financial investment information » Alternatives

Minibonds: PINES, QUIBS, PD’s, and More

Wed, 08 Sep 2010 06:00:00 +0000

Income investors, are always looking for new and different alternatives to the staid municipal bonds and utility stocks. One interesting alternative is the Minibond. This is a bond that is traded, just like a stock, on the New York Stock Exchange or American Stock Exchange for around $25 per share. They are almost like preferred stocks except that they pay interest instead of dividends and they usually have a specific maturity date. Sometimes they are referred to as PINES (Public Income Notes) or QUIBS (Quarterly Interest Bonds) or QUICS (Quarterly Income Capital Securities) or QUIDS (Quarterly Income Debt Securities). There are even a few that are issued as Perpetual Debt or PDs, which means that there is no maturity date.

The advantages of Minibonds to the issuers are that the interest is deductible to the corporation (unlike dividends on preferred and common stocks, which are not deductible).

The advantages to the investor are first, that the bonds are more secure than preferred stocks (in other words, if the corporation goes out of business, the bonds are generally paid off first before the preferred or common stock). Second, the Minibonds (with the exception of the perpetual debt bonds) have some limited protection against inflation versus preferred stocks in that if interest rates go up after purchasing them, their value will drop; however the par value (usually $25) will be paid back at maturity on the Minibonds. Whereas, preferreds have no maturity. The third benefit is the small denomination, especially when looking at a $2,000 IRA investment. A fourth benefit is that since they are traded like stocks, there is more liquidity than buying or selling a $5,000 bond. However, these are still very illiquid investments. Most have a very low daily volume.

An example is the AT&T Inc. 6.375% Senior Note (ATT), which currently yields 5.9% and pays quarterly. Another is the Viacom, Inc. 6.85% Senior Note (VNV), yielding 6.5%, which also distributes payments quarterly.

WallStreetNewsNetwork.com is working on a list of all the Minibonds, which can be downloaded and sorted. It should be posted in the next few days.

Author does not own any of the above.

By Stockerblog.com

BlackRock ETFs: Becoming more opaque than transparent a concern?

Tue, 20 Jul 2010 17:35:00 +0000

One of the benefits Exchange Traded Funds (ETFs) offer me, amongst many above their investment cousins, mutual funds, is their transparency. Part of this transparency is knowing what I own but also how much its costing me to own it. Its one of the reasons I started investing in ETFs a few years ago and maybe its the same reason you started investing in ETFs as well. Well, some of that transparency for BlackRock ETFs has disappeared, but is that a big deal?

Recently, BlackRock stopped publishing their management expense ratios (MERs) for ETFs on its iShares Canada website. (You can read more about this here.) Only the management fees for ETFs are shown. Example, XBB:

A management fee is part of the total fee (MER) I pay to own my ETFs.

In the case of BlackRock Canada, XBB for example, the management fee is equal to the trustee fee paid by the fund to BlackRock Canada, and does not include applicable taxes or other fees and expenses of the fund.

The formal BlackRock disclaimer goes further to state, not about XBB, but for XIU:

In the case of XIU, the indicated figure includes (1) 0.15% paid in trustee fees to BlackRock Canada, plus, (2) certain other fees and expenses which are payable directly by the fund, and which are subject to an expense ceiling of 0.02% per year, but excludes fees and expenses incurred in complying with NI 81-107, income tax, GST (and beginning on July 1, 2010, HST), withholding and other taxes.

I like transparency, always have, and you probably do too. But is this BlackRock news cause for concern? Are they becoming too opaque for me to own their ETF products? Nope…

I say that because first, the difference between the management fee and the MER isnt huge to begin with for ETFs. You can see this in the BlackRock disclaimer for XIU, a few hundredths of a percentage point. Its not much different for XBB. Even with our new HST in Ontario (not fun…) the difference isnt that much higher.

Second, and my biggest reason why I dont think this is a big deal, my alternatives arent great. Im not saying Im held captive by ETF companies like BlackRock, I can always buy individual stocks instead (I do…) but with few alternatives or amongst the alternatives available in Canada, is this news really that bad? With some of my ETFs, like XIU and XBB, Ive already got some of the lowest-possible-costing-products in my portfolio on the market today. Vanguard, arguably, the lowest MERs for ETFs on the planet (one of their products costs 0.06% and many others cost around 0.15%) while great products don’t have a shop in Canada (yet). So, Vanguard aside, the cost of my ETFs with BlackRock is highly competitive with everything else out there, except of course, mutual fund fees. Should I go back to mutual funds because of this news? Ah, no.

Even with this news, I hold ETFs because the benefits far outweigh any negatives. Those benefits are…

1.ETFs continue to disclose their exact holdings to me so I always understand precisely what I own (or am buying).
2.ETFs continue to provide me with superior flexibility; can be bought (I never sell) at any time.
3.ETFs continue to be tax efficient; they have low portfolio turnover because of the indexes they follow.
4.ETFs continue to provide me with a strong allegiance to passive income.
5.ETFs continue to provide me with great dividends and distributions.
6.ETFs continue to provide me with instant diversification.
7.ETFs continue to provide me with performance transparency, I can immediately look up how well theyre doing on the TSX.

