Comparing Online Brokers Head-to-Head

An investor's time is money.  Wasting time is an 'opportunity cost' when you consider what else you could be doing instead of some unproductive activity.  This applies to time you spend on research, consultations, paperwork for tax filing, etc.  So when comparing online brokers, you have to consider the time you put in to save a bit of cash on fees.

I was sold on Questrade for a long time.  That is, until I needed client service and realized you get what you pay for ... and the obvious corollary nobody talks about is: if you don't pay for it, you don't get it.  Recently I have switched to Interactive Brokers because of steady, abysmal client service at Questrade over a couple years.  In contrast, Interactive Brokers offers:


i) lower trading fees
ii) lower margin rates
iii) better issue (ticket) tracking to resolve issues and questions
iv) better tracking of versions (revisions) to tax slips
v) more timely response to questions (unlike Questrade where if staff leave, your request could go cold)
vi) more accurate and complete tax slips

I was able to compare Questrade head-to-head with Interactive Brokers this past year when I held the exact same stocks at both places for part of the year.  The difference is night and day.

The most challenging thing with Questrade is not that there are problems, e.g., with accuracy or completeness of their tax slips.  That's life.  The issue is that there is slow acknowledgement (understanding?) of issues, incomplete resolution, and no compensation.

You may want to consider Questrade for registered accounts where your tax reporting does not matter and you won't need accurate tax slips for tax filing.  I've punted Questrade for non-registered accounts in favour of Interactive Brokers.

Covered Call ETF Distribution Type and Tax

I wish someone would buy this book for the folks at Questrade who take care of ETF distributions and tax slips.  This is especially true for covered call ETFs like those from Horizons (HEX, HEE, HEJ, ....) that offer distributions that are generally not eligible Canadian dividends.  If my 2011 taxes are any indication,  Questrade has been acting dumber and dumberer when it comes to classifying  those ETF distributions - rarely getting them in the right box the first time. This is important at tax time when distributions are put on your T5 or T3 slip, or both.  Even if the distributions are return of capital, those have to show up on your T3 slip on box 42.

Horizons has posted their annual distribution summary for their 2012 and these are summarized in the chart below.  Some ETF distributions are 100% return of capital (ROC) - no tax payable this year, but the adjusted cost base of the shares go down and you pay that in capital gains when you sell.  This is shown as the violet bars.  Click the chart to enlarge.

Many buyers would have expected higher capital gains as opposed to ROC, because the premiums earned on covered calls is taxed a capital gains - for example, last year HEX had no capital gains.

Investment decisions should not be made on the basis of tax treatment, but it can be a consideration.  After all, ROC is a great way to defer taxes to a later date and many ETFs, especially new growing ones, offer that.

But wait!  Here comes the Questrade Tax-mobile to the rescue!  Maybe they have a De Lorian with a flux capacitor too and can travel back to 2012 and fix my 2011 tax slips.

Best RESP GIC Interest Rates


What is harder than finding the last foil-wrapped chocolate nugget in the family room Easter Egg hunt?  A decent interest rate on an RESP eligible GIC - that is, your education nest egg.  A GIC in an RRSP is something to consider as your child approaches the withdrawal period and you want to lock in the value of the principal investment (and the grants) - and get some return to cover inflation, before having to withdraw in the next few years.

Many banks offer anemic GIC rates for products held within their RESP account.  Some of the high yield GIC organizations (like Achieva) do not offer RESP accounts - so what to do?  Go to a big bank like CIBC and get a 5 year GIC with a 2% rate in a RESP.  A better plan is to go to ICICI which offers high rate RESP GICs. ICICI Bank Canada has selected Knowledge First Financial (formerly USC Education Savings Plans Inc.) as the exclusive provider of Registered Education Savings Plans to its customers. The Registered Education Savings Plans are products of Knowledge First Financial.

But is the RESP GIC really rate so important in these last couple years anyway?  If you are depositing $2,500 a year to get the 20% government grant - $500 per year - the extra 0.2% to 1% return for a few years is not a big deal. The best decision you made was making the deposit.  Someone holding the RESP deposit in cash 'earn's 20% over 3 years, someone holding a low interest RESP GIC may earn a compounded 21.8% (earning 0.5% a year interest), while someone with a high rate RESP GIC may earn 23.6% (earning 1% a year interest).

