Q: Hi, Pat. My question relates to the Horizons Active Preferred Share ETF. Compared to holding the preferred shares of individual companies, does an ETF like this provide any advantages? Is this the best one to buy if you want to buy such an ETF? Thanks!
A: Preferred shares behave more like long-term fixed-income instruments rather than short-term instruments. So while short-term interest rates are still relatively low, the outlook for long-term interest rates is less certain.
The underlying credit quality of preferred share issuers can be a negative factor in some cases; for example, when the issuer’s share price is falling.
So unlike GICs, which don’t fall in value, the prices of preferreds can decline along with stock markets.
If you want to own a preferred share as part of the fixed-income segment of your portfolio, and you can accept some risk, then preferreds are okay to hold. That’s especially true of preferreds from high-quality issuers, including Canada’s Big Five banks and many of the country’s utility companies. Still, we haven’t found any preferreds that we want to recommend as buys right now.
Note that we still feel that high-quality stocks with good dividend yields, such as Emera, symbol EMA on Toronto (current yield 5.3%) or TransCanada Corp., symbol…
Privacy Policy and Terms of Use
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The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
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