# Thoughts on Canoe EIT income fund?



## fourtwenty (Jan 9, 2021)

I have a small position (390 shares) in EIT that I bought a few months ago. It's in a TFSA so the dividend vs capital return tax complication that I've read as a downside isn't relevant to my situation. I'm likely going to bring my total shares to 1000 this week. From what I have read and can see in their history it seems very stable as far as dividend payments go.

Is this one of those rare actively managed funds that actually does beat the indexes? It looks like it to me. Over time the share price has gone down but with those high dividends the overall gains look really good.

Any thoughts on this in the current market? I see some discussion from many years ago on here but nothing recent.


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## Numbersman61 (Jan 26, 2015)

I’ve owned the units for a number of years and they have consistently paid a monthly distribution of 10 cents per unit. Current NAV IS $10.55 compared to trading price of $10.22. I recognize that some may be critical of their management fee and distribution strategy and also complain that in some years, the distributions are a return of capital but my view is that it is a well managed closed end fund.


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## OptsyEagle (Nov 29, 2009)

Everything looks pretty good after a 10 year plus bull market. 2020 was just a short blip on that.

One cannot look at the dividend strategy, yields or dividend performance of a closed end fund and derive any useful information. Since they can simply pay you money directly out of the portfolio, and they do, their ability to maintain a dividend and even raise it illustrates nothing about their management abilities.

My main complaint with EIT, is their constant issuing of new shares. If making the fund larger and therefore its ability to outperform more difficult, is not enough negative, they actually make the fund pay the broker commissions for this event, when all the fees that are derived from the larger asset base goes entirely to management. If an open ended fund tried this we would all revolt in disgust. This practice is unethical and should be banned by various regulators. Since it is not it is actually a good way to distinguish between the managers who truly are working in the interest of unit holders and the ones who only say they are so they can make larger fees income for themselves.

If you want to see the difference in management. Just compare any Canadian closed end fund to Cymbria. The difference in ethics is simply night and day. Someday all CEF swill be required to work in the interest of their unit holders but until then I would avoid the ones that don't. EIT is on that list but unfortuneately it is not alone.



https://cymbria.com/en/Cymbria


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## james4beach (Nov 15, 2012)

OptsyEagle said:


> One cannot look at the dividend strategy, yields or dividend performance of a closed end fund and derive any useful information. Since they can simply pay you money directly out of the portfolio, and they do, their ability to maintain a dividend and even raise it illustrates nothing about their management abilities.


This is basically a leveraged Canada+US dividend portfolio. It appears to have about 20% leverage. A safer, more transparent, and better performing alternative to EIT is to just invest in some standard index ETFs. If you love leverage, then you can borrow money and use leverage just like EIT does.

*The Canoe EIT has* *terrible performance*. Total return consists of share price + dividends. When you add those together, Morningstar shows the 10 year return = 6.9% CAGR

(Ignore the benchmark shown at Morningstar as it's incorrect and does not match portfolio mix)

Ignoring the leverage, their portfolio is roughly 60% Canada and 40% US. A suitable 'benchmark' would therefore be 60% TSX Composite and 40% S&P 500. The performance of that index mix was 10.2% CAGR for the same 10 year period.

Look at how bad the EIT performance is. Standard index returns for their asset mix would have been 10.2% so they actually have done 3% per year worse than the index... and that's before considering they are using leverage!!

If someone leveraged the index ETFs, the "benchmark" return would increase to maybe 11% meaning that EIT is now doing about *4% per year worse* than passive!

So this is the massive penalty that an investor pays for this desire for a high dividend yield. This is the same story over and over again. People get hung up on the idea of having regular dividend payments because of their reluctance to sell shares to raise cash. And in doing so, make bad financial decisions (like buying EIT) and then suffer performance at the end of the day. A performance loss of 4% CAGR is really quite devastating.

Canoe EIT's manager -- Rob Taylor, CPA, CA, CFA -- should be ashamed of himself.


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## james4beach (Nov 15, 2012)

Let me also check the last 5 years in case I'm being unfair on that 10 year calculation.

Canoe EIT's return was 6.35% over the last 5 years according to Morningstar
XIC (Canadian benchmark) return was 6.76%
ZSP (US benchmark) return was 14.13%

One can replicate EIT with a mix of 60% XIC + 40% ZSP, giving performance = (0.6 * 6.76) + (0.4 * 14.13) = 9.71% CAGR

So here again, even before considering leverage, EIT has performed 3.36% per year worse than the indexes.

Once you consider they also have 20% leverage, that performance is beyond terrible.


