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OK assuming there is a correction coming what defensive plays are you making.

Looking for conservative ETF's both CDN and US to weather the storm for normal accounts and TFSA/RESP's. Relatively lower risk tolerance.

Thanks guys...
 

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i like vanguard consumer staples VDC which is down due to skepticism about "old brands" and the tilt to momentum and growth ... it will come back nicely if we have a correction here soon
 

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I would look at the low volatility ETFs . They are usually anywhere from .5 to .8 correlated to the market. ishares, BMO, Power shares all have them. ZLB BMO CDN or ZLD for US are pretty good. They have lower SDs and little in the materials, energy or the tech high fliers.

A good overall one is VVO Global low vol from Vanguard. Has only 6% CDN though.

Or maybe HPR Active preferred share ETF w even lower volatility. Nice ~ 5% ytm return no muss no fuss
 

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OK assuming there is a correction coming what defensive plays are you making.
Are you asking about stocks, in the original question?

I don't think there's such a thing as low risk stocks. Certainly the small and midcaps are more volatile, but I don't think you're going to get much safer than the large caps of say the TSX Composite or S&P 500 as these are already the more stable part of the stock market. Stocks are inherently volatile and very risky.

As Jimmy mentioned above, you may consider ZLB as potentially a little less risky than the TSX index. Possibly because it has better sector balance than the regular index. But absolutely no guarantees there.

If you want to reduce risk, you might want to look at your asset allocation -- the mix of stocks, bonds, even gold. This is probably the best place to control your risk.
 

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I could see ZLB or a related low-vol ETF but then again, some of the same stocks in this top low-vol ETF are the same (boring) stocks many dividend investors own I suspect:

EMA, RioCan REIT, HR REIT, FTS, WCN - all in the ZLB top-10 and likely owned by many Canadian dividend investors out there.

I would agree. There is no such thing as low risk stocks. Maybe though a diverse basket of 30-40 however, you can reduce your risk.

Have you thought about owning such dividend payers outright or via an ETF like VCN, XIC, XIU, etc. and then simply keeping some cash on the side?

Indexing the U.S. market is smart as well via VOO or VTI, etc.
 

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That's a nice article, thanks for posting it Jimmy.

Also, don't forget standard old diversification. Just holding the Canadian and US indices together (without currency hedging) has lowered risk a bit. For example, in the most recent bear markets, the performance of the pair (XIU, ZSP) was as follows, using historical data to re-create ZSP before it was formed:

2000: +0.2%
2001: -10.8%
2002: -19.1%
...
2007: +0.4%
2008: -27.0%

There's obviously some pretty bad declines in there, but diversifying to multiple countries helped smooth things a bit. Of course, adding in bonds helped even more. Here's 30% XIU, 30% ZSP, 40% XBB

2000: +3.59%
2001: -4.44%
2002: -7.41%
...
2007: +1.64%
2008: -13.72%
 

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I wouldn't buy etf's to get more defensive...you will be owning many poor companies along with the good.
Personally I have increased my preferred share exposure and have been adding to quality companies that have already had 10-20% drops from their highs.
 

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I wouldn't buy etf's to get more defensive...you will be owning many poor companies along with the good.
Personally I have increased my preferred share exposure and have been adding to quality companies that have already had 10-20% drops from their highs.
If theres a correction or a pull back wont preferred get hammered ?
 

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I wouldn't buy etf's to get more defensive...you will be owning many poor companies along with the good.
Personally I have increased my preferred share exposure and have been adding to quality companies that have already had 10-20% drops from their highs.
Exactly! "Everyone comes in with a plan until they get punched in the face" - Mike Tyson. Everything will get hit in a market sell off, correction or recession. ETFs, Bonds are NOT safe and preferreds are not preferential to anything else. Depending on time horizon just hold and ride it out is what I'm doing. If you get nervous because of holding too many risky or high beta stocks then sell them. Quality stocks will get hit but also bounce back more quickly. I'm retired and hold NO bonds ETFs or prefs.
 

