Wednesday, March 9, 2011

Canadian Dollar (CAD) Income Strategy

Realized gains and losses will be posted at the end of this post. 

The Canadian dollar strategy is based on an opinion that the CAD will rise against the USD over the long term.  Over the past two years, the CAD has certainly made a strong move against the USD.  One CAD is now worth more than 1 USD. 

I believe that the provincial and federal governments in Canada are far more responsible than the local and federal governments in the U.S.  This view is shared by others. Comments on Barrons Roundtable Part II (January 2011 Post)  Bill Gross:The New Normal (February 2010 Post) El-Erian Interview Barron's (May 2010 Post)

A more ominous opinion about U.S. debt was expressed yesterday by Gross in his interview at Yahoo's 
Tech Ticker.  

I have a far more favorable opinion of the large Canadian banks than their counterparts in the U.S. Large U.S. financial institutions routinely blow themselves up, allowing their overpaid Masters of Disaster to threaten the banks' solvency with idiotic schemes designed to enrich themselves at the expense of the bank's shareholders. The Canadians are just far less likely to make stupid investments that threaten their solvency.

Canada is also rich in natural resources, which I view as important in the years to come.  

And, importantly, the population in Canada is light compared to other developed countries, particularly its aging population. 

I can also afford to wait for events to unfold.  It does not really matter to  me what the exchange rate is now or a year from now.  When and if 1 CAD buys more than $1.25 USD, I will consider exchanging some CADs for USDs.

And, it probably should not be mentioned in public, particularly since there are many Canadians who read this blog.  But, I will say something more nonetheless.  Canada is referred to as Northern Tennessee here at HQ, and RB's desire to acquire all of Northern Tennessee is certainly no longer a secret.  Progress is slow, time is running out, but the goal remains fully intact.  

From my perspective, the strategy will be successful provided I can achieve a 7% annualized and compounded total return on my investments purchased with my CADs.  Most of that return could be achieved by simply collecting the income and selling the positions for small gains.  I will also need to realize some trading gains.  I have traded some positions such as Husky Energy for small profits.

Some of the positions in this strategy include the following: 

100 shares of Cdn Apartment Properties Real Est Invest Tr, CAR.UN (Sold)

100 shares of TransGlobe Apartment REIT, TGA.UN  (Sold)

100 shares of Husky Energy Inc., HSE Stock  (Sold)
200 shares of Husky Energy  (Sold)

All of the foregoing ETFs and stocks pay monthly dividends except for XEG and ZCN which pay quarterly. Among Canadian common stocks, I have small positions in BAM-A.TO and  ERF

For the Canadian ETFs, I am focusing on two sponsors:  iShares Canada and  Claymore Canada

The ETF XTR, which was bought on Monday, does pay monthly dividends. Bought 300 of the Canadian ETF XTR   It is composed of other ETFs in the Canadian Ishares family of funds, both stock and bond ETFs. The total expense ratio is .55% taking into account the acquired fund fees. XTR Overview - iShares ETFs  The funds holdings as of 3/4/2011 can be found at XTR Holdings.  The weighting at that time was 64.48%stocks/25.74% Bonds/9.78% Other.  

Discussions of other purchases made within the past year in furtherance of this strategy include the following:

All of these purchases are made with Canadian Dollars that are already owned by me. 

All of the dividends are paid in Canadian dollars to me. 

Realized Gains and Losses:

2010 Realized Loss CPD ETF -$64.56

2010 Realized Gain Husky Energy +$198.4

2010 Realized Gain Artis REIT $205.1

2011 Realized Gain ZCM ETF $49.18

2011 Realized Gain Canadian Apartments +$220.45

2011 Realized Gain Husky Energy +$234.3

2011 Realized Gains +$198.88 XRB ETF & +$74.89 XRE ETF

2011 Realized Gains Killam REIT +$107.06

2011 Realized Loss Scotts REIT -58.26

2011 Realized Gain Transglobe Apartment REIT +$134.46

2012 Husky 200 Shares +$500.36

2012 BAM +$ 174.74

2014 ERF:CA $389.87

2014 KMP:CA 200 Shares +$38.87
2014 XDV:CA 200 Shares +$190.78
2014 Canadian Apartments 200 Shares +$275.8
2014 XMD 100 Shares -$60.81
2014 Riocan 100 Shares +$48.4
2014 CDZ:CA 100 Shares +$186.13 
2014 Enbridge Income 100 Shares +$341.62
2014 HealthLease 300 Units +$1,039.16

The gains/losses in CADs will be different than the numbers reflected above which are expressed in USDs.  

The preceding snapshots do not include trades in Canadian ADRs bought with USDs or Canadian ordinary shares, such as HUSKY, bought with USDs. I must sell the security in CADs and receive both the sale proceeds as well as the dividends in CADs to be included in this strategy. 


  1. Do you see any Canadian Lumber stocks, (West Frasier Timber, Tembec, etc.) as buys right now? Lumber commodity prices are very low, housing and lumber demand are low across North America. Could this be a time to scoop up some LMBR plays for the future rebound? After all, most of the large Canadian Forestry/Lumber stocks hold major land holdings across Canada which could yield big money down the road.

  2. I owned a few shares in Timberwest in 2010. That buy was partly a real estate play. I have Acadian Timber on a monitor list but I am not particularly interested in buying timber stocks right now. Lumber prices are falling for good reasons.

    It is hard for me to see a significant pick up in new housing construction in the U.S. anytime soon. The glut of foreclosed homes is likely to keep new housing starts at anemic levels.

    All of the current evidence is pointing to a double dip in housing prices in the U.S. which can make matters even worse for new home construction.

    If I added one of the Canadian timber stocks, I would have to be very patient waiting for a rebound. So, in short, I am in no hurry to do so.

    If I was going to make a very long term, natural resource play in Canada now, I would prefer making it in long lived oil and gas properties, primarily the oil sands plays. So I would more likely use my CADS to buy a Suncor or Cenovus than a timber company. I do own one of your Canadian ETFs that invest in the oil sector. I have about 50 thousand CADs to invest and a lot is tied up in Canadian government and investment grade bonds. I will sometimes buy a Canadian stock traded in the U.S. on a U.S. exchange using USDs but virtually all of my Canadian securities are purchased using the CAD stash.

    I am not that familiar with West Frasier. I did see that their earnings were down due to weak demand for lumber, which I expect to continue, and the strength in the CAD.