General

Q&A on the new Harvest global bond ETF

Posted By |

 

By Bradley Komenda

(Sponsor Content)

Harvest Portfolios Group launched a global bond ETF in January 2020 to complement its equity ETF offerings.

The  Harvest US Investment Grade Bond Plus ETF (HUIB:TSX) is managed by Boston-based Amundi Pioneer Asset Management, a subsidiary of Amundi Asset Management, a leading global manager based in France. In a Q&A, Bradley Komenda, the ETF’s portfolio manager, discusses how Amundi’s value investing approach helps guide its strategy. Mr. Komenda joined Amundi Pioneer in 2008 and is also Senior Vice President and Deputy Director of Investment Grade Corporates at the firm.

Financial Independence Hub: What is the demand for these bonds for the Canadian investor?

Bradley Komenda:  Canadian bond market opportunities are pretty narrow and heavily weighted towards energy and financials. Because there is a lot of demand for these bonds, yields are less attractive than in the US.

This bond ETF gives you breadth. It is Canadian dollar hedged, but with access to top quality US, European and Global issuers.  Expectations of further fiscal stimulus will all be supportive of the corporate bond market, so we think that this is where we want to be.

Q: What is Amundi Pioneer’s approach?

A: We are value investors. We invest in credits that we think over a one to three-year time horizon are going to generate a superior return. By value investing, I don’t mean buying the cheapest securities. It means trying to identify the securities that have the best risk adjusted return potential.

Q: How do you assess risk?

A: We look at risk in three ways. We look at nominal risk, which is how much we have invested in a single issuer. Then we look at the maturity of the bonds. We know that if we buy a one-year bond, it is a lot less risky than buying a 30-year. And then we look at duration times spread, (DTS) which is a way to measure the credit volatility of a bond.

Q: Where is the Harvest US Investment Grade Bond Plus ETF on the risk spectrum?

A: From an overall portfolio perspective, this bond ETF is rated low risk, and within the fixed income universe, I’d say it’s medium.

If you want lower risk, you can do a couple things. You can buy government bonds, but after inflation your purchasing power will be eroded even with longer duration bonds.

If you go for a short-term ETF, or cash, you’re going to struggle to get a yield similar to inflation. So, this ETF is for someone with patience, a one to three-year time horizon and a willingness to accept short-term volatility but with the expectation of attractive returns relative to risk-free or very short bonds.

Q: What about bond quality?

A: HUIB is concentrated in the Triple B space (BBB) or higher. The breakdown is roughly 60% BBB, 30% A or higher and 10% Non-rated.

Q: Who is the core investor for this bond ETF?

A: Anybody who wants exposure to fixed income. That’s because it has a negative correlation to stocks which means they move in different directions.  If you buy a high yield fund, you’re going to get more yield, but you’re going to have a positive correlation to stock market movements.

 

Q: Investors worry about liquidity. How easy is this ETF to sell?

A: It’s highly liquid. We had a liquidity crisis in the corporate bond market in March of this year. The Fed stepped in and now is backstopping things by purchasing bonds as needed. It means the draw down we saw in March and early April is unlikely to occur again.

Q: What is the relative advantage of this ETF?  

A: This ETF is part of our investment grade corporate bond strategy. Continue Reading…

Fundamental Digital Marketing practices for 2020

Posted By |

By Mike Khorev

Special to the Financial Independence Hub

It’s no secret that the world of digital marketing is continually changing, and every individual marketing channel in it is also rapidly changing all the time. Meaning, if you want to utilize digital marketing to grow your business effectively, you’ll need to stay up-to-date with the current trends. 

Although some digital marketing parts stay relatively the same, like how search engine optimization works and the importance of email marketing, there are also significant changes and even brand new channels that can significantly change the game. 

In creating any digital marketing strategy, however, it is essential to focus on creating a strong fundamental that you can easily expand to other digital marketing tactics; these fundamental tactics can act as a vital building block for your business, so even when you’d need to adopt a new trend, you can easily integrate it with this existing fundamental.

That said, here are the fundamental digital marketing practices in 2020 and onwards:

1.) Content Marketing and SEO

In this age of social media, content is king. 

Whether you can be successful in your digital marketing or not would ultimately depend on whether you can attract and engage enough audience through your content:  

  • You generate leads by attracting prospects with valuable content.
  • You nurture leads by using content to educate your prospects about your product/service and establish your credibility via consistent content quality.
  • You convert leads into customers by using content to convince people to buy 

So, content should be the backbone of your overall digital marketing strategy, and SEO (Search Engine Optimization) would be the primary way for people to find your B2B brand. 

