Dear Lou,

My husband and I are retired seniors. Please give me your opinion on ZEF (the BMO emerging markets bond ETF) with respect to this year’s investment for our TFSA’s. Also, would it be all right to sell some of our very-low rate GIC’s in our RRSP’s and buy ZEF instead? I would sincerely appreciate your advice.

Thank you kindly,
Luciana

Hi Luciana,

Thank you for the assignment. The BMO Emerging Bond Hedged to the CAD Index Exchange Traded Fund (ZEF TSX) will provide a more substantial yield than what you could currently get from reinvesting in a GIC but not without an increase in risk. In the current economic environment interest rates are being kept extremely low as governments of developed countries in North America and Europe struggle to kick start weak demand. In a normal business cycle lowering rates would usually have done the trick. Clearly things have changed.

The U.S. Federal Reserve recently informed investors that they intended to keep interest rates at the current level through the end of 2014. Unfortunately the Bank of Canada has little choice but to follow the same policy as our biggest trading partner. The motivation for the Bank of Canada is that higher rates would drive up the value of the loonie and put more pressure on the stumbling manufacturing sector.

The end result for investors such as you and your husband is that you are forced to take on greater risk in an effort to generate the income needed to support your retirement lifestyle. Challenging times to say the least. A review of the charts for ZEF will provide some insight as to trend, support, and resistance, which may help with your decision.

The three-year chart indicates that there fund has recently broken above resistance at $16.25 after trading in a tight range since October of 2011. Support came in at $16.00.

The six-month chart provides a view of the lift off of the 50 day moving average in late January of 2012 taking the units through resistance. The MACD and RSI look to be turning down which would suggest a retest of support.

I have to assume that your motivation in conducting due diligence on ZEF is the desire to increase income. What you can’t ignore with this and other investments is that higher returns are only available in concert with higher risk. If you are comfortable with bonds issued by the likes of Mexico, Korea, and Venezuela then the higher return is in line with your risk profile.

At the moment the trend is up and the units are holding support. In the current environment for income generating investments that’s about as good as it gets.

Make it a profitable day and happy capitalism!

Back in April you did a piece on A&W Income Fund. You suggested staying clear of it. It has dropped significantly since then. What do you think of it now?

Cheers,

Simon

Hi Simon,

Thanks for the assignment. This will be the third time analyzing the charts for A&W Revenue Royalties Income Fund (AW.UN TSX) since November of 2010. I thought it was headed for a pull back in November which it did. In April of 211 the charts  failed to provide enough evidence to encourage buying at $21.05 which retrospectively was the right call.

The charts will once again form the basis of  buy, sell, hold decisions.

The three year chart tells the story of a long advance reversing into a sell off as we came into 2011. The tell tale signs that the trend was reversing to the downside include a breach of the 50 day moving average and the uptrend line in February of 2011. In addition resistance formed in April along the 50 day moving average on several attempt to move higher.

The six month chart provides further evidence of the downtrend that has gripped the units in 2011. Notable features are the breach of the 200 day moving average in late May and the death cross that formed in mid June.

The MACD did generate a buy signal in late June which saw the units move off of support at $18.00 to $19.75 but the advance was not sustained as we came into August. Now I have to assume the selling in August was motivated by the general negative pressure in the macroeconomic environment as opposed to corporate events.

At this point what we need to confirm is support and direction. The units have support at $18.00 and are trying to climb back above $19.00 where there is another ledge of support.There is also resistance that has formed at $19.75. Best case scenario would be for the units to build a base and trade in a range between $18.00 and $1975.

The momentum indicators are not suggesting a move to the upside so it would be best to be patient and wait for signals that AW.UN is going to move higher. Currently the trend is still down so don’t get jug headed over the 7.4% yield on distributions.

Make it a profitable day and happy capitalism!

Hi;

I was wondering what your thoughts are regarding owning A+W.

Is it a good buy for someone looking for dividend income?

Many Thanks;

Doug

Hi Doug,

I last posted on A& W Revenue Royalty Income Trust (AW.UN TSX) on November 8, 2010 for Ryan. At the time it looked like the units had gotten ahead of themselves and would be pulling back. Lets check the chart and see how the units have performed and what might be in store going forward.

