investment

Pennsylvania-based Vanguard Group is one of the world’s largest investment management companies. The group manages over $1.7 trillion U.S. in 170 mutual funds. Vanguard, which went into business in 1975, offers low-fee index mutual funds. Generally speaking, Canadians can’t buy units of mutual funds that are registered in the U.S., because they aren’t registered with provincial securities commissions. For that matter, some Canadian funds aren’t available in all provinces. Canadians can, however, buy Vanguard exchange traded funds (ETFs) that trade on stock exchanges. We don’t recommend all of Vanguard’s ETFs, but here are two we do see as low-fee buys....

CANADIAN PACIFIC RAILWAY $76.76 (Toronto symbol CP; Shares outstanding: 170.9 million; Market cap: $13.1 billion; TSINetwork Rating: Average; Dividend yield: 1.8%; www.cpr.ca) reported higher-than-expected earnings in the latest quarter. In the three months ended March 31, 2012, the company’s earnings soared 317.6%, to $142.0 million from $34.0 million a year earlier. Earnings per share rose 310.0%, to $0.82 from $0.20, on more shares outstanding. That beat the consensus estimate of $0.75 a share. Severe winter weather and avalanches in B.C. delayed the company’s trains and depressed the year-earlier results. This was the main reason for the earnings jump. Revenue rose 18.3%, to $1.4 billion from $1.2 billion....

Over the course of the average month or year, we look at a great many stocks for our newsletters, our Inner Circle and our portfolio management clients. Of all the stocks we look at, we add only a tiny minority to those stocks we might think about recommending. There are several very good reasons why we are so particular with our stock choices....

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific investment advice, including ways in which you can maximize your retirement income. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away. Today’s tip: “It’s important to understand the limits of annuities if you plan to incorporate them into your retirement income.”...

We’ve always placed a high value on a record of dividends, mainly because it provides something of a pedigree for stocks we recommend. After all, you can’t fake a record of dividends. It takes a lot of success and high-quality management for a company to have the cash and the determination to declare and pay a dividend every year for five or 10 years. It’s not something you can create at the spur of the moment. Now many investors have come to share our high regard for dividends, especially as a source of retirement income. However, some take it to extremes. They put too much faith in a history of dividend payments. They think of a stock with a good dividend history as the next best thing to a government bond. But it’s nothing of the kind. It’s a good sign, but not the only sign you need to look for. It takes continuing effort to succeed as a so-called “buy-and-hold” investor. You need to learn how to “buy and watch carefully.” Even the best dividend payers can go through dividend droughts — periods when they have to cut or quit paying dividends due to setbacks within their company, their industry or the economy as a whole....

ISHARES DEX SHORT TERM BOND INDEX FUND $28.94 (CWA Rating: Income) (Toronto symbol XSB; buy or sell through brokers) mirrors the performance of the DEX Short Term Bond Index.

This index consists of a wide range of investment-grade federal, provincial, municipal and corporate bonds with between one- and five-year terms to maturity. The fund holds 295 bonds with an average term to maturity of 2.85 years. The bonds in the index are 64.2% government and 35.8% corporate. The fund’s MER is 0.26%.

iShares DEX Short Term Bond Index Fund yields 2.9%. However, this high yield is due to the fact that some of the fund’s bonds pay above-market interest rates. But as a result, they trade above their face value. When these bonds mature, holders will only get the bonds’ face value, which means the portfolio will incur predictable capital losses. These losses will offset some of the appeal of the above-market yields.

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Pat McKeough responds to many personal questions on specific stocks and other investment topics from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. This past week, an Inner Circle member asked us about one of the mining stocks involved in the quest for rare earth metals. China’s iron grip on the rare earth market is a key factor in the pricing of these minerals, Pat notes, and he looks at how this stock is working to contest it with a re-opened mine and a new acquisition. ...

PRIMARIS RETAIL REAL ESTATE INVESTMENT TRUST $21.65 (Toronto symbol PMZ.UN; Units outstanding: 81.0 million; Market cap: $1.8 billion; TSINetwork Rating: Extra Risk; Dividend yield: 5.6%; www.primarisreit.com) owns large malls in medium-sized Canadian cities and suburban areas. In all, the trust owns 32 properties that contain 13.5 million square feet of leasable area.

Primaris has 44% of its properties in Ontario, followed by Alberta, 16%; B.C., 14%; Quebec, 13%; Saskatchewan, 9%; Manitoba, 3% and New Brunswick, 1%. Primaris has a 97.1% occupancy rate.

In the three months ended December 31, 2011, acquisitions pushed up Primaris’s revenue by 23.5%, to $104.1 million from $84.2 million. Cash flow rose 16.2%, to $34.7 million from $29.8 million. Cash flow per unit fell 3.2%, to $0.42 from $0.434, on more units outstanding. The trust yields 5.6%.

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ALLIED PROPERTIES REAL ESTATE INVESTMENT TRUST $26.07 (Toronto symbol AP.UN; Units outstanding: 51.9 million; Market cap: $1.4 billion; TSINetwork Rating: Extra Risk; Dividend yield: 5.1%; www.alliedpropertiesreit.com) owns 100 office buildings, mostly in major Canadian cities. These mainly Class I properties contain over 7.8 million square feet of leasable area.

Class I refers to 19th- and early-20th-century light industrial buildings that have been converted to office and retail space. They usually feature exposed beams, interior brick and hardwood floors.

In 2011, the trust bought 22 properties for $456 million. It now has 57 buildings in Toronto (which contain 42.9% of Allied’s leasable area); 15 in Montreal (35.9%); nine in Calgary (5.3%); seven in Winnipeg (5.3%); five in Quebec City (2.4%); four in Vancouver/Victoria (3.3%); two in Edmonton (3.7%); and one in Kitchener-Waterloo (1.2%). Allied has an occupancy rate of 94.3%.

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GUGGENHEIM CHINA SMALL CAP ETF $21.70 (New York Exchange symbol HAO; buy or sell through brokers; www.guggenheimfunds.com) aims to track the AlphaShares China Small Cap Index, which is made up of all Chinese stocks that are legal for foreign investors and have market caps between $200 million and $1.5 billion.

The $168.8-million fund’s top holdings are Alibaba. com, 1.7%; Zoomlion Heavy Industry, 1.3%; Longfor Properties, 1.2%; Sino-Ocean Land Holding, 1.2%; Guangdong Investment, 1.6%; Tsingtao Brewery Co., 1.6%; Golden Eagle Retail Group, 1.2%; Shanghai Industrial Holdings, 1.1%; Zhaojin Mining Industry, 1.1%; and Digital China Holdings, 1.1%.

As China’s economy matures, domestic spending should continue to rise. As well, China’s leaders will likely need to increase spending on programs and services to ease the growing gap between the rich and poor. Guggenheim China Small Cap ETF is well positioned to benefit from both of these trends.

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