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Fixed Income Alternatives, Update I:

In March I wrote a post titled Fixed Income Alternatives where I disclosed to investors some of my activities with fixed income products that often fly under the radar of investors and the market. I highlighted the benefits of one group of investments called CorTS’ (Corporate Backed Trust Securities) that had been trading at depressed prices in the fall of 2008 at the height of the credit crisis.

I wanted to provide an update on these investments as well as two other series of preferred shares I purchased and held in my foreign fixed income portfolio within my RSP. What I want to show is the return of each investment based on my cost versus a potential investment in the common stock over the same time period.

All but four of the fixed income investments beat their common share peer and there was no decrease in dividend/income from the fixed income group with a number of the common shares cutting their dividends.

So far the Fixed Income Alternative shares of the group have returned 4.61% in income and appreciated significantly. There is a temptation to sell the CorTS’ which are trading above their par value, but when I consider the income, yields on cost and the high credit ratings of the group I still intend to hold them for a 3-5 year period.

Don’t forget to contribute your questions to The Personal Finance Clinic which closes on May 31st, 2009.

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{ 5 comments… add one }
  • BIGINTOBONDAGE May 27, 2009, 8:47 am

    looks like you’re slowly turning to the dark side.
    I agree 100% with the strategy and allocations, best of luck.

    It is absolutely correct, especially if investing in the US or internationally, that prices for bonds and fixed income (even etfs) can fluctuate as much or more than the stock market.

    But the added bonus of fixed income instruments is the enhanced security you get in the form of priority of payments over common equity and return of capital.

    there were debt issues of GE (issued at 5% interest and 5 year maturity) floating around most Canadian financial institutions back in march and early april that were selling for less than $80 a unit. Now the price is above $104. The key to getting those happy double-digit returns out of otherwise investment grade companies is to always keep some cash on hand and pick up discounts at times when the market starts irrationally panicking (about once or twice a year). Your own time frame and general knowledge of debt, assets, credit ratings and cash flow allow you to pick distressed bonds or other fixed income that other novice investors (who purchase common equity) would balk at.

  • Nurseb911 May 27, 2009, 9:22 am

    Good comments BTB. I’m still an equity guy at heart, but I’ve certainly learnt over the past two years a lot and intend to become more involved in fixed income investments as a way of both diversifying and increasing my returns for the future.

  • BIGINTOBONDAGE May 29, 2009, 7:01 pm

    trust me, you won’t be disappointed with the eventual returns as you continue to put in the work.

  • cd_vision June 8, 2009, 1:21 pm

    I was thinking about feathering a few of these so I can get a monthly payment. Are the ex-dates pretty close to the payout dates?

  • Nurseb911 June 8, 2009, 9:07 pm

    CD: not sure about the specific ex-dates because I bought these simply on very good valuations, but here are the payment dates that I've received funds so far:

    KVM: December 1/June 1
    KVT: May 1
    KVR: March 16
    KTP: March 2
    KVJ: February 24
    KCT: February 2
    KNR: February 2

    The all of these should have payments on six month schedules

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