Claymore S&P/TSX Canadian Preferred Share ETF
I recently came across a Claymore Canadian Preferred Share ETF article written by Rob Carrick of the Globe And Mail. Although I’m by no mean a preferred share guru, I can’t help but feeling leery about the impeccable timing of this release. Just a few months after our finance minister derailed the income trust gravy train, income-seeking investors are now crying for second best options. There is one important lesson I learned during the dot com era: the financial industry creates new products for investors who are too late in the game. This trend never fails. You have technology in the late 90’s, resource and income trusts in early 2000, and now preferred shares. Who knows? Maybe this time is different, but James Hymas from Hymas Investment Management doesn’t think so. To quote Mr. Hymas, who is a formidable force in preferred share:
This construction difference is apparent from the release. The top three constituents are GWO.PR.X, BCE.PR.A and BCE.PR.C. You know what I like? I like indices that are easy to beat, that’s what I like. I might even be able to earn my fees just by avoiding those things and closet indexing the rest of the portfolio!
Unlike common shares, the preferred share world is complex, illiquid and inefficient. This is one of those rare cases, where I believe active management by a preferred share veteran like James Hymas can add value. Too bad I don’t have the net worth or minimum income required to buy his funds.
The preferred share index that the ETF is tracking is yielding 4.66%. In theory, if you subtract the 0.45% MER from the yield, you net around 4.21%. In other words, the ETF gobbles almost one tenth of the dividends before distributing the rest to you. That’s sounds like a lot to me, but I’m not sure if it’s the going rate. Having said that, I’m still interested in adding a preferred share ETF/mutual fund as part of my diversified portfolio, although I may want to proceed after the frenzies cool off.
Folks. Do you have a suggestion or two for me? Feel free to write me a few comments.
Question on the efficiency of preferred shares:
I was under the impression that since preferred shares offer dividends at regular intervals, they will make a better dividend-income generating vehicle. Should I antipicate a significient difference in dividend yield between commmon and preferred shares?
Thank you. I like your articles.