NEW YORK — The damage done to the U.S. economy by the coronavirus pandemic will create opportunities for investors in distressed credit, PIMCO Chief Executive Emmanuel Roman said at the Bloomberg Invest Global conference on Tuesday.
Roman is not expecting U.S. gross domestic product to return to 2019 levels until the end of 2021. The next 18 months are therefore a time when investors can secure positions in businesses and credit at low prices, he said.
“Distress is a long cycle, and the need to deploy capital to restructuring situations is actually an opportunity to deliver outsized returns,” said Roman. “It is something that we are focusing on.”
S&P Global Ratings Research estimates that the global default rate for speculative-grade companies will rise to 12.5% by March 2021, from 3.5% as of March 2020.
Earlier this year, Bloomberg reported that PIMCO was seeking to raise up to $3 billion for a distressed debt fund, its largest ever. The Newport Beach, California-based Pacific Investment Management Co (PIMCO) has $1.78 trillion in assets under management.
The path to recovery for some U.S. companies has been and will continue to be aided by the Federal Reserve’s stimulus operations, said Roman, noting that the bank’s pledged support is ultimately more important than what it actually purchases. Issuance of new investment-grade corporate bonds has broken records this year and in May hit $1 trillion, a threshold not breached in 2019 until November.
Roman said the firm had no plans to acquire rival fund managers, and said that mergers would be scarce while meetings were still largely virtual.
“I think when people talk on Zoom, it is not easy to do mergers. Until we get back to face-to-face meetings, I don’t think you’ll see very many mergers. I think at some point you need to break bread and look each other in the eyes and say ‘this is something I want to do.’” (Reporting by Kate Duguid in New York Editing by Chizu Nomiyama and Matthew Lewis)
Kevin Greenard: Depositing funds to your investment account – Times Colonist
Every day our team fields phone calls and emails from clients asking how they can put money into their investment account. The inquiry is from the mindset of what is the most efficient way to make the deposit that is secure, easy and fast.
Many of our clients that are working are generating more income than they are spending. This is especially the case, once the mortgage is paid off. When this is the case, the focus normally turns to using the accumulated funds to build up investments savings in non-registered accounts, Registered Retirement Savings Plans (RRSP), Registered Education Savings Plan (RESP) and Tax Free Savings Accounts (TFSA).
Some of our retired clients are making deposits into their investment accounts. In some cases, the pension and other income they receive exceed their expenses, and they would rather have us invest these funds than have them sit in a bank account earning very little.
When our clients sell a house, major asset (i.e. boat, plane), business, or receive an inheritance, they will often call to request guidance on how best to get the proceeds to us to invest within their accounts. Below are a few of the most common ways clients can make deposits into their investment accounts.
Every institution will have their own specific policies but the expectation is that branches will generally not accept cash deposits of any size, unless there is an exceptional service situation (e.g. to facilitate a client covering a small debit balance); however, this is possible only when the branch has appropriate procedures and controls in place to handle cash deposits. It should be noted that travelers’ cheques are considered as cash deposits and typically will not be accepted. The best course of action would be to deposit the cash to your bank account and then use one of the methods below to fund your investment account(s).
Mailing or dropping off a personal cheque
One of the easiest and simplest ways of funding your investment account is to write a personal cheque and either mail it to us or drop it off at the branch. In this case you would make the cheque payable to the institution. It is always worth confirming who to make the cheque payable to. For example, with the rebranding our firm is now referred to as “Scotia Wealth Management”; however, when clients are writing out cheques to deposit to their account they should make the cheque payable to “ScotiaMcLeod”.
Do not make the cheque payable in the name of your Wealth Advisor or portfolio manager. For segregation of duties, the mail is not opened by the portfolio manager, but rather another staff member in the branch that will immediately secure the cheque and ensure it is deposited to the correct account. To avoid any confusion, we recommend writing the investment account number in the memo section of the cheque (i.e. Account 123-45678-90). If your deposit is funding to a few different accounts such as TFSA and RRSP contribution, you can simply write one cheque for the total amount, and it can then be allocated to the proper accounts (i.e. $12,000 cheque to be allocated into two different TFSA account — $6,000 each). When this is done, we recommend that you put both account numbers in the memo field with the respective dollar amounts written beside each account number.
