A sound alternative to taking a beating in bonds right now is to use guaranteed investment certificates instead. Now happens to be a great time to buy GICs.
GICs are used by banks and other financials to raise money for lending, including mortgages. It’s spring, peak season for home sales. And so, we’re seeing a more competitive GIC market than we’ve had in a while. You can see this in the rates available through digital brokers – a.k.a. online brokers.
I recently took a look at one big bank-owned broker’s inventory of third-party GICs and found a five-year rate of 3.76 per cent from Canadian Tire Bank and 3.75 per cent from HomeEquity Bank. Another broker offered 3.73 per cent from Concentra Bank and 3.7 per cent from a couple of different credit unions. As of first thing Thursday morning, the best rate around for five years was 4 per cent from Oaken Financial.
If you’ve tried to buy GICs from a digital broker, you’ll know how exceptional it is to be able to get a rate that is near the top of the market. GICs from the likes of Oaken and competitor EQ Bank are not typically available through digital brokers; instead, these issuers deal directly with investors. Digital brokers usually offer GICs from a wide range of issuers, but not the ones with the best rates.
One-year GIC rates from digital brokers are also competitive right now. One broker had a 2.7-per-cent rate from Effort Trust in its inventory, compared with 2.8 per cent at Oaken and 2.6 per-cent at EQ and elsewhere. Effort Trust may be an unfamiliar name, but it is a member of Canada Deposit Insurance Corp.
The best deal in GICs right now might be the three-year term. The same broker mentioned just above had a three-year GIC from General Bank of Canada at 3.65 per cent, in line with EQ Bank and just off Oaken’s 3.8-per-cent rate.
DIY investors buying GICs through a digital broker have long had to settle for decidedly second-best rates, or compromise on convenience and efficiency by maintaining a separate GIC account at another company. For now, premium GIC rates are there for the taking.
-- Rob Carrick, personal finance columnist
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Stocks to ponder
PRO Real Estate Investment (PRV-UN-T) Headquartered in Montreal, this REIT is focused on building a portfolio of industrial properties located in mid-sized cities across the country. It offers investors an attractive yield of 6.2 per cent, and the monthly distributions appears sustainable with a payout ratio of 90 per cent in 2021. The REIT has six buy recommendations and one ‘sector perform’ recommendation. While the REIT is not cheap, the average 12-month target price suggests the unit price has 10 per cent upside potential for a potential total return (including the yield) of 16 per cent. Jennifer Dowty tells us more about what investors need to know.
North European Oil Royalty Trust (NRT-N) This stock sits at the intersection of even higher oil and gas prices, Russian sanctions and Germany’s energy dilemma. This is because NRT holds royalties covering some of Germany’s few domestic gas fields, which may be poised for further development as the country seeks energy independence. As Philip MacKellar of The Contra Guys newsletter tells us, the high dividend-yielding NRT is perhaps one of the energy stocks that could be best positioned for the current turmoil in Europe.
Richelieu Hardware Ltd. (RCH-T) High-quality home improvement stocks have been decimated in recent months with mounting concerns about softening housing activity as interest rates rise. For now, this sector remains out of favour. However, Richelieu is a stock to watch as it is technically oversold and its valuation is becoming increasingly inexpensive relative to historical levels. Further price weakness may represent a potential buying opportunity for longer-term investors. Jennifer Dowty looks at the investment case.
Dollarama Inc. (DOL-T) While there are many reasons to be bullish on Dollarama stock, particularly in the current economy, Ethan Lou’s thoughts on the stock are unique and personal: The chain reminds him of the discount grocers in Germany where he grew up.
Rob Carrick’s 2022 ETF Buyer’s Guide: Best Canadian dividend ETFs
A question to ask if you’re in the market for a Canadian dividend ETF: Would you be better off with a fund that simply tracks the S&P/TSX Composite Index? The latest installment of the Globe and Mail 2022 ETF Buyer’s Guide can help you decide. It shows you some of the key metrics for comparing an exchange-traded fund tracking Canada’s benchmark stock index against funds holding strictly dividend payers.
Remember the bet on rebounding airline stocks? It’s now worth another look
Airline stocks have been a disappointing bet over much of the past year: We are more or less free to travel, yet stocks such as Air Canada, Delta Air Lines Inc. and Southwest Airlines Co. are still well off their highs. But the impressive gains last week, following upbeat quarterly earnings from Delta, suggest that a bet on the sector’s recovery might still be worth pursuing. David Berman explains.
