High interest rates explain a lot of the money pouring into guaranteed investment certificates these days, and so does the safety factor.
But some conservative investors don’t find GICs to be the ideal fit. One such person got in touch recently for some thoughts on how to park some cash in “something that is very safe and secure right now.” GICs were rejected because of deposit insurance limits. What about treasury bills or exchange-traded funds holding T-bills, this reader asked.
T-bills issued by the federal government are not deposit-insured, but they’re backed by Ottawa’s AAA credit rating from DBRS and the power to increase taxes if needed to meet its debt obligations. Arguably, a T-bill offers a slightly lower risk profile than a GIC because there’s no risk of uncertainty caused by the collapse of a GIC-issuing bank.
The issue with T-bills for investors is that they must be purchased through online brokers who may not offer the best pricing. The more you pay for a T-bill, or bond, the lower the yield you get. One particular online broker had a one-year federal government T-bill available this week with a yield of 4.45 per cent. One-year GICs were available at the same time with yields around 6 per cent.
T-bills do offer better liquidity than traditional GICs, and better rates than cashable GICs. That same online broker’s inventory of one-year cashable GICs paid no more than 3.35 per cent.
One way to squeeze more yield from T-bills is to buy a money market ETF that holds them as well as other short-term borrowings from the corporate sector. Money market ETFs have distribution yields of 4.9 to 5.4 per cent, which reflects the modestly higher risk level of holding debt assets issued by companies rather than governments. As with T-bills themselves, T-bill and money market funds do not offer deposit insurance.
A few other thoughts on T-bills and GICs:
-The minimum GIC purchase can be as low as $500 or $1,000 to $3,500 and up, while brokers typically require a minimum T-bill purchase of $5,000 or $10,000
-Deposit insurance from Canada Deposit Insurance Corp. applies to various eligible accounts held by the same person, so it may extend further than you might think.
-One more alternative to consider is the investment savings account, which is bought and sold like a mutual fund and offers CDIC-protected accounts with yields of 4.55 per cent to 4.75 per cent.
-- Rob Carrick, personal finance columnist
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Stocks to ponder
Bird Construction Inc. (BDT-T) Year-to-date, this industrial stock is up 51 per cent, making it the 14th-best performing stock out of 247 stocks in the S&P/TSX SmallCap Index. Last week, the company reported better-than-expected third-quarter financial results for the fifth consecutive quarter. As a result, earnings estimates and target prices were revised higher. The stock has a unanimous buy recommendation from eight analysts and a 12-month forecast price return of 22 per cent, not including the 3.5-per-cent dividend yield. For now, the stock trades at a reasonable valuation, relatively in-line with its five-year historical average. Jennifer Dowty delves into the investment case.
Moderna Inc. (MRNA-Q) One glance at its stock chart can tell you the story of the COVID-19 pandemic. It’s all there, starting with the rumblings in the pharma company’s share price in early 2020 as a mysterious flu in Wuhan, China, began to set off red flags. Then the quick emergence of a boom in pharma stocks. Finally, there was a long selloff as the crisis was subsumed into daily life. The rise and fall of Moderna’s share price is not just a remarkable distillation of how a global disaster played out in the stock market. As Tim Shufelt reports, it should also serve as a reminder that investing themes are perishable, even if it feels in the moment like this time is truly different.
Also see: Investors in thematic funds hurt returns by trading too frequently, says Morningstar
Encore Energy Corp. (EU-X) EnCore is an emerging uranium producer with operations in the United States. Year-to-date, the share price has rallied 62 per cent, and as Jennifer Dowty tells us in this review of the investment case, the stock has a couple of near-term catalysts that may lift it even higher.
The Rundown
David Rosenberg on how to invest as 2024 nears
A downdraft in resource prices, the loosening of global supply bottlenecks, and slack re-emerging in the labour market will usher in a further deceleration in inflation that will surprise the legion of bond bears out there, says the famed economist as he looks into his crystal ball. That means buying opportunities in bonds, as interest rates are slashed faster than what the market currently expects. And only certain select areas of the stock market are poised to do well.
Also see:
Billionaire quant Cliff Asness says he is ‘more a bond guy’ at this moment
Stocks to outperform fixed income in 2024, says Barclays
Why debt doom fears are beyond wrong … and bullish for markets
Debt got you down? Are North American governments – and consumers – living on borrowed time? With interest rates up, folks fear a reckoning. But Ken Fisher sees things quite differently. U.S. or Canadian, government or consumer, these debts aren’t near any looming calamity, the billionaire investor says. Markets see this clearly, while most people can’t.
Geopolitical angst more a market feature than shock
Even with two geopolitically risky wars raging and a series of critical elections next year, there’s little in annual outlooks suggesting investors should head for the bunkers. Judging by a torrent of 2024 investment advisories already filling inboxes, anxious geopolitics - turbulent for over five years amid trade wars, a pandemic, Russia’s invasion of Ukraine and the Israel-Hamas war - is now almost considered a constant to be navigated rather than a reason to go to ground, says Mike Dolan of Reuters.
U.S. high-yield bond market may hold less junk than before
The U.S. high yield bond market is the dog that has rarely barked, never mind bitten, during the Federal Reserve’s most aggressive interest rate-raising campaign in 40 years. The economy’s remarkable resilience to that monetary tightening, and cooling inflation, are the obvious explanations why spreads have remained well behaved. But as Jamie McGeever reports, the ‘junk’ bond market may also contain less junk than it used to.
Others (for subscribers)
Number Cruncher: 11 high-quality U.S. stocks benefiting from the AI trend
Scott Barlow’s Noteworthy: Cheap bank stocks are worth a look and other research highlights
Canadian ETFs: An avalanche of 37 new funds, many with active strategies
Friday’s Insider Report: CEO invests $1.3-million in this dividend stock recently hitting a 52-week high
Friday’s analyst upgrades and downgrades
Thursday’s analyst upgrades and downgrades
Ted Dixon: Petrus Resources CEO and director buy after dividend news
Monica Rizk: Bullish on Onex Corp.
Globe Advisor
Why this $75-billion money manager is adding U.S. assets and selling Canadian banks
This advisor learned early on never to act on a friend’s unproven stock tips
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What’s up in the days ahead
David Berman will explain why Teck Resources without coal assets could be an investor’s dream. Plus, Ian McGugan has a reality check on the latest happy mood in markets and John Heinzl provides his latest thoughts on Brookfield Infrastructure and its poor performance of late.
Black Friday is (almost) here: World market themes for the week ahead
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff
Rob Carrick