Draft or Certified Cheque
A lot of clients that we have spoken with have the thought that a draft is more reliable than a personal cheque. This is a natural assumption given that when you have a draft issued from a bank account the funds are pulled out immediately. However, when a draft is deposited, we are required to prove the source of funds and require the issuing bank to confirm that the draft was in fact issued from your account. In general, Bank Drafts are not a preferred form of payment and we encourage clients to issue a personal cheque or use one of the electronic options mentioned below to make deposits.
Electronic Transfers from Scotiabank to Scotia Wealth Management
For those that use the same institution for both their banking and their investments, making deposits can be done electronically. In the case of Scotiabank and Scotia Wealth Management — you would simply log on to your online access and transfer between accounts such as a chequing account and an investment account. If you do not have online access to your accounts, you could use the telephone banking services to have them complete the transfer for you. Alternately, you can use the good old fashioned way and go into your local branch and have a branch representative complete the transaction for you. Whichever way is your preferred method, it is always a little bit easier when you deal with the same institution.
Direct Debit from Scotiabank to Scotia Wealth Management
With some of our clients that do their day to day banking with Scotiabank, we have a signed agreement on file that allows us to pull funds directly from their Scotiabank chequing or savings account and move it directly to their non-registered account. In this scenario, a client would send us an email asking us to take money from their Scotiabank account on file and move it to their Scotia Wealth Management non-registered account. Once we receive the request, we would always confirm verbally with the client that this is their intention, and once we have confirmed, we submit the request. The funds then arrive in the investment account on the same day.
Direct Debit from non-related bank to Scotia Wealth
It is not a requirement for our clients to have their day-to-day banking with Scotiabank. Some prefer to use a bank that is in closest proximity to where they work or live. Some of these same clients like the idea of forced savings and putting aside a certain dollar amount every month. When a client is wishing to set up a regular stream of savings, we can automate this process by having the client sign a Pre-Authorized Contributions (PAC) form. The PAC form is also used with clients who have their day-to-day with Scotiabank. This is an automated way to set up a steady stream of investment saving regardless of where you do your banking.
Electronic Transfers from non-related bank
If you bank at a non-related bank then there are still ways in which you can electronically deposit funds to your Scotia Wealth Management accounts. In this scenario, it is done just as if you were paying one of your bills, such as B.C. Hydro, Fortis Gas or your telephone.
1. Add the associated investment account as a bill payee (i.e. ScotiaMcLeod)
2. Provide the account number of the account you would like to make the deposit to (for ScotiaMcLeod it would be ten digits)
3. Process the amount you want to deposit as a bill payment to the investment account
The set-up will vary between each institution and if you require more assistance you should contact the financial institution of where you are sending the funds from. If clients have never done this before, we will suggest that they test the electronic method by transferring one dollar. We will then confirm the transfer on our end, before they proceed with transferring a larger dollar amount. Each financial institution will impose a daily limit on these transactions. If you wish to do larger deposits electronically then we would recommend doing it as a wire transfer which is the next option mentioned below.
Doing a wire transfer could make sense when you are looking to electronically transfer larger dollar amounts or if you are looking to transfer funds in a currency other than Canadian dollars. Say, for example, you have received a large inheritance from a relative who lives in the United Kingdom and you would like the proceeds to be deposited to your Scotia Wealth Management investment account. The quickest and most convenient way to have the funds transferred is by having the sending institution send it as a wire payment. Some typical information you will need to provide to the sending institution would be:
• Beneficiary Institution
• Canadian Routing Code
• Swift Code
• Account with Bank SWIFT Code
• Beneficiary Customer
• For further Credit
This information is easily obtained by asking your portfolio manager to provide you with the details specific to your account and institution.
Another situation where having your funds sent via wire transfer makes sense is if you are transferring a large amount from your regular Canadian bank in either Canadian Funds or US funds. The information required is similar to the information mentioned above and again can easily be provided by your portfolio manager.
Third Party Deposits
A third party deposit is usually defined as a deposit (cheque or wire) made payable to a client where the payor is different from the name on the account where the funds are being deposited. An example of a third party deposit could be when a client works for a company that matches his or her RRSP contributions and sends a cheque monthly to the client’s Group RRSP account. Another could be where a grandparent would like to add some funds to their grandchild’s RESP account set up by the parents. In all of these cases, there is going to be enhanced scrutiny on the deposit due to the fact that third party deposits can represent money laundering activity.
