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market call

Randy LeClair is the managing director and fixed income strategist for Manulife Asset Management. His focus is on investments for those on a fixed income.

Top Picks:

Westcoast Energy 5.50% Series 7 (W.PR.H-T)

We are looking for opportunities to diversify away from the heavily weighted financial sector in the preferred share market. Westcoast provides a means to get into the regulated pipeline sector with a solid company with a strong track record. This particular preferred share issue is trading slightly above its par value ($25.25) and a current dividend yield close to 5.50% (5.45%).

Power Corporation 5.60%, Series G (POW.PR.G-T)

This was a recent (mid-February) new issue in the "perpetual" preferred share space. This is a financial holding company with direct or indirect ownership in some of Canada's best known and well-run companies. Some of the companies it is connected to are: Great West Life, and asset manager IGM Financial (Investors Group and Mackenzie Financial). This preferred share came with a large fixed dividend of 5.60%. It has a long period (April 15, 2021) before it can be "called" (redeemed) by the company back at the original $25.00 par value however it can be redeemed earlier by the company (2017) at a premium to par.

Talisman Energy Inc. 4.20%, Series 1 (TLM.PR.A-T)

Is another recent new issue and opportunity to diversify into other non-financial names in the preferred share market. The company is in the oil and gas industry with diversified operations in North America, the North Sea, and Southeast Asia. The company has recently sold some non-core assets to raise $1.9 billion that will be used to focus on Shale gas operations. This particular preferred share issue is known as a "rate-reset" issue and is its dividend yield-to-reset is 4.77%. The issue can be redeemed by the company just before the reset date in 2016.

Past Picks: July 5, 2011

Shaw Communications Inc. 4.50% Series A (SJR.PR.A-T)

Then: $25.40

Now: $25.40

Total return: +3.70%

Bell Aliant Preferred Equity 4.85%, Series A (BAF.PR.A-T)

Then: $25.15

Now: $25.39

Total return: +4.60%

Aimia 6.50%, Series 1 (AER.PR.A-T)

Then: $26.00

Now: $26.05

Total return: +4.90%

Total Return Average: +4.40%


Given the current economic environment of low growth, tame inflation, still high unemployment, no wage growth and a consumer that has high debt levels; it is hard to imagine interest rates moving substantially higher in the near term. Corporate bond yields and preferred shares continue to offer great value versus government bonds in this scenario and should outperform in 2012.

Compiled by Franklin Cameron/BNN Market Call Tonight


Also see:

3 top stock picks from money manager Greg Newman

3 top stock picks from money manager Ron Meisels

3 top stock picks from Toron Capital's David Driscoll

3 top stock picks from hedge fund manager James Hodgins

3 top picks from oil and gas analyst Josef Schachter