 govt. remainder corporate debt.
MER (management expense ration) .25%

51.75% AAA
24.61% AA
18.21% A
4.17% BBB

US Income HYG

HYG High Yield Corporate Bond index $77.90 yield 8.07% div $6.292
52wk. high 100.82 52 wk low 62.50
MER(management expense ratio (.50%)
Most of this debt is high yield and low credit rating BB/B, this will trade more along the lines of the equity market.

Good for cdn. investors who want exposure to some high yield debt, (Canada does not really have a high yield market.
Also very liquid and tracks and index and has low mer compared to many cdn. mutual funds in this category that have mer close to 3% or higher.

Buy this when you expect a turn in the overall US equity markets, will rise or fall with them??. Would be a small weighting in most portfolios for US dollar exposure and high yield debt.

Looking at buying some in Q2, Q4.of 2009.

 

[selkirk]

Feb 2009 Cash Call

Feb 2009 Cash Call

in Cash Call most part talk about bonds, and fixed income products...however thought would see how a buy and hold of two popular stocks (util/pipelines) would do compared to writing covered options.

will track this for at least a year....would have considered cdn. bank, or insurers but they are not performing well, and have sharply reduced my position.

main fear is the slowing economy and the downdraft caused by the US financials. will update them later as TD and Royal Bank actually posted some very good numbers....yes profitbale... will do that later as BNS, and BMO still have to report.

by the way timing was poor as TRP is now 30.90cnd (24.06US) was 33.65cdn.

enb 41.79 cdn. (38.10US) now 38.10cdn.

currently own TRP my avg. cost recently was 32cdn. and have owned ENB in a drip/spp for over 15years (almost)...return over 10% annually).

would rate them a hold however if the market weakens will add to my positons,...and yes usually write a covered call on most of these positons...form time to time. one final note the options are not near what they are for financials, energy,ag,mining,ect...more volatile sectors.

these are strong pipelines that yield 4% and these div, will acutally rise.

thanks
selkirk






Cash Call February 2009

We went over XBB, and XSB yes bonds are not a bad place to be, though the same was said last year. So let us compare two stocks that many of us own, and two different strategies.

One is buy and hold and the other Covered calls. We will update the portfolio every 3-4 months for a year.

BUY and HOLD
1000 TRP TransCanada 1000 X $33.65 = $33,650

1000 ENB Enbridge 1000 X 41.79 = $41,790

Total investment $75,440

Covered Call Portfolio

1000 TRP TransCanada 1000 X $33.65 = $33,650

Sell 10 July $36 call contract .75 1000 X.75 = $750
(so you are selling somebody the option to buy TRP off of you for $36 July, until the third Friday in July when the option expires.)

1000 ENB Enbridge 1000 X $41.79 = $41,790

Sell 10 July $44 call contracts $1.30 1000 X 1.30 = $1300
So you are selling somebody the option to buy ENB off of you for $44 July, until the third Friday in July when the option expires.

Total investment $75,440
Cash = $2050

Note: both portfolios are entitled to the dividends and that will be updated in three months. CC portfolio is giving up a certain amount of upside, for a return of cash up front.
Next update in May or June

 

[DOGS THAT BARK]

Kirk Do you have any funds similiar to XSB and XBB that are available to U.S. citizens--with emphasis on saftey vs return?

 

[selkirk]

there are a few possibilities, however my advice would be slightly different to a cdn. investor than a US investor.

such as

1. for instance a US investor should probably have some munis....in Canada there is no muni bond market and most in that area are though safe, expensive.

there are some very interesting and good opportunities...one must always be carefull as there is also more risk.

still would have some investments in munis....
in Canada would avoid.

As for etf here is some
2. AGG 52 wk high 105.32 52 wk low 90
mer .20%
has over 10 billion very liquid
25% corporate high grade bonds
remainder is in MBS, and Tbills, no junk.....well.
yield 4.36%
$100.48

BND Vanguard Total bond index
79.83 52 wk high 52 wk low 67
mer .11
4.54%
$76.34

BND has a duration of 3.7 compared to around 4.1 for AGG, so BND maybe slightly less risk and upside.




they are basically the same.....

there is an etf for tbill
IEF 7-10 year t bills
3.38%
85.80 52low 101.30 high
94.12

not a bad etf though I am scared that tbill may be overvalued.

in high yield track
HYG 62 low 100 high $65
yield 13.88%

and JNK 26.50 52 wk low 46.62 high
15.71%

in the US though as stated before not going to invest until a Q2, or Q4. this will track and trade more like equities.
these are very volatile ie. high low, will look at them starting in Q2 or when things settle down....
the default rate on high yield debt can be 15-20% when economy bottoms,....there is your risk...most priced in...though going to wait.

there is high grade corporate etf

CFT and LQD, though these have been hurt since the fall down about 10% or so, the AGG or BND flat to down 5%....depends when you buy.

CFT 6 years duration and LQD is about 7.2 years....

CFT 5.81% yield 52 low 77.23 52wk high 101.62
77.23

LQD 5.89% 76.05 106 $93.86


so for cdn. investors XBB is less volatile and a good choice for a fixed income portfolio...also XSB for short term cash.

for US investors would be more worried of downgrades to US corporate debt, (proably more upside also when there is recovery)....so would not put a large sum in any of these etfs.

would have munis

and BND or AGG
and then a little of CFT or LQD. smaller amount...as this is more volatile.

and later would have a little HYG or JNK (no more than 5-10% of an income portfolio....
as this is your kicker...sometimes the kicker kick you in the head, and you wonder why you bought it....

for more conservative probably would avoid totally HYG and JNK and put in a small amount of CFT and LQD.

thanks
selkirk