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If theres a correction or a pull back wont preferred get hammered ?
Yes if rates get lowered during a future recession preferred s will get hit. Most are still recovering from a previous creaming. I limit my allocation of preferred s to 10% of my investment account.
They do offer tax advantaged income and stability during our rising rate environment.
I don't think preferred's are suitable for most investors, I was just answering the original question of what I was doing to get more defensive.
Having gone thru a few market corrections "stay the course" has always been the correct play.
 

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If theres a correction or a pull back wont preferred get hammered ?
Not really. Their yields get reset every 5 yrs based on the 5 yr BOC bond yield + a premium. Their duration is ~ 3-4 yrs. So if interest rates fell 1%, they lose 3-4% in price but still have the yield so no real net loss.

2015 was exceptional because interest rates and yields were so historically low at 1.5 %. So when Poloz cut them to .5% it cut the yield ~ in 1/2 and they lost about 20% in price. But then recovered all and more when rates rebounded.
Now also many have floors to prevent that recurring.
 

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Preferred are a rather complex and specialized type of investment, and unless you deeply understand what's going on with them, I wouldn't touch them. I'm surprised that preferreds are pitched to retail investors when they are so exotic.

You might also want to look at the preferred ETFs such as CPD:
https://www.morningstar.com/etfs/XTSE/CPD/quote.html

I've never been convinced that I need this. 10 year total return of 3.28% annualized, plus complexity, plus equity-like risk, plus high correlation to equities... what's the appeal?
 

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Preferred are a rather complex and specialized type of investment, and unless you deeply understand what's going on with them, I wouldn't touch them. I'm surprised that preferreds are pitched to retail investors when they are so exotic.

You might also want to look at the preferred ETFs such as CPD:
https://www.morningstar.com/etfs/XTSE/CPD/quote.html

I've never been convinced that I need this. 10 year total return of 3.28% annualized, plus complexity, plus equity-like risk, plus high correlation to equities... what's the appeal?
There is a place for them but the are some details around them still. The old preferreds in that return are the 'perpetual' type and were like bonds. Now more than 65 % are rate reset that reset the yields to rise when int rates rise. Their yields now are 5-6% w 5 yr maturities is more attractive than bonds w 3% at best. They are not really that complex in an ETF. You don't have to worry about all the complex stuff like redemption or retraction.

They rise when int rates rise so are a nice hedge to bonds. Risk/returns in btw bonds and equities. Not bad when you limit them to 10% of your portfolio.
 

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I would never recommend buying a preferred ETF....now that would be risky. As silly as a bond ETF with no maturity.
 

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I would never recommend buying a preferred ETF....now that would be risky. As silly as a bond ETF with no maturity.
Your preference but the risk is in between a bond and an equity ETF actually. They are reset every 5 yrs so maturity is not really an issue.
 

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Have a sensible asset allocation, with a good portion dedicated to bonds and/or bond funds and/or GICs and/or gold.
 

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I was going to respond to some posts, but too much mis-info in this thread about pfds, bonds, etfs, maturities etc!

My suggestion, is to follow James' advice and adjust allocation between equity and FI.
Sell off risky stocks and buy individual bonds or GICs with proceeds.
Right now, GICs are yielding as much as risky corporates.
Hold onto the blue chips and ride their ups and downs while collecting dividends.
 

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Your preference but the risk is in between a bond and an equity ETF actually. They are reset every 5 yrs so maturity is not really an issue.
But the challenge with preferreds is you miss out on equity growth vs. common stocks. Dividends do not increase with preferreds like common stocks either.

Although, as interest rates (slowly) continue to rebound we should see some additional capital appreciation among rate-reset preferred shares.
 

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Bonds do not grow and their daily prices are not posted on the daily financial news like stocks. Company growth is predictable so they become safer than bonds in the long term. The longer you hold your positions the safer they become. I would never sell winning stocks to buy bonds. They lose value and or hover around par value for their life. Re-balancing your portfolio by buying bonds is just all theoretically, the experts never now when the ideal time comes along.

Investors buy preferreds for their higher yield, tax advantaged income and having a relatively stable price. Called preferred but they're not. Sold to retail investors in funds to generate an added expense you don't need as a DIY investor. If you're income is not growing and there is no growth in the preferred dividend, it stands to reason that there will be no growth in your capital. Invest for capital and dividend growth and hold long term. In my opinion this is a safer strategy than buying bonds and prefs.
 
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