So if you hunt for a great RESP GIC interest rate - and even double the interest earnings - you end up with just 3.6% more than the lazy bunny who did nothing - why? - because the grant is a big factor.

Last Minute RRSP - Best GIC rates

As an alternative to money market mutual funds or bond funds, there is no reason you could not consider GICs for fixed income in a registered retirement savings plan (RRSP).  Guaranteed Investment Certificates are simple to understand, have no risk of losing principal, and best of all have no fees.  Here are some tables of what various banks, credit unions, and others are offering.

Ally (RBC) Rates March 2013
The "Would you like a pony?" people, formerly Ally Bank - and now Royal Bank of Canada (RBC), have grinded down their rates like a pony at the glue factory, and there is not left.  Remember the 2% savings rate?  Now you need a 4 year term to get to that level (see their chart at right).

The most reliable rates are from Achieva Financial - a credit union out of Winterpeg Manitscoldout (see chart below).  Acheiva's GIC rates have always been a shade higher than Ally and now they are clearly above - no more 2% savings rate anymore but you get close .. certainly these rates maintain most of your buying power after inflation.

Acheiva Rates March 2013
Search online for the best rates and you can't beat Achieva Financial for GIC rates.  These apply to any deposit size.

The chart to the bottom  right is from the GIC Wealth Management Inc. web site.  They are competitive with Acheiva's rates.  They also offer a 2.1% for a 15 month term - but that is with a $25,000 deposit.

For our RRSP top up this year we went to ICICI Bank for the first time.  They edge out all the others with a 3.15% 5 year GIC rate.  This applies to RRSP, RRIF, RESP or TFSA accounts from  ICICI Bank Canada. Like all CDIC deposits it is insured for up to $100,000.

Remember - if you are in a high tax bracket now, and may be in a lower on when you retire (e.g., invest this GIC into a spousal account), you get back more in the RRSP tax refund than you will in over 10 years of  GIC returns.  Considering that, there is not a big difference in a fraction of a percentage in GIC return.  Consider sticking with one institution to keep filing simplified and save some time.

Horizons HXT HSX ETF Forward Swap Swiped in Budget?



Many of us have looked to low cost ETFs as part of investment portfolios.  We have a wee bit of Horizon's HXT, for example, which uses a forward swap on the S&P/TSX 60, to defer gains until units are sold.  For this fund, all returns are invested back into the cost of shares, so you don't pay dividends as-you-go.  HSX is a similar S&P500 index fund.

From yesterday's budget:

Certain financial arrangements (character conversion transactions) seek to reduce tax by converting, through the use of derivative contracts, the returns on an investment that would have the character of ordinary income to capital gains, only 50 per cent of which are included in income.

A character conversion transaction typically involves an agreement (called a forward agreement) to buy or sell a capital property at a specified future date. The purchase or sale price of the capital property under a derivative forward agreement is not based on the performance of the capital property between the date of the agreement and the future date – instead, the price is determined, in whole or in part, by reference to some other measure, often the performance of a portfolio of investments. The reference portfolio typically contains investments that generally produce fully taxable ordinary income.  You still here?

The tax treatment of HXT was questioned in the past.  Big Jim Flaherty and the boys add:

...if a derivative forward sale agreement is used and the sale price of a capital property is based entirely on the performance of a reference portfolio, the taxpayer would have an income inclusion equal to the amount by which the amount paid under the agreement for the property exceeds the fair market value of the capital property at the time the agreement is entered into.

In a taxable, non-registered account, HXT provided diversification, and simplified accounting as well as tax deferral benefits.  Looks like that could be out the window now.  Horizons says no.  Stay tuned.

PS - tucked away in shoe boxes in our basement is a Big Jim, Big Jack (the olympic guy), and Big Josh (the bearded lumberjack dude) .. I'm reminded they are not dolls but action figures!