The three year chart outlines the pullback after November 8, 2010 from $21.05 down to $19.50. The RSI and MACD both generated sell signals at that point. The units then caught a bounce off the 50 day moving average  to the high of $24.00 in January of 2011.

Since then it failed to overcome resistance at $24.00 and has pulled back breaching the uptrend line and the 50 day moving average.

The six month chart illustrates the big move up in mid December as the units bounced off the 50 day moving average. The MACD generated a screaming buy signal at the time. The move from the $19.50 range to nearly to $24.00 in less than six weeks produced a very generous return of close to 22%. Sweet!

However as we got into February of 2011 the MACD and RSI indicated that it was time to take profits and get off the ride. You wanted to know if AW.UN would fit into your portfolio of income producing securities. I hesitate to call the distributions from the units dividends as you have, given that I do not believe that they are. I would recommend that you seek the advice of a Chartered Accountant to help you with tax issues related to the income stream.

Another thing to keep in mind is that AW.UN is a small cap company. That in and of itself implies a  higher level of risk. In addition the food services unit recently sold off 25% of its interest in AW.UN in a bought deal. Some see this as a sale at the top of the market.

With the uptrend line broken, a new downtrend established, overhead resistance along the 50 day moving average, and thinning volume I don’t think its a great time to get in.

Happy Capitalism!

Hi Lou

Just retired last November. Now I get the opportunity to listen to your comments on the McArthur Show every morning on AM980 in London.
I have  $100,000 in a GIC maturing this year. My RRSPs have been topped up and want to re-invest into an instrument that can be accessed easily should I need the cash.

Want do you think of Investing all into Canada Savings Bonds?

Thanks

Anonymous

Hello My Friend,

Congratulations on reaching the promised land with a nice piece of coin! They say retirement comes at the end because its the best part! Yours is a nice problem to have so lets look at the CSB and maybe another option.

The Canada Savings Bond is backed by the Government of Canada, and is very liquid. But to get those benefits you have to accept a low rate of return. The published rate on the 1 year CSB is 0.40%

A couple of things to keep in mind when you look at products like the CSB and GIC’s. These are designed as retail products for small investors. The way that these products are created is by shaving the yield from an underlying asset reducing your return.

The competing product for a CSB or a GIC is a Government of Canada Marketable Bond with an appropriate time frame. So one year bonds matched with one year CSB’s or GIC’s, a two year bond with two year CSB’s or GIC’s and so on.

The current quote for a Government of Canada Marketable bond is 0.54%. It may not seem like much but on your $100,000 it represents $1400 in before tax income. Even if you are at the highest marginal tax rate that still works out to about $700 which may not pay for everything but it will pay for something. There will most likely be a fee charged in buying the marketable bond so in your research make sure to consider the transaction cost.

The shaving of yield when making offers to small investors is nothing new but with the assets you have you might want to consider looking to the marketable bond market for an alternative that has the backing of the Government of Canada and is as liquid. The other thing you might want to consider is how liquid you really need to be. $100,000 in a standby fund represents a sizable opportunity cost for the comfort of near cash.

I like the fact that you have a GIC ladder that staggers maturities so not all of your fixed income investments are exposed to reinvestment risk at the same time.

MAKE IT A HUGE RETIREMENT AND HAPPY CAPITALISM!

Hi Bill,

Is this stock at its current price a good long term play. Is the divedend safe?

Tom

Hi Tom,

Boralex Power Income Fund ( BPT.UN TSX) is a power utility that operates ten power generating plants, eight in Quebec and two in New York State. The company has seven hydroelectric facilites as well as wood residue and natural gas co-generation facilities. Their wood residue plants have had troubles getting fuel as many sawmills that supplied them have shut down. The Dolbeau Power Plant has gotten caught up in AbitibiBowater’s creditor protection filing and is in the process of working its way out of those challenges.

The units offer distributions that yield 9.1% but as with all trusts the question becomes which direction it will take as we approach the January 1, 2011 deadline that will see the tax treatment of trusts change to a less favorable one. To this point management has not indicated if it will be converting to a dividend paying corporation or be looking for a buyer.

