Be like OMERS not HOMERS - Invest Like a Pension Manager

"First you get the sugar,
then you get the power,
 then you get the women!"
- Homer Simpson
An advisor at my bank's full service broker told me that his goal in managing money was to be like a pension manager - that is, forget the Homer Simpson get rick quick schemes or "swinging for the fences".  Instead, his style was to progress slowly and surely, not extending yourself too far out on the risk vs. reward curve.  Basically, be like OMERS and not HOMERS.

Nearly 1 in 20 employed Ontario residents is a member of the Ontario Municipal Employees Retirement Savings plan - that's over 400,000 people climbing their way up the sunshine list like spring-blooming clematises...clematii, sun-loving vines.

OMERS' strategy for steady sustainable (and less volative) growth is to shift to more private equity, and less public equity.  For a large pension fund, public equity gives the portfolio that up and down motion that causes pension contributors to "toss their corn dogs" like kids on a state fair roller coaster.

OMERS' solution is to shift to 47% private equity in the portfolio saying this 'direct drive" ownership model provides greater control of investments with lower cost.  In some ways this is just like an individual investor trying to lower his management fees or seeking out private investments like MICs, mortgages or REITS.  The challenge for the individual is doing this with enough diversification.

"Forget the sugar (energy from ethanol is a waste of time),
then you get the uranium, then you get the power!"
 Borealis Infrastructure's Bruce Power nuclear generating station.
In 2012 OMERS posted these returns for parts of their portfolio:

OMERS Capital Markets    +7.5%
OMERS Private Equity   +19.2%
Borealis Infrastructure  +12.7%
Oxford Properties  +16.9%
OMERS Strategic Investments - 10.1%

Overall return 10.0%

The private equity components' weighted return was 13.8%, while the public equity (Capital Markets) was only 7.5%.  Many OMERS members can tap into this diversified, and private equity weighted investment portfolio at a nominal cost of only $35 per year through the relatively new AVCs additional voluntary contribution program.

Compared to my bank broker's management fee of 1 to 2% (on top of the underlying ETF fees in the holdings he favours) individuals in the AVCs program can easily be like OMERS and not like HOMERs when it comes to retirement investing.

PS - Unlike Homer's Springfield Nuclear Power company, Bruce Power has banned the use of Rubik's Cubes in all operator training.

Tax Slip Tracking with Online Broker - Interactive Brokers vs. Questrade

Maybe you have one of those Hermione Granger Time Turner trinkets that lets you go back in time and redo you tax returns painlessly over and over again.  I'm guessing you don't because you are reading and investment blog and could otherwise make your dough time travelling and picking lottery numbers instead of investing.  For you your time is money - and you get what you pay for when it comes to documentation and on-line brokers.  Here is an example of the difference between Questrade and Interactive Brokers when it comes to versions of your tax slips, T5s, T3s, etc.

Obviously it is important that you file your tax return with the most current slips.  Questrade's web site keeps you guessing as to whether a slip has been amended or not.  First of all, their client notice portion of MyQuestrade is full of generic notices and nothing specific to you to tell you than an amendment has been made to your slips.  Second of all, the listing of available slips in an account is inconsistent and not helpful.  You basically have to download, open and compare slips in the list to earlier slips to see if there are changes.    Below is an example - the captions in 2012 don't indicate if the slips is original or amended .. and yes 2011 slips were amended in August (ouch)!

MyQuestrade Tax Slip List .. good luck!

This year even some of the original slips had the amended "A" code on the slip report code (Box 16 on a T3), so good luck with CRA this year you masochistic Questrade clients!  Let's look at Interactive Brokers. First, they send email alerts when you have a new secure message on the site.  And they clearly sort and describe the versions of your tax slips.  Below is an example from the Interactive Broker's site.

Interactive Brokers - effective  tax slip version tracking.
Yes Questrade has 95 cent trades now ... you saved 4 cents!  We round off cents in Canada now so don't go pinching pennies with Questrade when the dollars and sense (cents) are in managing you time better.  Avoid Questrade if at all possible....that means more time for you to kick back and sip butter beer and pumpkin juice!

CVC Market Point Inc. leaving the GTA

CVC Market Point Inc. is leaving Mississauga.  Investors in Carevest MIC and Canadian Horizons should not be affected and can contact Carecana Investor Relations for any administrative questions and needs.
Cee Vee See ya later Ontario !

The rationale for the move as stated in a letter to investors was that it did not make sense selling new products in the Ontario Market.  Obviously as the Carevest MICs 'go public' there is no need to have offices to go in and shop for their products.  Products will still be available through some exempt market dealers and investment advisors.

Apartment REIT Adds Value With Upgrades

How can an apartment REIT add value to unit holders?  One approach is to upgrade properties and reposition them in the market, that is,  increasing rent cashflow and increasing the associated property value.  Property values can be expressed as a multiple of the free cash flow (i.e., the capitalization rate ('cap rate') is the ratio of free cash flow to asset value).