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## james4beach (Nov 15, 2012)

fourtwenty said:


> I have a small position (390 shares) in EIT that I bought a few months ago. It's in a TFSA so the dividend vs capital return tax complication that I've read as a downside isn't relevant to my situation.
> . . .
> Is this one of those rare actively managed funds that actually does beat the indexes? It looks like it to me.


I missed this point earlier about it being in your TFSA. The whole dividend thing doesn't matter at all then. As I pointed out - no, it's not one of those rare actively managed funds that beats the index. (You're probably losing a lot of money to the hidden fees and inefficiencies in EIT)

If you like EIT's holdings, why not invest in the following instead which is very similar?
50% XIC
50% ZSP

The result is very similar to EIT except it has performed much better. This can be illustrated here, which compares EIT to the XIC+ZSP mix I propose.

In this chart, the blue line is XIC+ZSP and the red line is EIT.UN. You can see that they basically have the same shape, but EIT chronically underperforms. Both lines show the total return which includes all dividends, so this is the result if you DRIP all shares.

There's no reason to invest in EIT.UN as far as I can tell, especially in the TFSA


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## Beaver101 (Nov 14, 2011)

Phantom distributions are back with a vengeance – and potential tax liabilities

*



Phantom distributions are back with a vengeance – and potential tax liabilities

Click to expand...

*


> _JOHN HEINZL SPECIAL TO THE GLOBE AND MAIL
> 
> *We hold Canoe EIT Income Fund (**EIT-UN-T**) and have been pleased with the income stream and recent gains of the fund. But I am perplexed by something. In December, the fund announced an estimated “special distribution” of 44 cents per unit that was confirmed in early January. I reached out to Canoe Financial and asked how the special distribution would be paid. I was told that I would not receive any cash or units but that my broker would increase the average cost of my units. My question is: If there is no increase in units or cash, how is it a benefit to unitholders? Am I the only one that does not understand this?*
> No, you’re definitely not the only one. Such non-cash distributions have been bedevilling investors for years. But with Canadian and U.S. stock markets surging in 2021, the number of reinvested, or “phantom,” distributions has risen dramatically. When even Canoe EIT Income Fund – a closed-end fund that had never paid such a distribution in its 25-year history – gets in on the action, you know phantom payouts have become too ubiquitous for investors to ignore.
> ...


 ... just saw this article so better copy and paste before it disappears behind a paywall.

Will be of interest to non-registered unit-holders of this fund. After a long (first) read - sounds like a tax-payer's nightmare. Maybe it's a good thing - getting continuous distributions?


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## Eclectic21 (Jun 25, 2021)

No worse a nightmare AFAICT than any other Canadian ETF that throws in phantom distributions. Since my Canadian ETFs have had cash CG as well as phantom distribution CG - I don't see how this one is all that unusual.

Anyway, once the details were known and a suitable bookkeeping was setup, it's more tedious than anything else IMO.


Cheers


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## Beaver101 (Nov 14, 2011)

Eclectic21 said:


> No worse a nightmare AFAICT than any other Canadian ETF that throws in phantom distributions.


 ... ok, fair enough.



> Since my Canadian ETFs have had cash CG as well as phantom distribution CG - I don't see how this one is all that unusual.


 ... I thought the phantom distributions were from CG or does your ETF split out the CGs giving you part cash and part CG which is an additional "bookkeeping" ... nightmare. I thought ROC was bad enough but at least that's taxed when you sell unlike phantom distributions, you have to pay the tax without seeing the gains/distributions in the "current" year. And if you miss it ... double-ding.



> Anyway, once the details were known and a suitable bookkeeping was setup, it's more tedious than anything else IMO.
> 
> Cheers


 ... I bet, especially on re-reading the article, you have ... income, capital gains not payable as cash but as phantom distributions, and then ROC. How can one track what percentage is actually phantom distributions if you're on a DRIP plan that absorbs all distributions within that DRIP ... in a non-register account of course. Sounds like alot of mumble-jumble ACB work.


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## MK7GTI (Mar 4, 2019)

James had some very harsh words a year ago. I’ve had EIT in both TFSA and RSP for couple years now. 2% of my TFSA and 3% of RSP. Pretty happy with my monthly dividend payment.


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## fourtwenty (Jan 9, 2021)

I'll follow up by saying so far EIT has done well for us. 33% increase in share price, plus another 12% of original investment value in dividends.


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## Mechanic (Oct 29, 2013)

In my income portfolio too. I think it's pretty solid and will probably add to it at some point.


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