In these volatile times, Canadians really should have some guaranteed investments in their portfolios, especially those who are retired or expect to be shortly.
Canadian Life Insurance companies offer Segregated funds (similar to mutual funds but under different legislation) to Canadians who want to be sure that all or part of their principle is protected upon their death or after a 10-15 year period of time. Most firms offer 75% guarantees after 15 years while it is possible to protect up to 100% of your principle for an additional fee. Some companies even allow investors to “lock-in” their profits and automatically extend their maturity period as well.
One insurer even offers several mutual funds in an insurance wrapper at no additional fee for Canadians who want to protect their estate. However, their guarantee will only come into play upon the death of the investor.
p.s. Segregated funds offer the potential for creditor protection and they bypass probate, which means a rapid settling of the funds and no probate fees for residents outside of Quebec.
Other options aside from GIC’s:
Another way that Canadians can protect their assets are with Principle Protected Notes. These closed-end financial instruments are offered indirectly by Canadian banks, and unlike mutual funds, have fixed purchase and maturity dates. These funds are typically only available for purchase for 2-4 weeks, while different baskets of securities, indexes, features and conditions are made available with each successive note.
I have taken the liberty of reviewing the current batch of notes which are currently available and these are my favorites. What they all have in common is that they guarantee the return of investor’s principle as long as the notes are held to maturity.
BMO Global Structured Products has a 6-year auto-callable note. It consists of a basket of five Canadian Equities and offers a minimum return of 6% annually if called (or at maturity) plus 5% of the excess return over the guaranteed amount, as long as there is a positive return in any given year.
They also have a Smart Volatility Index fund, which gets re-balanced both daily and monthly (on two different metrics), so that more funds are invested in equities when there is low volatility and more goes towards income during volatile periods. This 5-year note provides a generous 170% participation rate, so that if the index returned 32.28% x a 170% participation rate, that equals a 57.84% variable return, or a compounded return of 9.14%.
A third note of interest is their Canadian Financial Growth 5.5-year note, which consists of an equal weighting of the big five Canadian Banks and offers a 125% variable return of the positive price performance of the basket of equities upon maturity.
CIBC has a 6-year Global Blue Chip auto-callable note consisting of five major companies. CIBC maintains the right to call the notes back upon each anniversary at a guaranteed minimum return of 4.5% per year plus 5% of the amount that exceeds the minimum return on an annual call date if the portfolio return is equal to or greater than zero on the valuation date.
Finally, RBC Capital Markets has a Global Large Cap fund with a 4.5 year holding period and with a payout of 105% of the total return. Unfortunately, the fund is in U.S. $ only.
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Most of the notes above must be purchased by the first and second weeks of April, so if you require more information, please contact me at www.howardyancovitch.com