2013 Budget Clean Energy CCA Deduction

Arnie says ``Get to dah CCA choppah !!!``
Yesterday's budget includes and Accelerated Capital Cost Allowance for Clean Energy Generation Equipment.  This change will help terminate (see image at right) the adjusted cost base of green energy equipment.  Yeah!

Under the capital cost allowance (CCA) regime in the income tax system, Class 43.2 of Schedule II to the Income Tax Regulations provides an accelerated CCA rate (50 per cent per year on a declining-balance basis) for investment in specified clean energy generation and conservation equipment.

Included is eligible equipment that generates or conserves energy by:
  • using a renewable energy source (for example, wind, solar, small hydro);
  • using a fuel from waste (for example, landfill gas, wood waste, manure); or
  • making efficient use of fossil fuels (for example, high efficiency cogeneration systems, which simultaneously produce electricity and useful heat).
Providing accelerated CCA in this context is an exception to the general practice of setting CCA rates based on the useful life of assets. Accelerated CCA provides a financial benefit by deferring taxation. This incentive for investment is premised on the environmental benefits of low-emission or no‑emission energy generation equipment.

Some REITs have been proactive about income-producing green initiatives.  Example initiatives can be capital intensive and the useful life of things like solar panels (or their efficiency over time) is uncertain.  The budget's more aggressive depreciation allowances will encourage green investments like these.  I would favour those property owners investing in Clean Energy Generating Equipment (e.g., Skyline REIT`s solar panels) rather than other LEED point initiatives like say green roofs.  Green roofs can help get a plaque on the corporate office wall, and may provide amenity value to tenants in some cases (lower vacancy, turnover benefits?) - but generally they provide just a  ``warm and fuzzy``.  I would trade that for the ``cold and hard`` cash from solar panel income from the Ontario FIT program and from the 2013 budget improved CCA deduction benefit.

Federal Budget Infrastructure Stock Picks

The 2013 budget's Economic Action Plan 2013 unveils a new Building Canada plan to build roads, bridges, subways, commuter rail and other public infrastructure.  This new Building Canada plan includes over $53 billion in new and existing funding for provincial, territorial and municipal infrastructure.

What companies will benefit from infrastructure investments like these?

Any companies that, through public sector contracts, access the Community Improvement Fund funding: $32.2 billion consisting of  Gas Tax Fund and the Goods and Services Tax (GST) Rebate for Municipalities.  So anyone involved in the design and construction of roads, public transit, recreational facilities and other community infrastructure across Canada.

Similarly any companies who may access projects under the New Building Canada Fund funding: $14 billion to support of major economic infrastructure projects that have a national, regional and local significance.

Those are the big pots of money.  You will not find many major engineering design firms listed on the TSE .... and most have been bought up by the big guys listed in the US.  The Engineering New Record maintains lists of top (biggest) design and construction firms and firms in niche areas as well.

In Canada we of course think of SNC.  But on "major economic infrastructure projects" noted above, US and international partners are involved on the design and contruction as well at the long-term operation (P3).  As an example, The Windsor-Essex Parkway (Highway 401 extension to the third crossing from Windsor to Detriot) had local designers involved but the majority were under their US parents (Hatch, AMEC), Infrastructure Ontario's peer review was by URS, project direction was by Fluor, and financing was from a Spanish consortium.  So investors have too look broadly for their 'municipal' infrastructure exposure, or maybe consider other infrastructure plays in other sectors like energy that will not necessarily benefit from the new Canada Building Plan.

Private REIT Benefits from Centurion Apartment REIT

Centurion presents some great graphs that drive home the value of investing in private REITs compared to the broader market or publicly traded REITs.  These are from the Centurion site and they really do speak for themselves.  The first chart shows the high volatility of the TSX TR (total return) and the TSX REIT index total return.


The second chart shows the steady growth of the private apartment property index.  Even through the crises that drove down the TSX and/or REIT indices (e.g., tech bubble, or 2008/2009 financial crisis), the apartment index marched onward an upward.  Too bad someone could not figure out a way to hold a few private apartment REITs in a fund to replicate this steady performance!