Skyline Apartment REIT provides and example for a Hamilton property where extensive units upgrades have increased the rent by up to $500 per month or $6000 per year.  The investment per unit is in the order of $25,000.  Given a cap rate of 6 %, the increase in cash flow results in an increase in unit value of 16 times that (i.e., the inverse of the cap rate) or $96,000.  Subtract the upgrade investment and that is an increased value of $71,000 for the unit holder.

Centurion Apartment REIT has also highlighted this approach for building unit holder value.  Skyline indicates that they will reassess unit values at least yearly to reflect increases in property and overall unit value.  Of course in a large portfolio these upgrades can take time as turnover occurs over many years.

PS - Mark Twain is quoted to have said "Buy land, they're not making it any more".  He could have added "Then polish it up and reap the rewards".

Questrade Fixes Tax Slip Errors...Maybe

One thing that is definitely beyond the capability of the Questrade staff is the ability to issue correct tax slips, the first or second time.

Welcome to Questrade Loser !  Population you !
The big disappointment is that they can repeat the same mistakes year after year.  The reason I have left Questrade is the hassle of getting them to properly assign the distributions for Horizon's ETFs, particularly the covered call ETFs.  Also if you hold several of the Horizons enhanced equity income products (HEX, HEE, HEJ ...) the reports truncate the name of the fund so Questrade makes you struggle to figure out which is which - this is something you have to do in non-registered accounts to assign the return of capital for a fund, etc.

Questrade messed up covered call distributions last year and this year again, but the good news is that if you had any of these products at Questrade, they have recently revised tax slips - sorry if you submitted your tax return already!  You can check the report code box 21 to see if a tax slip is amended ("A") or original ("O").  Another problem with Questrade is that they will submit the original and amended slips to CRA but indicate that both of them are original - YES YOU GET TO PAY TAXES ON THE SAME DISTRIBUTIONS TWICE AS CAPITAL GAINS, AND DIVIDEND - OH WHAT FUN!  Can Questrade staff sort this out for you?  No way.

Stay away from Questrade!

Investors Group Portfolio Changes

Investors Group is changing the make-up of several of their portfolios.

The Maxxum Dividend Growth Fund (by IG Mackenzie) with a 15 year annual return of 4% is being dropped (5% weighting) from Alto Monthly Income and Alto Monthly Income and Growth portfolios.

The Real Return Bond  Fund is getting the boot from the above portfolios as well as Allegro Conservative, Allegro Moderate Conservative, Alto Conservative and Alto Moderate Conservative portfolios.  The Pan Asian Growth Fund is being substituted for the Japanese Equity Fund.  In addition ...


PS - The IG notice says there will be no material impact to the MERs ... that is, they will remain sky high relative to other options.  BTW, I just got the quarterly IG portfolio styatements - no reporting of the returns - ever.  What you don't know won't make you switch.

CareVest MIC DRIP - Class A Share Distribution

Carevest Mortgage Investment Corporation Class A Shares continue to pay a distribution during the redemption period if you are enrolled in the DRIP.  Cheques are distributed by Valiant Trust.  You can enroll for EFT but that does not seem to have kicked in yet.

The distribution rate is 0.0367 per unit, that is, on each $ 9.90 share NAV.  This works out to 0.37% per month or 4.4% per year.  This is quite a drop from the distribution of 6.51% before the conversion.  You can beat that distribution from a publicly traded MIC like Timbercreek.  With the recent drop in share price over the last week it yields 7.65 %.  Alternately, a private MIC like Fisgard pays and even 5.00% right now and has none of the stomach churning unit value fluctuation.

PS - MIC-DRIP ... sounds like a runner up name for McDonald's McCafe....just sayin'....

A preferred share fund that's worth the fees! - Hymas MAPF

The Malachite Aggressive Preferred Fund (MAPF) run by Hymas Investment Management (James Hymas) is a fund that is worth the fees.  The lament about investment fund fees is really about the the performance that the management fee generates.  When your fund just follows and index, the fees just drag you down.

MAPF holds preferred shares.  What is different than preferred share indices (or the ETFs that follow these) is that holdings are actively traded, not passively held.

This is described best on the funds site which says:

The success of the fund’s trading is showing up in the very good performance against the index
the long term increases in sustainable income per unit.   As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance is due to exploitation of trading anomalies.

Again, there are no predictions for the future! The fund will continue to trade between issues in an attempt to exploit market gaps in liquidity, in an effort to outperform the index and keep the sustainable income per unit – however calculated! – growing.

A comparison of MAPF performance with the benchmarks and indices the the end of February 2013 is shown in the table below (click to enlarge).

The portfolio average 'yield to worst' is 3.87% at the end of March 2013.  With favourable tax treatment of dividends from the preferred shares, that is equivalent to over 5% of interest (other income) from a GIC or a MIC.  The trading makes up the difference in the returns and adds 3-4% to the return relative to the benchmark TXPR or a popular ETF (Blackrock's CPD) over the last year.  These returns are after expenses but before fees.  With fees in the 1% range for small holding, paying for the extra performance is certainly worth it.

