Investments for Snowbirds

Do you have a US dollar denominated portfolio that helps pay for vacations or foreign properties?

Do you have a US dollar denominated cash acount, RSP or corporate account?

Are you looking for lower risk investments to complement your US equity exposure?

Various options exist to create an income stream in US dollars and there are various security types to choose from.  The familiar investments are usually US equities (individual company, ETF or mutual fund based).  However, we find there is a substantial investor base that is looking for US dollar fixed income that is less volatile and safer than equities.

We have helped our clients access the wide variety of US dollar fixed income investments options not readily available via banks or most investment advisors. We provide access to and advice about US dollar denominated fixed income from Investment Grade to High Yield bonds as well as Hybrid bonds and Preferred shares. Below we highlight Investment Grade bonds and some of the lesser known investment choices .

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Select Features:

• High quality or “blue chip” corporate issuers
• Global government Issuers
• Credit rating of BBB- or higher rated by a major credit rating agency

Why we like Investment Grade Bonds:

• Lower risk
• Highly liquid and large issuers
• Achieve returns higher than T-Bills or money market or cash in a bank account
• During negative equity markets can provide diversification and safety

Select Features:

• Issued by credit worthy companies (mostly banks, utilities and infrastructure companies).
• Qualify as 50% equity and 50% debt for credit rating calculations.
• Treated as debt for Canadian income tax purposes so the interest is tax deductible by the issuer.
• Are attractive to issuers seeking to maintain their investment grade credit rating.
• Rank at the bottom of the credit stack but higher than equity.

Why we like hybrids:

• Some of the largest companies in Canada issue hybrid bonds that pay very attractive rates.
• They are traditionally less volatile then equity investments and the coupon rate cannot be cut unlike equity dividends.

Select Features:

• US or Canadian companies that are not investment grade but have good investment attributes.
• Variety of companies are from every sector of the economy.
• Like Hybrid bonds, High Yield sits above equity but usually as a subordinated or second lien debt.
• Typically, five to eight year maturities.

Why we like high yield bonds:

• Our team tracks the equity as an investment possibility or, at a minimum, tracks the sector.  We understand the credit structure of the corporation and are comfortable with the risk/reward of the investment.
• There are many instances where there is no first lien debt outstanding.

Select Features:

• Issued by Canadian or US Investment grade/”Blue chip” issuer
• Hybrid security.  Some aspects of equity and debt
• Fixed or adjustable rate options
• US preferreds are some of the highest yielding investment grade fixed income assets

Why we like preferred shares:

• There are a few Canadian companies with US dollar preferred shares.  Canadians are generally eligible for the dividend tax credit, so compared to an equally yielding bond the preferred shares will yield higher on an after-tax basis.
• There are also a wide variety of US companies with preferred shares. These are not eligible for the dividend tax credit, so the income is treated similar to interest income.