# Alternatives to DFN preferred shares?



## Eclectic12 (Oct 20, 2010)

A co-worker has parked some of money he hasn't figured out what to re-deploy to in DFN preferred shares. He likes the downside protection with a much better than MF HISA payout.

He'd like to do the same in his registered accounts but wants to avoid any issues with the superficial loss rules.


The NewGrowth Preferred claim to have downside protection with a 4% yield
http://www.scotiamanagedcompanies.com/smc/profile.do?company=NEW


Anyone familiar with them?

Or have an alternate suggestion for him?



Cheers


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## gibor365 (Apr 1, 2011)

> A co-worker has parked some of money he hasn't figured out what to re-deploy to in DFN preferred shares. He likes the downside protection with a much better than MF HISA payout.


 Do you mean DFN.PR.A? i did similar move, added more when it dropped to $10.02 ... but I have only registered accounts ... I would stick with register with such products... In his situation, I'd sell stock he holds in registered (to free up cash for DFN'PR.A ) and buy same stock into non-reg


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## agent99 (Sep 11, 2013)

According to this article there were 33 split share corps in 2013. I own three of them. DFN.PR.A, PVS.PR.B, PIC.PR.A. LBS.PR.A is another I have looked at at times. Others are listed in this closed end report:
http://globefunddb.theglobeandmail....=ASC&pi_page_no=2&pi_universe=&pi_action=Next

I don't understand why he would be concerned about superficial loss rules. No problem buying more DFN .PR.A in registered account if that is what he is considering.

The market value of these split preferreds is not guaranteed. They are not necessarily equivalent to HISAs unless held to renewal date and company does not fail. But you get greater return for the risk.


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## gibor365 (Apr 1, 2011)

Advantage to hold it in registered accounts like RRSP, RRIF or LIRA, that maximum HISA interest for such accounts are below 1%, 5 years GIC is around 2% , Pref Split yield is above 5%, thus ratio return vs risk is pretty good.
But in non-reg account whenre I can get HISA in range 2-2.5% in online banks, I wouldn't risk buying split


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## agent99 (Sep 11, 2013)

gibor365 said:


> But in non-reg account whenre I can get HISA in range 2-2.5% in online banks, I wouldn't risk buying split


Interest on HISA is fully taxed, while split preferreds will be mainly dividend income with usually lower tax rate. As a result, I have nothing that earns straight interest in my taxable accounts! TFSA is a good place for that.


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## doctrine (Sep 30, 2011)

If you're into preferreds, you could choose an index of them, like CPD for Canadian, or XPF for 50% Cdn or 50% US,. Those have some amount of downside protection from diversification.

There are some pretty awesome individual preferreds that have come out in the last year. Ones like Transcanada's Series 13 are pretty awesome - BOC 5 year + 4.69%, for an initial yield of 5.5%, but it will never be reset below 5.5% yield. It's trading at a slight premium, but it's still just fantastic, and if interest rates do rise, it will do even better. There's a small collection of those minimum-yield preferred shares out there, and I really think they're a solid investment, but no index that just tracks that class purely. I have some XPF personally but see the benefit of the min-yield preferreds.


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## Eclectic12 (Oct 20, 2010)

gibor365 said:


> Do you mean DFN.PR.A?


Yes.




gibor365 said:


> ... i did similar move, added more when it dropped to $10.02 ... but I have only registered accounts ... I would stick with register with such products... In his situation, I'd sell stock he holds in registered (to free up cash for DFN'PR.A ) and buy same stock into non-reg


He has cash or HISA MFs in all three accounts so I suspect he will still be looking for similar products to use in the registered accounts.




gibor365 said:


> ... But in non-reg account whenre I can get HISA in range 2-2.5% in online banks, I wouldn't risk buying split


He wants it to be liquid without any transfer delays.



Cheers


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## Eclectic12 (Oct 20, 2010)

agent99 said:


> ... I don't understand why he would be concerned about superficial loss rules. No problem buying more DFN .PR.A in registered account if that is what he is considering.


If he wants to sell for any reason - he does not want to have any restrictions. As it is an split share corp, he figures finding something similar that will avoid the superficial loss rules should be relatively easy.




agent99 said:


> ... The market value of these split preferreds is not guaranteed. They are not necessarily equivalent to HISAs unless held to renewal date and company does not fail. But you get greater return for the risk.


Agreed ... but compared to buying common stock, there's more protection.


Cheers


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## agent99 (Sep 11, 2013)

Eclectic12 said:


> If he wants to sell for any reason - he does not want to have any restrictions. As it is an split share corp, he figures finding something similar that will avoid the superficial loss rules should be relatively easy.


Superficial rules would only kick in if he sold and created a tax loss in taxable account and then re-bought same security in say RRSP or other affiliated account. Maybe he has some other reasons, but still puzzled. Anyway, there are alternatives as posted earlier.


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## Eclectic12 (Oct 20, 2010)

I think he's worried that if he hasn't sold in a registered account, re-buying in under 30 days in the taxable account means the "owns" part of the criteria is being met. I'd have to ask to confirm. 

I'm not sure he'd be re-buying in under 30 days often enough to be a problem but thanks to the list of alternatives - he can avoid the issue as he pleases.


Cheers


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## gibor365 (Apr 1, 2011)

> I own three of them. DFN.PR.A, PVS.PR.B, PIC.PR.A. LBS.PR.A is another I have looked at at times.


 Just curious what the reason you do own 3 of them? For example, all PIC.PR.A. holdings , also in DFN.PR.A ...


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## agent99 (Sep 11, 2013)

gibor365 said:


> Just curious what the reason you do own 3 of them? For example, all PIC.PR.A. holdings , also in DFN.PR.A ...


DFN has 15 holdings of which 6 are same as PIC. So more diverse holdings. The funds are managed by different companies, so risk further diversified. That would be a reason to add LBS. PVS is based on just one company, so totally different. And, they have different termination dates on which you can redeem or reinvest. So lots of reasons


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## Brin68 (Aug 25, 2016)

I believe there are approximately 40 split preferreds presently. Newgrowth does have good downside protection but it is very lightly traded and has an annual attraction feature which I do not like. I own SBC.PR.A and PVS.PR.B as well as a couple other splits. I do own a number of the new rate resets( less than 1 year since IPO).


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## gibor365 (Apr 1, 2011)

One of the safest is BK.PR.A with NAV above $21, but it extremely light traded  

actually , all of them lightly traded....looks like the highest volume has DFP.PR.A and LBS.PR.A ... and as per chart looks like cut distributions couple of years ago

Probably I'll just stick to DFN.PR.A , like all 15 holdings and anyway practically all LBS holdings , DFN.PR.A also holds


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