Yes, there is a downside to ETFs and passive investing with these products (as opposed to holding only individual stocks). Management can change their fee disclosure practices; become less transparent, or raise fees at their discretion and the long term DIY investor has little choice but to pay the money or sell. I’m not selling. Im looking at the big picture here. I dont see where this small news is cause for any major concerm. Yes, BlackRock is becoming a little more opaque with their ETF products, but if nothing more they’re becoming “like everyone else”. I just don’t think this is the worst possible news to a passive income investor.

BlackRock, let me know when you make a major fee change, then maybe I will change my mind about you

What do you think out there?

Top Ethanol Stocks

Mon, 05 Jul 2010 06:58:00 +0000

The Neolithic people used ethanol as a beverage 9,000 years ago, according to some researchers. Ethanol was first used as fuel in 1840 as lamp fuel. With the price of oil bouncing way above $70 a barrel, fuel alternatives such as ethanol are receiving closer examination. For a list of all the stocks related to ethanol in some way, with financial data such as PE ratios and yields, and can be sorted, added to, and changed, go to WallStreetNewsNetwork.com. Some examples are listed below.

Archer Daniels Midland (ADM) has a corn processing division which produces ethanol from corn. The stock has a forward P/E of 8.9 and a yield of 2.3%.

The Andersons (ANDE) is involved in the management of ethanol production facilities and grain and ethanol trading. The stock has a forward P/E of 10 and a yield of 1.0%.

DuPont (DD) developed a measurement and reporting system to increase ethanol production. The stock has a P/E of 12 and a yield of 4.5%.

A list of stocks related to ethanol in some way, in an Excel format, which can be added to and sorted, can be found at WallStreetNewsNetwork.com.

Author does not own any of the above.

By Stockerblog.com

Alternatives to Foreclosure: What Homeowners Need to Know

Wed, 02 Dec 2009 16:27:55 +0000

If like thousands of other homeowners in America, you’re at risk for losing your home, you need to educate yourself about what options there are to help you avoid foreclosure. To learn about ways to keep your home, read on…Speak with a Housing Counselor from HUDCertified, HUD-approved counseling agencies are located throughout the country, and they’re there to provide free foreclosure avoidance information to homeowners. They can explain the new housing aid programs that have been implemented since President Obama has taken office, let you know if you qualify for any of them, and explain your options for avoiding foreclosureeverything from short sales to refinancing your home loan. Housing counselors can also advise you on how best to approach your lender. Getting through to the department you need at a financial institution can be intimidating and time consuming, so it’s great to have someone help you cut through the bureaucratic red tape and get a loss mitigation officer on the line.There are numerous companies out there that offer foreclosure prevention counseling, but they typically require upfront fees. Many of them are actually nothing more than scams designed to prey on people when they’re already down. Stick with agencies that are approved by the Department of Housing and Urban Development, as their services are free and their information is trustworthy. Talk to Your LenderAs soon as you start to feel the financial pinch, contact your lender. They are the ones that have the power to help you save your home, so you need to communicate with them as soon as possible. Don’t wait until you’re two months behind on your mortgagetry to work out a solution with them now. The department you want to speak with is Loss Mitigation. It’s their job to retrieve as much of the bank’s money as possible, so they’re often willing to work with struggling homeowners because it’s in their financial best interest to do so. Remember that banks don’t want to get into the real estate business. They don’t want your home; they want their money, so they’ll work with you to get it. Loan Modification & Refinancing If you’ve lost your job or have experienced some other loss that will affect your financial health long term, your lender may be willing to refinance your home loan or modify your mortgage. Both options can help you keep your home.Loan refinancing is an option for homeowners who are still current on their mortgage payments, but know that soon they’ll be underwater financially. Refinancing involves replacing your existing loan with a new one that offers better interest rates and lower monthly payments. The length of the loan term may be extended as well, which means that you’ll end up paying more interest in the long run, but for now, your payments will be much more manageable. Loan modification on the other hand, is for people who are facing financial hardship, who have missed one or more mortgage payments, and whose property value has diminished.Modification means that the terms of your current loan are changed in order to reduce the current interest rate and lower your payments. If you’ve missed one or more mortgage payments, you may be able to add these onto the balance of your loan, which can mean a very timely reprieve for you. To qualify for loan modification, you must prove to the lender that you have no other financial resources, and that modification is your only option. Keep every bill receipt and letter from your lender (including the post-marked envelopes), and gather all your income and expenditure information for the last three to six months. You’ll also need to explain (and prove) what happened in your life to bring about this financial hardship. Were you laid off? Was there a death in the immediate family? Tell the lender in heartbreaking detail about what’s happened and why you need their help. While they’re not going to forgive your loan out of compassion, they are likely to help you avoid foreclosure because foreclosure is a lose-lose situation for both of you.