In order to accept the third party deposit, a few things that we are required to do are determine why the third party cheque or wire is being deposited, what is the relationship of the third party to the client, contact the issuer of the cheque or wire to determine the appropriateness of the deposit, and contact the financial institution involved with the cheque or wire to determine if the funds are available.
Kevin Greenard CPA CA FMA CFP CIM is a portfolio manager and director, wealth management, with The Greenard Group at Scotia Wealth Management in Victoria. His column appears every week at timescolonist.com. Call 250-389-2138. greenardgroup.com
‘Pandemic drop’ has made Lana unsure whether her sizable investments can really sustain her for life – The Globe and Mail
Retired with no work pension, Lana, who is only 49, can be forgiven for worrying she might run out of money some day. Yet she has substantial investments – proceeds from the sale of her share in a successful business – and a mortgage-free house in a small Ontario city.
“I’m an early retiree, managing my portfolio myself, and I have seen quite a pandemic drop,” Lana writes in an e-mail. “While not as drastic now as it was in the beginning of March, the erasure of almost all my portfolio gains makes me unsure as to whether I will have the ability to sustain retirement without either changes to my portfolio, my withdrawals, my status as a retiree, or a combination of all three,” she writes.
Lana had been renting out a studio apartment in her house on Airbnb, but would prefer to stop. “I’m unlikely to have any further income this year anyhow.”
Lana is spending about $39,200 a year, paid for by the $53,000 she withdraws from her holding company each year as a dividend. She wonders whether this is the best way to structure her personal income from a tax point of view. She wonders, too, if her investments are “well-enough diversified to weather a continued retirement” with the same income. Her overarching goal: “Don’t run out of money.”
We asked Daniel Evans, a certified financial planner at Money Coaches Canada in Vancouver, to look at Lana’s situation.
What the expert says
To ensure her savings will last, Lana should draw first on her holding company dividends until they are exhausted, then on her registered retirement savings plan and finally on her tax-free savings account, Mr. Evans says.
Including all income sources – holding company dividend, investment returns and rent – Lana’s taxable income for 2019 was about $89,000, putting her in the 31.48-per-cent tax bracket (federal and provincial combined). He recommends Lana stop renting out her flat because she does not need the money to maintain her standard of living.
The loss of rental income – about $10,000 last year – may bring Lana’s current taxable income to the lower bracket of $48,546 to $78,786, which is taxed at 29.65 per cent.
“The indexed $53,000 of dividends is enough to support $39,200 a year after-tax in spending,” the planner says. The after-tax dividend would be about $43,000, giving Lana a bit of a surplus that can be directed to her TFSA.
The dividends will last until 2027, at which point Lana will have to draw on her other accounts. The planner recommends she leave her TFSA intact for the long term because the tax-free status of income earned and compound growth in the account “is simply too good to pass up.”
The planner recommends starting RRSP withdrawals at $20,000 a year in 2027, when her income would be lower because she would no longer be drawing dividends. “Not only would the RRSP be able to grow tax-sheltered for another seven years, but she would also be saving about $1,100 a year in taxes by starting the withdrawals in 2027 rather than in 2020,” he says.
This income would need to be supplemented with $30,000 in non-registered redemptions (indexed for inflation). This amount will fall when she starts collecting Canada Pension Plan and Old Age Security benefits at the age of 65. Alternatively, she could choose to begin collecting CPP at 60, he says.
Because Lana does not plan to contribute further to CPP, she would probably qualify for about 44 per cent ($6,188) of the maximum CPP benefit ($14,109) at the age of 65, the planner says. If she decides to take CPP at 60, her benefit drops to 28 per cent ($3,960) of the maximum. The annual difference in real dollars for taking CPP early is about $2,228.
As long as Lana is taking dividends from the holding company, Mr. Evans recommends she put any surplus savings into her TFSA. She also has the option to move some funds from her non-registered account to max out her TFSA contributions in 2020.
Based on $20,000 a year in withdrawals from her RRSP up until the age of 71 (the time when she needs to convert her RRSP to a registered retirement income fund), the minimum withdrawal required from the RRIF would be $14,500, increasing each year with the mandatory minimums. That assumes a return of 3.51 per cent annually after fees. Any shortfall would come from her non-registered portfolio.
