Archive for February, 2011

Saving Big by Flying out of US Airports

February 15, 2011


A friend who lives here in Ottawa recently reported that she saved big on a recent vacation to Miami by flying out of Syracuse. The plane ticket on jetBlue from Syracuse to Miami for my friend and two of her family members cost her $650. The best prices she could find for flying out of Ottawa during the same period was $650 per person. Now, Syracuse is a three-hour drive from Ottawa and even accounting for parking at Syracuse ($70), gas and other incidentals, my friend figures she saved a total of more than $1,000 on her trip.

Of course, there are some risks involved. If the weather is bad, driving from Ottawa to Syracuse could turn out to be tricky. You may have to put up with unpredictable border-crossing times. Also, it is easier to deal with flight delays and cancellations when flying out of or back to Ottawa directly. And if you have a young family, you’d likely do anything to avoid driving three hours with the young ones in tow.

And it’s not just my friend. A number of Canadians have wised up to how much they can save by driving across the border. Vancouver residents are flying to U.S. destinations out of Bellingham, Winnipeggers out of Grand Forks, Torontonians out of Buffalo and Montrealers out of Burlington, Vermont or Plattsburgh, N.Y. A recent CBC news report said that an estimated 2.5 million Canadians cross the border and fly out of an U.S. airport. Canadian airports are blaming high rents charged by the Federal Government for the problem.

Publicly-Traded Mortgage Investment Corporations (MICs)

February 15, 2011


I’ve looked briefly at Mortgage Investment Corporations (MICs) [MICs are essentially mortgage funds] before but the accredited investor requirement or high minimum investments deterred me from investigating them any further. The High Net Worth section in today’s Globe and Mail included a column on MICs that pointed out that the existence of publicly-traded MICs. Publicly-traded MICs have several advantages: (1) No minimum investment or accredited investor requirements (2) Better liquidity and (3) Better disclosure by virtue of being a listed company. All the MICs listed here are qualified investments in a RRSP, RRIF, RDSP, TFSA and RESP. Since, MIC distributions are mostly classified as income, it is best to hold these investments in a tax-deferred account.

Timbercreek Mortgage Investment Corporation (TSX: TMC)

Primarily residential and retail mortgages in Ontario, Alberta and Quebec.
Current yield of 7.79%. Distributions paid monthly.
No leverage.
Fees: Management Fee of 1.2% per annum.
Performance fee of 20% over hurdle rate (2-year Government of Canada Bond Yield plus 450 basis points).

Firm Capital Mortgage Investment Corporation (TSX: FC)

Mostly conventional first mortgages in Ontario.
Current yield of 7.64%. Monthly distributions.
Fees: 75 bps manager fee. 10 bps mortgage banker fee. Performance fees charged on mezzanine and equity investments.

MCAN Mortgage Corporation (TSX: MKP)

Current yield 6.86%. Quarterly distributions.
Unable to locate prospectus.

I don’t own any of these names personally and I have tended to avoid alternative asset classes. I’ve started looking into MICs as many investors are interested in the relatively high income that these investments produce. If you own any of these names or other MICs, I’d be interested in your take in the comments section.

Giveaway reminder: If you are interested in using TurboTax to file your taxes, you may want to enter in the giveaway. Contest closes on Tuesday at 8 p.m. EST.

Will Better Fee Disclosure Help?

February 13, 2011


The report put out by the Task Force on Financial Literacy came in for plenty of criticism because it was stacked with insiders at financial institutions that profit from selling financial products. The Globe and Mail’s Rob Carrick pointed out that Canadians can be made a lot savvier about money with better disclosure of fees, rates, terms and conditions. In a sidebar accompanying the main article, Mr. Carrick says that investors would be better served if investment firms showed us how much we are paying for mutual funds — not just in percentage terms but dollar amounts.

You would expect that if investors were made aware of how much fees they were paying, they would wise up and choose low cost investments. Unfortunately, that doesn’t seem to be case. Consider an experiment described in a paper titled Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds. Researchers asked 391 people selected from Harvard staff members to allocate a hypothetical $10,000 among four real S&P 500 index funds. The funds had different front-end loads and different annual expenses. All subjects received the funds’ prospectus and were provided with a large incentive: they will be paid the profits on their investment at the end of an one-month period but will not be responsible for any losses. Some subjects received additional information in the form of a one page summary of fee information. The optimal portfolio would allocate everything to the lowest-cost fund but the researchers added a twist. All the funds available for selection had different inception dates and hence reported different average annual returns in the prospectus.

The results were dismal. Less than 1 in 5 subjects who were supplied with only a prospectus picked the lowest-fee fund. The group with a one-page cheat sheet that summarized the fund fees improved their portfolio allocation but only modestly. The researchers found that subjects “placed heavy weight on irrelevant attributes such as funds’ annualized returns since inception”. They conclude that “although better disclosure and financial education may be helpful”, their research indicates that “their effect on portfolios is likely to be modest”.