The bar chart below the second chart shows the total apartment return being positive over the past 27 years!  The few years with negative capital growth (4 years in total) are offset by the income.  With this track record, apartment investments give you as close to a guaranteed investment return as you could get.


Rents Support Apartment REIT Values

With the increase in apartment REIT stock prices, or for private REITs units prices, you could question what is going to support total returns over time.

On factor supporting prices is increases in rents.  If cap rates stay the same, increases in rental fees can support share and unit prices, providing some protection from inflation - something that you do not get from today's other fixed income investment.  This is the value of investing in hard assets.

CMHC publishes reports twice a year on the rental market including rents by province and market, and vacancy rates.  In Ontario, rent increased by 2.4 % in markets greater than 10,000.


Canada wide, rents increased at a higher rate, supported by western provinces.  The following table excerpt shows those provinces and the Canada-wide rent increase of 2.2%.

CareVest MIC Redemption

Good old Bob wrote the following in his Redemption Song:


Old pirates, yes, they rob I;
Sold I to the merchant ships,
Minutes after they took I
From the bottomless pit.

...and so on.

Holders of Carevest MICs are likely singing the blues as opposed to swaying to reggae hits if they are looking for any redemption of their MIC units.  Limitations are all spelled out in the subscription agreements, but it doesn't hit home until you are looking to cash in your units.  By the end of February,  the MIC received "retraction notices" that filled the limits for 2013, meaning no more are accepted for the year.  It seems there has been a run on redemption (retraction) requests since the proposed amalgamation.

Directors of the MICs may waive limitations and pay out retractions at their discretion.  As it stands today, a redemption will take 10 to 14 months and that is subject to change.  A good lesson in liquidity.

CareVest MIC Amalgamation

Can't get no satisfaction with this MIC.  Some rock bands last for decades, but the private CareVest MICs are about to retire.

Back in November, member received notice of the intent for the Carevest MICs to "go public".  Shareholders of the following:


CareVest Second Mortgage Investment Corporation (“CCI Second”);
CareVest Blended Mortgage Investment Corporation (“CCI Blended”);
CareVest Capital Blended Mortgage Investment Corp. (“CC Blended”); and
Canadian Horizons Blended Mortgage Investment Corporation (“CH Blended”)


...were informed of an opportunity that began as follows:

"You have or will soon be receiving an information circular from Management of the CareVest MICs referenced above (the “Amalco MICs”) that contains information regarding what we believe is an exciting and timely opportunity for the Amalco MICs. Management is seeking shareholder approval for 3 initiatives. The first proposal seeks guidance from shareholders regarding the potential to list shares of each Amalco MIC on the Toronto Stock Exchange (“TSX”). The second proposal seeks authorization to amalgamate the Amalco MICs into one larger MIC. The third proposal is more of a corporate housekeeping matter to adjust the historic stated capital of each Amalco MIC to the actual capital of each MIC."

Other benefits described were Liquidity, Fees and Costs, Transparency and Disclosure. Obviously if you bought into private MICs like this you didn't have liquidity high on your list.  As for transparency and disclosure, the Carevest MICs would benefit from that - before the amalgamation, may of the units were redeemed at discounts to unit value, anywhere from 2 to 10 percent, because of impaired loans.  These amounts increased over the last year.  So earning 6-7% on your units, paying tax on that interest income and then redeeming them for negative 10% plus maybe a redemption fee of 2% doesn't give much satisfaction.

Representatives have said the new structure would be like the publicly traded Timbercreek MIC (TMC on the TSX).  TMC yields 7.41% today.  It has a very low beta (0.07) meaning it does not vary much in share price.  Still, over a year you could lose at most 9% in share value with TMC if you buy high and sell low (it has traded between $10.90 and $10.00 per share over the last 2 years) - but most likely if this is a buy and hold you would ride out that variation.


Skyline Apartment REIT Highlights Total Return

With the recent rocketing in unit price for the Skyline Apartment REIT, the folks at Skyline have taken to highlighting total returns of units, and return on original unit price, as opposed to the distribution on the current unit price.  While the distribution is the same per unit, the percentage distribution is no longer the stellar 9% it used to be.