“The TFSA comes in late to the game, funding the later years from age 80 onward, after her non-registered assets have been depleted,” Mr. Evans says.
In today’s dollars adjusted for inflation at 2 per cent a year, the planner’s assumptions show Lana can spend $40,000 a year after tax until the age of 90. “Life expectancy does play a role in recommendations,” he adds, but Lana says 90 is the appropriate estimate. “Given she is careful with spending, this should allow her to continue her current lifestyle.”
Finally, Mr. Evans looks at Lana’s investments. With the stock market outlook uncertain, “it is extremely important for her to revisit her risk tolerance,” he says.
Her current asset allocation is 5 per cent cash, 40 per cent fixed income and 55 per cent equities. Of the 40 per cent fixed income, 15 per cent is allocated to preferred shares and 25 per cent to bonds. Of the 55 per cent in equities, she has 13.75 per cent in Canada, 22 per cent in U.S. and 19.25 per cent in international holdings. “This is a well diversified portfolio for future growth.”
Unfortunately, in today’s low interest-bearing environment, it is hard to find yield in fixed income. “I want to caution her against taking on additional risk in this segment of her portfolio to chase yield.” Preferred shares “are great to have as part of your portfolio, but they behave like equities” – subject to the ups and downs of the stock market – and should be viewed as such when assessing risk, Mr. Evans says.
Lana’s TFSA should be allocated to equities focused on capital growth, he says, because this account is geared for the long term. Eligible Canadian dividends – which benefit from the enhanced dividend tax credit – should be held in non-registered accounts. The RRSP should hold the U.S.-based investments because the Internal Revenue Service recognizes the RRSP as a tax-deferred investment vehicle and so gives a break on withholding taxes that would otherwise be payable on distributions (interest and dividends) from U.S. companies.
The person: Lana, 49
The problem: Does she have enough to maintain her lifestyle to the age of 90?
The plan: Draw from the holding company until the assets are depleted, then draw as needed from RRSP and non-registered accounts until she begins collecting government benefits. Adjust her portfolio to lower risk.
The payoff: Financial security despite an unusually long retirement.
Monthly net income (2019): $6,600
Assets: Cash $33,000; non-registered ETF portfolio $405,000; holding company portfolio $370,300; TFSA $56,700; RRSP $322,300; residence $560,000. Total: $1.7-million
Monthly outlays: Property tax $375; water, sewer $85; home insurance $35; utilities $305; maintenance, garden $135; transportation $285; groceries $425; clothing $80; gifts, charity $130; vacation, travel $415; dining, drinks, entertainment $620; personal care $35; club membership $5; health care $180; phones, TV, internet $160. Total: $3,270. Surplus goes to savings.
Want a free financial facelift? E-mail firstname.lastname@example.org.
Some details may be changed to protect the privacy of the persons profiled.
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Antigonish investing in solar power – TheChronicleHerald.ca
The Town of Antigonish has taken another step in an effort to reduce its carbon footprint.
On July 6, council passed a motion to make a funding request to the provincial and federal governments for a two-megawatt solar garden in Brierly Brook. The request is for 73 per cent of the approximate $5 million project.
“It’s very, very exciting; it’s a step forward for green energy for sure, it’s a step forward for Antigonish,” said Mayor Laurie Boucher.
“Sustainability is very important to the town, and with the uncertainty of climate change, we’re happy to be able to try and do something about it. Just lowering our carbon footprint is what we’re trying to do.”
The aim is to have the project completed sometime next summer, said Boucher, depending on government funding.
The town is seeking provincial funds through the Low Carbon Communities Funding Program and federal money through the Investing in Canada Infrastructure Program.
Through the project, ratepayers will also have an opportunity to invest back into the utility with credit given for the investment showing on their power bills.
Boucher said a marketing campaign, with details of investment opportunities, will likely be launched later this summer.
Antigonish, Berwick and Mahone Bay are the only towns in Nova Scotia that own their own electric utilities. Together, they have formed the Alternative Resource Energy Authority (AREA), and have already made a huge step in reducing the province’s carbon footprint by investing in a 23.5-megawatt wind farm near Ellershouse, Hants County.
“So now we are going one step further and looking at how we can do this through solar and also allow our ratepayers to invest in it as well,” said Boucher.
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