The three year chart provides a view of the steady decline in the price of the units from October of  2007 to the lows of  December of 2008. There has been recovery from the lows but the units are now struggling with resistance at $4.50 and then at $5.00.

The six month chart provides a view of the recent trading in the units of BPT.UN and what is clear is that there is support along the 200 day moving average.

When you talk about the long term potential of BPT.UN you have to take into account the January 01,2011 deadline and the implications arising from the legislated changes to the tax treatment of distributions from trusts.  In addition the distributions have been in a decline since January of 2008 when they were $0.075 per month to $0.0333 a month in January 2010.

At this point there is no indicator signalling a rise in the price of the units . Why own what is essentially an equity if it doesn’t seem to have an upside?

Happy Capitalism!

I bought Yellow Pages at around $14, obviously before the Finance Minister changed all the rules. It is now trading at around $ 5. I know management has to make some decisions before year end on what they are going to do as far remaining an income trust or converting to a company. Do you think a person should hold this stock or sell before it gets worse?

Thanks for you response.

Irwin

Hi Irwin,

About two weeks ago the 2010 Yellow Pages was delivered to my door and I had to ask myself, ” How many more years will this business last”?

I covered Yellow Pages Income Fund ( YLO.UN TSX) in June of 2009 and the case didn’t look good then and I would venture to say its not looking much better at this time.

The units are still range bound with support at $5.00 and resistance at $6.00. At its current price the distributions to unit holders yields 15.1%. The question that has to be answered is are the distributions sustainable?

You should also note that the actions of the Finance Minister changing the tax treatment of trusts back in October of 2006 didn’t hurt you as badly as the market in 2008. The retreat in advertising that has hurt all forms of media also hit the directory business. 

The company intends on converting to a corporate structure and that means that there will be a reduction in the cash available for distribution to unit holders simply because of the taxes that will be paid on corporate income.

Nothing in the charts suggests that there will be a breakout from these levels. On a fundamental basis I can not see what would drive  sufficient revenue into the company to replace the lost revenue from the print editions of the directory.

Without a reason to hold in anticipation of a richer payout of distributions or appreciation of the price of the units I think that its time to look for an exit.

Happy Capitalism!

Dear Lou:

Could you please give me your opinion on Arctic Glacier Income Fund.

Thanks:
Paul

Hi Paul,

Before I get to Arctic Glacier Income Fund I wanted to update a couple of earlier posts.

Amerigo Resources – ARG TSX – looks like the cup and handle played out – stock moved nicely to the upside and today Codelco announced an $11b program to boost mine output.

Avalon Rare Metals – AVL TSX – Carol, who is one of our readers, gave me the heads up that the Dines Letter has been touting this stock – so that helps explain some of the upside.

Okay lets look at the party ice company.

What can you say about an income trust that discontinued distributions a year ago? Tough times no doubt and given the seasonal nature of the business with sales strength in the May to August period I think you would have to be cautious at the best of times. The Q2 report that covered the period ending June 30, saw the top line weaker year on year.

The three year chart shows resistance at the $2.1o . The units have to get through this level convincingly to move higher. I would also like to see better volume.

The MACD on the three month chart indicates that the upside momentum seems to be stalling.

Another factor in play is the amount of cash being spent to defend an antitrust suit in the United States. Nothing says uncertainty like litigation and investigation.

I dont think Q3 which will include the months of July and August will see a turn in revenue given that the weather patterns in AG’s prime markets may not have had campers and cottagers filling their coolers as often.

No distribution, an investigation, falling revenue, MACD turning down, resistance at $2.10, and low volume.

Not quite my bag of ice.

Happy Capitalism!

Hi Lou,

Do you have any comment on Enervest Diversified Income Fund? I bought it in 2001 and it has performed well for me in terms of distributions, but it has cut its distribution, its share price has fallen, and management has changed. I’m wondering if it’s worth holding onto it to see if it comes back up, or if I should take my remaining money and run.

Thanks,

Florentia

Hi Florentia,

Enervest Diversified Income Trust ( EIT.UN TSX)  is an actively managed portfolio of mostly trusts and bonds with about 26% of the fund invested in common stock. In April of  this year units in EIT were rolled back  3 for 1. At its current level distribution of $0.15/ month the units are yielding just over 16%.