The Skyline  table below shows distribution rate "on original investment", assuming you got in at $10.00 per unit, at 9.9%.  Skyline kept the distribution rate at 9% when the unit price increased to $11.00 - but now the rate has dropped.  With the latest $13.25 unit value the distribution is 7.47%.  The Aggregate return in the last column is the total return.


With the DRIP option investors can do even better:


Cap rates have been compressing on multi-residential properties - so in the future Skyline may continue to bump up the unit price while the distribution yield stays more modest.

Bank of Canada Rate Steady at 1%


Great news for REITs and sustained low borrowing costs! Bank of Canada has announced it is keeping the overnight lending rate unchanged.  Holding the rate at 1%  and noting the “the muted outlook for inflation,” the rate “will likely remain appropriate for a period of time,” Carney said.


Obama Approves Keystone XL Pipeline ...

TransCanada Corporation which trades as TRP on the NYSE and on the TSE is set to soar after President Obama has approved the controversial northern leg of the Keystone XL Pipeline.  Hopefully this news is only months away.

TransCanada's chief executive, Russ Girling, said that construction of the pipeline could be complete by late 2014 or early 2105 if a final decision by the Obama administration comes by midsummer.

Energy consulting firm ClearView Energy Partners said signals from the administration are that construction of Keystone will not play a major role in climate change.

 TransCanada Corporation is active in Renewable Energy projects and those with low carbon footprints including nuclear, hydro and wind generation primarily located in Alberta, Ontario, Quebec and the northeastern United States.

Mortgage Calculator

Back in the day, engineers had slide rules, and investors and bankers had mortgage calculators.  The one on the right could be adjusted down to the lowest conceivable lending rate so the borrowers could look up to the monthly payment for a range of amortization periods.

Obviously this tattered calculator is pretty old since the lowest lending rate is 5%.  Today's historically low rates are one reason why the REIT sector is predicted to maintain high returns this year.  Last month's SKYLINE COMMERCIAL REIT information sheet showed the Average Weighted Mortgage Rate at 4.25%.  That's literally off the calculator chart meaning lower operating costs.  Over the last year InterRent REIT extended the average life to maturity from 2.5 years to 4.7 years and lowered the weighted average interest rate by 68 basis points from 4.28% at Q4 2011 to 3.60% at Q4 2012.  Yes, we need a new mortgage calculator.

Many REITs will benefit from rates staying low due to their longer average terms (and which means they are averaging down their costs with each renewal).  It stands to reason that those with the shortest aggregate terms have the most to lose when (if) rates go up - these REITs have already rolled a larger percentage of their loans into today's lower interest mortgages.

Keystone XL Pipeline - TransCanada Pipeline - The Chantays

When the U.S. State Department says building the northern leg of TransCanada's controversial Keystone XL pipeline won't have a major impact on Alberta's oilsands development, the doesn't mean it will there is no major impact for investors in TRP.  Approval will be a positive catalyst for share prices for TRP.

Specifically, the U.S. State Department says that the pipeline "remains unlikely to significantly impact the rate of development of the oilsands or the demand for heavy crude oil in the United States."  The key word is 'rate' - but what will be impacted is the economics of that development.  Today, crude from Alberta's oilsands sells at a 30 per cent discount to the benchmark U.S. counterpart.  The northern leg of Keystone XL will improve the market price for Alberta crude.

Other catalysts for TransCanada in the near term?  The company said fourth quarter results were hurt due to plant outages at Bruce Power in Ontario (TransCanada is a partners in the nuclear power company on the wavy shores of Lake Huron).  That should turn around with the plant back online.  Recently the Bruce B Unit 6 825 megawatt unit was safely shut down after what TRP calls "impressive 556-day continuous run for which made it the top-performing pressurized heavy water reactor in the world last year."

Other pipeline controversy and lame blog tie ins to wavy shores?

Sadly yes. Check out the The Chantays 1962 hit Pipeline performed on Lawrence Welk.  Cable news is reporting on the controversy that the boys might have lip synced!  OMG! Judge for yourself.