How investors can cope with increasing market volatility
We’re starting to see a new spike in market volatility. After hitting a one-year peak in early March, the CBOE Volatility Index (VIX) fell by almost half over the following four weeks. But now it’s gradually climbing again as investors contemplate the long-term effects of the Ukraine war, soaring inflation, rising interest rates, and the on-going impact of the pandemic on supply chains and global growth. High volatility stocks may not be for the faint of heart, but they can produce strong returns if chosen carefully. Gordon Pape has some ideas on where investors can go hunting for them, as well as some thoughts on investments for those looking for calmer parts of the stock market.
Is Canada’s real estate market headed for a big fall or more gains? The case for both
We all wonder how any middle-class earner can buy a house at today’s prices. But our indignation on that point may be reducing our focus on an equally important question: Even if you can afford to buy a house, should you? It’s a critical question for real estate investors right now, and Ian McGugan shares his thoughts.
U.S. bank profits and stock prices are falling. So what’s holding up Canadian bank stocks?
U.S. banks were solid performers during the early stages of the economic recovery in 2020 and 2021, as loan losses subsided, employment levels rebounded, trading activity surged and deal-making boomed. But their share prices have been sliding over the past six months amid concerns that rising interest rates could tip the economy into recession. JPMorgan’s share price has fallen 20 per cent this year, underperforming the S&P 500 by 13 percentage points. That poor performance raises the question of whether Canadian bank stocks – off their February highs but down less than 1 per cent this year, on average – will follow the U.S. lead. David Berman shares his insights on the risks now facing Canadian bank investors.
What $500-million fund manager Anish Chopra is buying and selling
Anish Chopra isn’t making a recession call right now, but the money manager is holding extra cash for a sharp downturn he believes could come sooner rather than later, given the number of macro events affecting markets. The Globe and Mail recently spoke to Mr. Chopra, who oversees more than $500-million in assets at Portfolio Management Corp. in Toronto, about what he’s been buying and selling, and the advice he gives friends looking for stock tips.
Why the booming business of ESG ratings may be giving investors a false sense of sustainability
The world of finance is facing a reckoning over what defines sustainable investing. Investors around the world are ploughing tens of billions of dollars a year into companies and funds that tout superior environmental, social and governance (ESG) attributes. Many assume they’re doing good for the environment or gender equality as they save for retirement. But there’s growing concern – even among those who make their living in sustainable finance – that ESG’s emergence as an asset class alongside traditional stocks and bonds risks shifting the focus away from the non-financial values it’s meant to promote. Jeffrey Jones and David Milstead take an indepth look at the problem, and why it’s so difficult for investors to apply the ESG theme in their portfolios.
Others (for subscribers)
Number Cruncher: 22 low-volatility stocks for stormy times
Number Cruncher: Five confectionery giants paying sustainable dividends
Monday’s Insider Report: CIO is a buyer of this REIT yielding 7.1% with a conservative payout ratio of 79%
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Ask Globe Investor
Question: I just read Gordon Pape’s “I’m getting out of bonds” column. My 80-year-old father has a decent chunk of his investments in a non-registered account with a robo-advisor, in their conservative portfolio (30-per-cent equity/70-per-cent fixed), where of course the bond holdings have tanked over 20 per cent since he started investing with them in Summer 2020. Thankfully my father is not dependent on these investments to meet his day-to-day expenses.
You are suggesting that you are getting out of bonds, but in my father’s case this would result in significant capital losses and also of course eliminate the opportunity to recoup his bond fund losses over the months/years ahead. Do you think he should just stay the course and wait this out? If you have any advice would love to hear! – Neil P.
Answer: Every case is different. There us no “one-size-fits-all” when it comes to investing. I should point out however that “waiting it out” is a questionable strategy for someone who is 80 years old. Your dad is more likely to recover his losses more quickly in a conservative stock portfolio of banks, utilities, and telecoms.
That said, your dad is not relying on the cash flow from these investments so whether he sells or not isn’t an urgent issue. But he needs to be aware that his bond losses are likely to get worse before they improve. If that doesn’t worry him, fine. But if it does, priority should be given to his peace of mind.
--Gordon Pape (Send questions to firstname.lastname@example.org and write Globe Question in the subject line.)
What’s up in the days ahead
Value investing professor Dr. George Athanassakos believes de-globalization and resultant rising inflation and increasing real interest rates create a bleak outlook for the stock, bond, and real estate markets. We’ll have his sobering outlook.
A callout to readers
Are you interested in being interviewed about your first stock purchase? Globe Investor is looking for Canadians to discuss their experience as part of this new, ongoing feature. If you’d like to be interviewed, please write to: email@example.com with “My First Stock” in the subject line and include a short description of your first stock purchase.
Compiled by Globe Investor Staff