The chart shows that there was a nice recovery from  the aggressive selling that hit the entire market last fall. But like all things in the investment universe you have to watch the trend and it appears that the ride to the upside is fading.

The six month chart illustrates the current trend in the units of EIT. Clearly we have hit resistance and if you draw the trend line on the advance from the March lows we can see that the trend line has been breached. Which is a caution flag and why I suspect you have written.

Second thing to notice is the MACD which turned below the signal line in the middle of June indicating a shift in momentum to the downside.

Finally at the close of trading on Tuesday July 7  the units are now testing support on its 50 day moving average. If we are looking for a reason to hold  then we need it to catch a bounce from these levels.

From the tone of your email Florentia it sounds like you want to preserve your capital and when I sense that in an investor I always recommend that you go to cash.  Look at your capital as a fine race horse. Its been racing for you since 2001. At some point you want to give the horse and rider a rest.

When you have cash you are free to make another decision but right now your gut is saying take profits and nothing in the charts is telling me otherwise.

Happy Capitalism!

The Investment Reporter as well as the BUY and SELL advisory gave this a buy rating when the unit price was trading at $5.67  (This is much after the div. was reduced in May)Since then it has fallen to $5.15 and has been staying around $5.20.

There was some unusual trading today when it hit $5.28 today after the usual decline to $5.15 the past 3 trading days.

However the closing was still under $5.28.  The company is expected to announce div for June.  In May they had reduced their dividend.

Yesterday the company had announced purchase of several millions of their series 1 and 2 preferred shares. Ratings and targets have varied.

What is your take on this trust ?

Nazir

Hi Nazir,

The business sector  for the Yellow Pages Income Fund is under pressure as well as every form of  advertising. What happens in a recession is that consumers of advertising start to review where their money is being spent. In addition the the phone book as we have come to know and love it is losing ground to the expanding power of the internet.

I can’t recall the last time I pulled out what used to be a trusted referrence for services. I even used to use the yellow pages for competitive analysis. Everyone in a segment was in the book and you could size up who was in the space and how to attack the market. But that was then this is now.

The long term chart also paints a bleak picture of how the stock has performed over the last three years.

The units are in a range bound trade between $6.25 and $5.25 and has oscillated in the range twice this year. If you took the long trip both times you would have traded for a 40% gain.

I suppose that when the economy recovers there will be an up tick in sales but it has to break through $6 before it can make that journey.

Happy Capitalism!

Hi Lou,

What’s your thoughts going forward with Penn West  (PWT.UN) …they’ve dropped their dividend for the month of April.  Could that be an indication for trouble ahead?

Colleen

Hi Colleen,

Penn West Energy Trust ( PWT.UN TSX) did reduce their cash distribution in April to $0.15 per unit and they have maintained that level for the month of May 2009.

Penn West is Canada’s largest conventional energy trust and as we know the price of oil and natural gas are off substantially from their highs of a year ago.

I would say that the reduction of the cash payout is more of reflection of  prudent management than trouble ahead. The distributions were $0.34 cents through 2007 and 2008.

But in the current environment it would have been reckless to maintain such a high cash drain when the company’s income was in retreat. The distributions were lowered to $0.23 for the first three months of 2009 and were further cut to $0.15 which at the current price of the units represents a  yield of 13.10%. You don’t rake in a 13.1% yield without risk.

Click to enlarge

The company recently reported a Q1 loss of $0.25/unit and forecast their 2009 cap ex budget at the low end of a $600M – $825M range.

The chart indicates resistance at $15 and support at $12.50. PWT.UN needs to build a base and hold onto support to make a case for a further advance.  The 50 day moving average has turned up and is providing some support at well. In addition the downtrend that started last year has been broken.

The fate of  Penn West and the entire energy sector is dependent on commodity prices. Recent US dollar weakness has helped to lift energy prices and now we need to see if world demand will increase to contribute to the cause. With  Penn West you have a solid management team, a large land base and existing production  to weather the current storm plus you get paid fairly well to wait it out.

Happy Capitalism!