However, since more businesses are now focusing on content marketing, the competition in attracting the audience’s attention with content is now much tighter. Simple and informative, educational content that worked in 2017 simply won’t cut it anymore these days, as readers now expect the highest quality of information and authoritative data. 

Also, consumers now expect various forms of content in textual blog posts and white papers and videos, podcasts, infographics, and other mediums. Diversifying your content is very important and offers more personalized and interactive content for each audience, which will bring us to the next point below. 

2.) Conversational and Personalized Marketing

 The rise of various AI and machine learning technologies has provided us with more ways to implement highly-customized and conversational marketing tailored for each prospect. 

One of such technologies is the chatbot, which has been popular among many businesses in recent years. A 2017 survey by Gartner has predicted that 47% of organizations will implement chatbots for customer service in the years to come. 

Chatbots can allow businesses to implement personalized marketing with different implementations. For example, in a sales inquiry conversation,  the chatbot can ask for preliminary questions about the prospect’s preferences, available budget, and so on, so when the chatbot finally passes this prospect to a human sales rep, the process would be much more seamless for both the sales rep and the prospect. 

According to Fractional CMO Mark Evans, conversational and personalized marketing channels can help marketers create highly-targeted marketing campaigns and gather more information about your prospects and customers. 

3.) Video Marketing

Video is technically a part of content marketing, which we have discussed above. Still, in the past half-decade, video marketing has grown to be a powerful digital marketing channel that deserves its attention.  Continue Reading…

Bullshift Culprits 1 and 2: FOMO and TINA

Posted By |

By John De Goey, CFP, CIM

Special to the Financial Independence Hub

Bullshift Culprit #1 FOMO (Fear of Missing Out)

For anyone who has been out of the loop, there are a number of acronyms and memes that have popped up over the past decade that help commentators to capture contemporary zeitgeist.  One of the most popular is FOMO – the Fear Of Missing Out.  The basic idea here is that other people are doing something (having fun, getting rich, cheating the tax man) that others want to get in on.

Getting in on things is all fine and well, provided they are legal.  Many aspects of FOMO are indeed legal and it should be obvious that there are social risks associated with wanting to do things that are not.  The thing to note is that there’s strong social pressure to participate – largely because there is some form of social proof that makes it seem as though everyone else is doing it, too (and getting away with it). If there’s one thing that upwardly-mobile people hate, it’s the notion that they are not ‘keeping up with the Joneses’ when they quite easily could be – if they only did whatever it was the Joneses are doing to give them the status / income / happiness edge they have in the first place.

Of all the possible examples of FOMO, getting rich by playing the stock market may well be the most insidious and the most common.  Anyone with seed money can do it.  No matter how rich or poor you are, if there’s a sense that you can make (say) an “easy 15%” on your money by investing in security X or product Y and that Betty and Bob in marketing both did it (and showed you their quarter end statements to prove it), the pull is often irresistible.  This can sometimes be fodder for something called “greater fool theory.”

Most real investors say “buy low; sell high,” but it needs to be noted that there is a segment of the population that makes money by using the principle of “buy higher; sell higher.” As long as there’s a ‘greater fool’ out there who is prepared to pay even more than the outrageous price you paid for something, you can make money by paying an outrageously high price to begin with.  This is a bit like a game of chicken or musical chairs.  At some point, the market runs out of ‘fools’.  In finance lingo, that’s when the bubble bursts. Continue Reading…

Owning today’s Long-Term bonds is crazy

Posted By |

By Michael J. Wiener

Special to the Financial Independence Hub

Today’s long-term bonds pay such low interest rates that it makes no sense to own them.  There is virtually no upside, and rising interest rates loom on the downside.  Warren Buffett called this “return-free risk.”  He was right.  Here I explain the problem and address objections.

As I write this, 10-year Canadian government bonds pay 0.623% interest.  If you invest $10,000, you’ll get a total of only $623 in interest over the decade, and then you’ll get your $10,000 back.  This is crazy.  Even if inflation stays at just 2%, you’ll lose $1237 in purchasing power.

Even worse are 30-year Canadian government bonds that pay 1.224% as I write this [late in October 2020.]  Your $10,000 would get a total of $3672 in interest over 3 decades.  This is a pitiful amount of interest over a full generation.  At 2% inflation, you’ll lose $1738 in purchasing power.  Even a portfolio that only beats inflation by 2% per year would gain $8113 in purchasing power over 30 years.

All investments have risk, but there has to be some potential upside to justify the risk.  Where is the upside for long-term bonds?  The only upside comes if we have sustained deflation.  It’s crazy to risk so much just in case the prices of goods and services drop steadily for the next decade or three.

