Phil regularly comments on this blog and I asked him if he would be interested in contributing to a new segment where you, dear reader, can talk about anything on your mind. You can share with other readers your financial success stories or maybe something that didn’t work out so well. If you’d like to participate in this segment, please contact me and we can discuss your idea further. Now, over to Phil…
I recently looked into investing in “mortgage investment corporations” such as those offered by Carevest and Equimor, which allow investors to invest in a pool of mortgages. I decided not proceed because the Ontario Securities Commission requires that we fill out a questionnaire to show that we qualify as a “sophisticated” investor. The OSC qualification to be considered a sophisticated investor really doesn’t have much to do about investment knowledge, but rather to do with how much money you have. So, unless you’re literally a millionaire ($1 million in assets) or make over $250K a year, you aren’t considered a sophisticated investor for the purposes of investing into these private funds. But aside from that legal entanglement with the OSC, the mortgage investments do seem to offer a nice healthy return, I just don’t know what the implications are if you don’t actually qualify according to the OSC and still get into that investment. Are you still protected from fraud? I don’t know. So, I opted out since I don’t qualify according to the OSC’s definition.
I’ve also looked into a private REIT (League Asset Corp) as well, which seems to offer a much better ROI than publicly listed REITs (they boast a 10-12% return). But their structure and holdings look rather scary. The syndicated property ownership model means that you own a small piece of one specific property. If I were interested in getting that closely tied to one single property, I would personally prefer that the deal is not a syndicated deal and just buy some commercial real estate on my own. Also, they offer a diversified fund, but in my opinion, it holds some rather low quality real estate.
I’m currently not sure where to put my new money these days. But many small and micro cap stocks seem to have taken the worst beating. I’ve been combing through the small caps to see what might be interesting to me these days but they are usually quite illiquid and it’s hard to get in and out of them.
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22 responses so far ↓
1 private mortgage corps and reits — award tour // Nov 20, 2007 at 10:50 pm
[...] Canadian Capitalist: Investing in Private Mortgage Corporations and Private REITs. some more exotic investment routes. [...]
2 FinancialJungle.com // Nov 20, 2007 at 11:03 pm
Some selective utility trusts have taken a beating recently. Borelax Power and Consumer Water Heater for examples. You can earn high yields with them and their businesses don’t correlated with the general market and especially ABCP. With talks of interest rate holding steady or even falling, I think these are good bets. In fact, both trusts are stuffed in my mouth right now.
3 thickenmywallet // Nov 21, 2007 at 12:19 am
Don’t invest because you have spare cash in your wallet. There is nothing wrong with holding cash in a high interest account until you find the right product at the right price rather than forcing yourself to buy because you think you haven’t been active lately.
4 Phil S // Nov 21, 2007 at 7:51 am
Well, now that the writedowns due to commercial paper market exposure and US subprime mortgage lending have been recorded by our Big 5 banks and consequently knocked the stuffing out of their share prices, they are looking like better investments now. In the short term, there MAY be more bad news to come out of them… But I think in the long term (meaning inside my RSP account, which I don’t need to touch for another 25 yrs), the fact that the Big 5 banks are trading at or near their 52-week low… And now we have at least some understanding of the magnitude of their exposure to these undercurrents, they seem like they may be good holdings.
5 Phil S // Nov 21, 2007 at 8:35 am
To thickenmywallet. I agree with you wholeheartedly as I hadn’t made a single trade other than buying cashable GICs for the past 7 months or so. However, now that there is some clarity in the financial markets and also since some stocks in certain sectors that I like have been beaten up, it may be time to take a few nibbles. After all, when everybody else is getting out, that’s when you want to get in.
6 Leslie S // Nov 21, 2007 at 10:15 am
To Phil S … just my opinion that, yes, there is some clarity in the markets, but I believe there is more beating up to come. We’ve seen the impact of the U.S. subprime market spill over into Canadian & global economies to date, and the peak for the resets of mortgages in the U.S. hasn’t even happened yet–that’s the Q2 2008. We’ve seen the smaller U.S. companies (i.e., Countrywide) take a hit but still in line are Freddie Mac and Fannie Mae, the two largest mortgage finance companies in the U.S. If I were in your shoes I’d hang on a few months longer and see what the fall out will be. Obviously it’s your call since you know your own threshold for risk.
7 Phil S // Nov 21, 2007 at 10:23 am
Hi Leslie. With regards to the banking industry, BNS was also taken down somewhat along with the others even though they don’t have as much US retail banking exposure as the other Big 5 banks. So, one might argue that the baby was tossed out with the bathwater here?
In actual fact, I have noticed that a few REITs have also taken a slight beating lately and I am thinking of picking up some REITs in my RSP portfolio.
8 Canadian Capitalist // Nov 21, 2007 at 10:27 am
I agree that there may be more pain in store for the markets. That said, catching the precise bottom is almost impossible and the markets are reasonably valued. I did pick up some BMO and RioCan but other than that I still have some powder dry in case better opportunities arise.
9 nice // Nov 21, 2007 at 10:42 am
I am waiting untile the next year. No rush.
The stronger Canadian dollar will hit the economy hard, and will be seen in another couple of months, regardless what the canadian news and media blows.