Outlook for Apartment REITs

Canadian Apartment Magazine featured Centurion Apartment REIT in the recent December/January 2013 edition.  It provides an outlook for this private apartment REIT.

The one-year return for the REIT was 19%.  Since inception, the return has averaged 12.6%.  Some of the return is credited to cap rate compression that may not continue in the future.  Going forward, Centurion Apartment REIT's target return is 7 to 8 percent - that is the current distribution.  On top of that, a 2 to 5% capital growth on the value of units is targeted, for a total return of close to 10%.  Obviously this beats bond fund returns hands down.  An added enhancement to your return is a DRIP program discount on unit value.  I don't know about you, but my online broker never passes on DRIP discounts to me on publicly traded stocks.

From a tax perspective, distribution returns are return of capital - that is, tax deferred until you sell, which is a lot better than the 'tax me now' income of bonds, GICs, MICs, etc.  If you have capital losses in a year that the REIT takes a jump in capital growth (like last year), you could consider selling and re-buying units to trigger the gain.  That could be effective if your are past the early redemption penalty period for holding your REIT units.

Centurion's portfolio includes 40 separate apartment properties in 17 cities, including 4,200 units.  A lot of the portfolio has been described as 'turn around stuff' where there is market re-positioning after upgrades.  Growth opportunities are being sought in the student housing field, and as part of financing for new construction (given limited housing stock).

PS - A long-time family friend cautioned us on buying into private REITs ... the next month Centurion bought his apartment building.  In the Toronto area we often see their properties when commuting, and take comfort in owning tangible bricks and mortar assets that are well managed.  On top of that, friends are paying the distributions.  Keep up the great job Centurion!

Tax Filing Deadline 2013 - 2012 Tax Year

The Canada Revenue Agency (CRA) 2012 personal income tax filing deadline is April 30, 2013, less than 4 weeks away.

The payment of any balance owing for 2012 personal income tax is due April 30, 2013.  This applies to all personal income tax filers including those who are self-employed.  Of course, interest and penalties may apply to amounts owing for late filing.

If you owe money but cannot pay - file anyway to reduce penalties.  If you expect a refund there is no real rush, however CRA states you may still want to file a return if any of the following situations apply:

1. You want to claim a refund.

2. You want to claim the WITB for 2012.

3. You want to apply for the GST/HST credit.

4. You want to begin or continue receiving Canada child tax benefit payments.

5. You have a non-capital loss in 2012 that you want to be able to apply in other years.

6 . You want to carry forward or transfer the unused part of your tuition, education, and textbook amounts.

7. You want to report income for which you could contribute to an RRSP in order to keep your RRSP deduction limit for future years up to date.

8. You want to carry forward the unused investment tax credit on expenditures you incurred during the current year.

9. You receive the guaranteed income supplement or allowance benefits under the old age security program.

Carevest MIC Retraction DRIP Shares

In case you were enrolled in the CareVest MIC and have elected to redeem, or retract, your shares, you may have flat-lined when receiving a cheque this week from Valiant Trust.

I have been wondering about the redemption timelines, fees and - most importantly - the NAV price per share and discount (aka loss) that would be applied.  When my first cheque arrived the total was for a couple dollars - hardly the 5 to 10% of principal that I was expecting per month!  Ouch!  Earlier Carecana folks told me redemption would be over 10 to 14 months, so I thought the NAV price was down to pennies on the dollar.

The problem is that the first cheque came with no documentation.  Whew!  Valiant quickly clarified that the first cheque was for fractional shares only - those accrued during the DRIP program ..ahhhhh!  Breathe.  Today the partial redemption cheque arrived from Valiant for 10% of the whole shares (including original principal and accrued whole DRIP shares).  This time the cheque came with a letter explaining how many shares the cheque was for.  That's better !  The Class A Share NAV is $9.90.  Best of all : no additional deferred sales charges are being applied (which I was expecting for redemptions within a two year period).  Still, there is a 10% penalty on the NAV.

One you quit the DRIP program, you can get the distributions over the redemption period deposited with EFT to your bank account.  Any ideas for an alternative to the Carevest MIC?  With today's TSX plunge I expect there is always going to be an appetite for these exempt products - too bad CareVest did not stick to the private MIC model.

AGF Caps Monthly High Income Class Fund

Corporate class funds have taken a hit in the 2013 budget.  AGF has capped contributions to its High Income Class Fund that converted income to capital gains - the use of these corporate class funds is a tax deferral strategy for those in high income tax brackets.

"We have undertaken this temporary measure in order to protect the interests of our investors," said Gordon Forrester, executive vice president, marketing and product, head of retail. "Until we receive clarification on these new regulations, we believe the prudent move for us is to protect existing shareholders from any potential uncertainty."

Other funds families offer these funds.  They also give you the freedom to rebalance investments in a non-registered portfolio, without triggering capital gains (and an immediate tax liability) when you switch.  I guess the feds see this as sort of a shell game ... a loophole to be closed so that everyone pays as they go.