Globe Investor

September 22, 2019

A new way to stash cash in an investment account, the ‘hot potato’ portfolio, and fund managers run from industrial stocks
A new way to stash cash in an investment account, the ‘hot potato’ portfolio, and fund managers run from industrial stocks
Holding cash in your investment account is a way of reducing stress about a stock market plunge, but it’s not a worry-free strategy.

You’ve got to find at least a semi-decent return on your cash, or your money is basically dead. T-bills are one option, but yields aren’t great for small investors. Money market funds have weak returns these days, and investment savings accounts (savings accounts that you buy and sell like a mutual fund) aren’t much better.

This brings us to high-interest savings ETFs, which seem to be developing a following.

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The newest offering, CI First Asset High Interest Savings ETF (CSAV), has attracted $260-million since its debut in mid-June. The Purpose High Interest Savings ETF (PSA) has pulled in a little more than $2-billion since it was listed for trading in October, 2013.

The concept for the high-interest exchange-traded fund is this: offer a competitive savings rate by investing client money in a portfolio of savings accounts from major financial institutions. CSAV offers a net after-fee yield of about 2.1 per cent, similar to PSA. Investment savings accounts are in the 1.5-per-cent range, so there’s definitely a yield advantage to the ETF option.

There are two complications with high-interest savings ETFs, the first being that, as described here, some brokers don’t allow clients to buy and sell any cash-type investment product other than their own in-house version. Depending on the broker, if you tried to buy PSA, for example, your trade would be rejected.

The second issue with high-interest ETFs is that most brokers will charge you as much as $10 a buy-and-sell trade. Those costs will bite deeply into your interest gains if you have a small holding or trade frequently.

Questrade and Virtual Brokers have no buy commissions on ETFs, which remove half of the cost of using high-interest ETFs. National Bank Direct Investing waives ETF commissions entirely if you trade a minimum 100 shares. A simple commission-saving alternative for clients of all brokers is the mutual-fund version of CSAV, the CI High Interest Savings Fund.

The estimated management expense ratio for the fund is 0.3 per cent, which would bring down the net yield to about 2 per cent (the estimated MER for CSAV is about 0.2 per cent). Losing a bit of yield in exchange for no buy and sell commissions makes sense for investors who hold small amounts of cash and trade frequently.

-- Rob Carrick

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Stocks to ponder

Altria Group Inc. The company, which sells Marlboro cigarettes and other tobacco brands in the United States, has seen its share price fall 49 per cent over the past two years, including an 11-per-cent decline over the past week alone. The decline has pushed the dividend yield up to a remarkable 8.5 per cent – a flashing warning sign. Yes, there are several concerns with the company. But the bond market, a reflection of credit-rating agencies and sophisticated institutional investors that tend to be less swayed by short term fears, suggests that the company is rock solid. David Berman reports

Fedex Corp. A profit warning and muted outlook from package delivery company FedEx Corp is prompting some high-profile fund managers to prepare for the trade war between the United States and China to last longer than many had originally anticipated. As a result, fund managers are moving away from U.S. industrials and technology companies that may be most affected by higher tariffs and instead are looking to pick up some out-of-favor companies and assets that offer long-term opportunities despite the trade war. David Randall of Reuters reports

The Rundown

Investors have no need to panic when it comes to this week’s money market madness

Let’s all calm down. This week’s crunch in short-term borrowing markets in the United States has created widespread worry that deeper problems are lurking under the surface of the financial system. Over the space of a few hours on Monday, rates for some overnight loans shot up fourfold, touching 10 per cent. The U.S. Federal Reserve had to make an emergency injection of more than US$125-billion on Tuesday and Wednesday to restore normality to the system. It was the Fed’s first major intervention since the financial crisis and awakens fears that a new crisis is looming. But such fears seem implausible to folks who know the system well. Ian McGugan has this analysis

This ‘hot potato’ portfolio has gained an average of 15.9% annually over nearly four decades

Norman Rothery’s hot potato portfolio strategy offers an aggressive active strategy. It is, simply put, not well suited to passive investors and should be avoided by novices in particular. But boy has it produced solid long-term returns.

Others (for subscribers)

The week’s most oversold and overbought stocks on the TSX

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Friday’s Insider Report: Two management executives cash out millions from this bank stock

Thursday’s Insider Report: Director invests over $200,000 in this defensive large-cap dividend stock

How diligence and luck won this investor his financial freedom

Dividends delivered: These e-commerce logistics firms offer sustainable payouts

These 15 TSX stocks combine price momentum and sound fundamentals

Ask Globe Investor

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What’s up in the days ahead

Tim Shufelt will profile yet another disappointment of a Canadian tech stock, Sierra Wireless. As of next week, it will be booted from the TSX Composite, reducing the number of IT stocks in the index down to nine.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff


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