10 Phil S // Nov 21, 2007 at 11:52 am
For me, I have a number of stocks on my watch list where I’ve been waiting for an entry point. I agree with CC that it is impossible to catch the precise bottom, but if the price falls below what I consider to be an acceptable entry point, then I start to pick away at it. I might buy 50% of my desired total holding when it reaches the price that I am OK with… But then I keep some cash in case it keeps falling after that.
I also have different mindsets between my RSP account and my personal account. My RSP account has a 25-yr outlook until I need to start drawing cash from it, so I just pick an “acceptable” entry point and buy in assuming that in 25 yrs it will be worth more. My personal (cash) account is where I like to use leverage and I look for deep value. That is where I will take more risks and I will also wait to try to find the “precise” bottom of the market.
11 nobleea // Nov 21, 2007 at 11:53 am
I’ve never understood the rationale behind a ’sophisticated investor’ or an ‘accredited investor’. The $1mill in assets is the obvious choice for most people as it would be the hardest to prove - they’d have to get a lawyer involved to find out if you were telling the truth. I know a lot of people invest in private placements with smaller public companies. You have to be an accredited investor for that, but few are.
12 Abe // Nov 21, 2007 at 1:57 pm
How about IA Clarington Canadian Dividend fund?
13 WhereDoesAllMyMoneyGo.com // Nov 21, 2007 at 11:57 pm
I’ve been buying Rogers and BCE. BCE because it will work out to over 12% after picking up a dividend payment or two within a 6 month timeframe. I understand the discount right now is just the risk of the deal not going through, but seriously, with a $1 billion break fee - I’m going to bet it will get done one way or the other. OTPP may sell off assets right away after the purchase to pay down their leverage - which helps me bridge any potential risk thrown up by access to credit issues because it may only be a temporary need.
But in any case, I’m buying Rogers as well because I believe it to be a good long term buy, and the price has been made that much sweeter lately.
Couple that with the fact that once BCE goes private, there will be about $37 billion dollars flooding the market looking for a new home - quite a bit will stay in telco’s and I’m betting Rogers will get an extra kick because of it over a month or two after the BCE deal closes.
14 WhereDoesAllMyMoneyGo.com // Nov 22, 2007 at 12:05 am
CC: Yes, BMO is looking mighty attractive with a fat 5.10% dividend yield isn’t it?
I’ve been buying that *a bit*, but am waiting for the FY07 earnings coming out for all the banks next week - I believe BMO is the first to report… Pretty much all the big banks have credit writedowns and all have one time gains from the sale of VISA and MC. Clarity in the banks may arrive after the reporting is completed. Nonetheless, most on Bay street consider this the best buying opportunity in Canadian banks in 5 years - it might get better if the markets keep moving down. Seems like any news is fodder for a daily sell-off.
Happy investing!
15 Phil S // Nov 22, 2007 at 7:51 am
To WDAMMG… Do you have any idea why the BCE corporate bonds have taken such a beating? The last time I checked, they were more than a full 2% over Government of Canada bond yields. Ford Motor Company’s bonds are trading at a high yield for obvious reasons - they’re bleeding cash in the billions. As a general rule, I don’t buy individual corporate bonds (I only buy GoC, Provincial and GICs for fixed income), but I always take a look to see what is happening and I was a bit confused as to why the BCE bonds have been beaten up so badly.
16 Canadian Capitalist // Nov 22, 2007 at 8:48 am
Phil: I don’t follow the corporate bond market but my understanding is that the spreads have significantly widened in corporate bonds due to the repricing of risk.
17 WhereDoesAllMyMoneyGo.com // Nov 22, 2007 at 11:42 am
Phil - when the deal goes through, since it is a leveraged buyout, the credit rating of the new entity will go to BB (it is A now) which is junk status (BBB and above is investment grade). This has been factored into the bond pricing already and is the main reason for the price drop.
18 Mihai // Nov 23, 2007 at 2:03 am
What about ‘Life Settlements’.
An informercial on the radio mentions 10% /year - guaranteed as far as I understand - or 12% /year compounded after 5 years.
The only caveat seems to be a minimum investment of $25,000.
19 WhereDoesAllMyMoneyGo.com // Nov 23, 2007 at 10:54 am
Mihai - that smells real funny. There is nothing on the market with guarantees like that - not even remotely close.
Do you have any information or a website that we can check out?
20 Canadian Capitalist // Nov 23, 2007 at 11:24 am
Mihai: I don’t have a clue what “life settlements” are but I’ll second Preet that it sounds suspicious to me. A guaranteed (meaning backed up the coffers of the Govt. of Canada) 5-year bond/GIC yields around 4% today. You can get returns over that by taking more risk.
21 Den // Nov 24, 2007 at 1:51 pm
A Life Settlement is the sale of a Life Insurance Policy that is no longer needed or wanted by the policyholder… beneficiary might have passed away, policyholder owned more than one policy, premium payments are now too high, etc. In lieu of allowing policy to lapse it can be sold in secondary market at a discount of face value. Double digit returns consistently for past 16 years. Your investment and the return on your investment are insured (or guaranteed) in the sense that, upon the demise of the policyholder, the investor(s) is paid full face value on policy… directly by the A-rated, Legal Reserve Life Insurance Company with whom the policy originated… they are legally bound to do so and have not failed to do so since 1845. No market risk. Must be an accredited investor ($1M assets).
22 Mihai // Nov 27, 2007 at 1:27 am
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