Some investors mistakenly think they can always sell bonds and collect accrued interest.  That’s not how it works.  With a 30-year bond, the government is promising to pay you the tiny interest payments and give you back your principal after 3 decades.  If you want out, you have to sell your bond to someone else who will accept these terms.  You don’t get accrued interest; you get whatever another investor is willing to pay.  Counting on selling a bond is hoping for a greater fool to bail you out.  If future investors demand higher interest rates on their bonds, your bond will sell at a significant capital loss.

If the interest rate on 30-year bonds goes up over time, that’s actually bad for current bond owners, because they have to live with their lower rate instead of receiving the new rate.  If 30-year bond interest rates go up by 1%, you immediately lose 30 years of 1% interest; you can’t just sell to avoid the loss because other investors wouldn’t happily take these losses for you.

Let’s go through some objections to this argument against owning today’s long-term bonds:

1.) Stocks are risky

It’s true that stocks are risky, but I’m not suggesting that investors replace long-term bonds with stocks.  Short-term bonds and high-interest saving accounts are safer alternatives.  A decision to avoid long-term bonds doesn’t have to include a change in your asset allocation between stocks and bonds.  For anyone willing to look beyond Canada’s big banks, it’s not hard to find high-interest savings accounts paying at least 1.5% and offering CDIC protection on deposits.  If long-term bond interest rates ever return to historical norms, it’s easy to move cash from a savings account back into bonds.  So, you don’t have to live with a measly 1.5% forever.

2.) Investors need to diversify

The benefit from diversifying comes from owning assets with similar expected returns that aren’t fully correlated.  However, the expected returns of today’s bonds are dismal.  We don’t really own bonds for diversification these days.  The real reason we own bonds is to blunt the risk of stocks.  It doesn’t make sense to try to reduce portfolio risk by buying risky long-term bonds.  Flushing away part of your portfolio with long-term bonds isn’t a reasonable form of diversification.  Short-term bonds and high-interest savings accounts do a fine job of reducing portfolio volatility without adding significant interest rate risk.

3.) Long-Term bonds have higher interest rates than short-term bonds

Historically, long-term bonds rates usually have been higher than short-term rates.  Today, however, high-interest savings accounts pay more interest than long-term government bonds.  But that’s not the only consideration.  Interest rates will change over the next 30 years.  If you own short-term bonds, your returns will change too.  However, if you buy 30-year bonds, your interest rate won’t change for three decades.  If interest rates rise, new short-term bond rates will be higher than your old 30-year rate.  Continue Reading…

Time for investors to look at the Canadian energy sector?

Posted By |
Image by Omni Matryx from Pixabay

 

 

 

 

 

 

 

 

 

By Dale Roberts, Cutthecrapinvesting

Special to the Financial Independence Hub

The Canadian energy sector has been beaten up. Foreign investors have given up and so have many Canadian investors. Where there is incredible pessimism there can be incredible rewards. But there is certainly no guarantee that the pessimism for the Canadian energy patch is not deserved. That said, it is also certainly possible that the pessimism has jumped the shark. There may be incredible value in the energy sector for Canadian investors.

Off the top I am guilty of previously piling on with the pessimism. For Million Dollar Journey I had penned on Canadian energy stocks and their dividends.

The Canadian energy sector ETFs fell by some 70% in the stock market correction of March and into April. We have seen some slight recovery as the North American and Global economic recovery takes shape.

The need for oil and gas is not going away

While I am certainly a fan of the global move to green energy solutions, the shift will take some time. Perhaps it will take decades. And even during a robust transition to renewable energy, oil and gas will continue to play a leading role. We need natural gas to heat our homes and power our economy. And while the shift to electric vehicles attracts all of the headlines and much of the attention of investors, traditional gas powered vehicle sales will continue to dominate. We will need oil for various forms of transportation.

From the IEA …

Sales of electric cars topped 2.1 million globally in 2019, surpassing 2018 – already a record year – to boost the stock to 7.2 million electric cars. Electric cars, which accounted for 2.6% of global car sales and about 1% of global car stock in 2019, registered a 40% year-on-year increase.

It’s certainly a promising trend.

Millions of global sales – Electric vehicles

From that IEA report …

The Sustainable Development Scenario incorporates the targets of the EV30@30 Campaign to collectively reach a 30% market share for electric vehicles in all modes except two-wheelers by 2030.

And all of the above takes place as overall demand for vehicles increases. The need for oil will remain with us for quite some time under most projections. Oil demand will be driven by airlines and other industrial use as well.

We’ll need to move that oil and gas

Let’s start with the pipelines that move the oil and gas around North America. The two leaders are Enbridge and TP Energy (formerly TransCanada Pipelines). These two stocks are starting to get the attention of analysts and writers. Full disclosure: I own these two companies in my concentrated Canadian wide moat portfolio. Continue Reading…