Little-known stocks, foreign diversification and top bond ETF answers

The investment landscape can often seem overwhelming, especially for those looking to make sound financial decisions. With a plethora of stocks, bonds, and ETFs available, understanding where to allocate funds is crucial for building a stable portfolio. Let's delve into some key areas including lesser-known stocks, bond funds, and strategies for diversification to help navigate these waters.

Exploring lesser-known stocks

Q: As a small retail investor in retirement who still works part-time, I'm always on the lookout for safer stocks to add to my portfolio. I've been particularly interested in stocks like Olympia Financial Group and Co-operators General Insurance Co. What do you think?

Olympia Financial Group is a Calgary-based company that operates primarily through its subsidiary, Olympia Trust Company. It specializes in managing self-directed registered plan accounts and offers a variety of financial services. Recently, the company reported a year-end revenue decline of 4% year-over-year, totaling $98.86 million, which may raise some investor concerns.

The stock pays a monthly dividend of six cents, yielding around 6.1% at a recent share price of $117.98. Although its yield is appealing, the recent price drop suggests that potential investors might want to wait for more stability before considering a purchase. The stock has had light trading volumes, averaging just over 2,000 shares daily, which can lead to significant price fluctuations.

On the other hand, Co-operators General Insurance Co. offers a preferred share with a quarterly dividend of $0.313, yielding 5.5% at a recent price of $22.89. The share's performance has historically been sensitive to interest rate movements, making it a potential risk in volatile environments.

Evaluating wealth management services

Q: After switching to a wealth manager charging 1%, I've been disappointed with my 5% returns over the past few years. What should I do now that my wealth has increased significantly?

Feeling frustrated with mediocre returns, especially when the broader market has performed much better, is understandable. Your wealth manager's performance must be evaluated against market benchmarks like the TSX's impressive gains of over 28% recently. To address your concerns, a meeting with your advisor is essential. Lay out your expectations clearly and ask for a strategic plan that aligns with your investment objectives.

Consider a diversified approach to your investments. Allocating a portion to index ETFs such as XEQT, which has shown a 22.7% gain recently, and VFV, which tracks the S&P 500, may provide better growth potential. As you are knowledgeable about self-directed investing, this might be a good time to take control of a portion of your portfolio while keeping some funds managed.

Understanding the need for foreign diversification

Q: With the growing concerns about the U.S. economy, I’m considering diversifying my portfolio to include foreign investments. What would you recommend?

While some investors may be wary of the U.S. market's stability, incorporating foreign investments can be a wise strategy for risk management. Geographic diversification helps mitigate risks associated with economic downturns in a single country. Here are some ETFs worth considering:

• iShares MSCI Europe IMI Index ETF
• CI Japan Equity Index ETF (Hedged)
• Global X MSCI Argentina ETF
• iShares MSCI Brazil ETF
• iShares Europe 350 ETF
• iShares MSCI EAFE Index (CAD - Hedged)

These ETFs provide exposure to various international markets and can help stabilize your portfolio against U.S. economic fluctuations. Given the current geopolitical climate, a dollar-cost averaging approach may be prudent when making purchases in these securities.

Assessing preferred shares: Financial 15 Split Corp.

Q: I’m considering holding FTN.PR.A as a part of my fixed income portfolio. What are the pros and cons?

Financial 15 Split Corp. offers a portfolio of 15 financial service companies, presenting two classes of shares: Class A and preferred shares. The preferred shares provide monthly dividends of 6.042 cents, yielding approximately 6.8% based on a recent price of $10.70. This makes them appealing for those seeking steady income.

However, the Class A shares are associated with greater volatility, which could result in significant capital gains or losses. During the previous financial crisis, they experienced a steep decline, shedding 83% of their value. If stability and consistent income are your priorities, the preferred shares may be the better choice.

Investing wisely in bond ETFs

Q: I currently have 30% of my RRIF in BMO Aggregate Bond Index ETF (ZAG). Given my concerns about returns, should I continue averaging down or consider other options?

This ETF aims to replicate the performance of the FTSE Canada Universe Bond Index but has faced challenges in delivering compelling returns recently. A 2.5% return in the past year is below market expectations, especially considering inflation trends. Diversifying your bond holdings could enhance your returns.

Here are some alternatives worth considering:

• iShares Core Canadian Corporate Bond ETF (XCB) - This ETF produced a total return of 4.37% in the past year.
• Consider adding a mix of government and corporate bonds to balance safety and yield.
• Look for funds that invest in international bonds for additional diversification.

Shifting a portion of your investment to a higher-performing bond ETF could provide better returns while still maintaining some security in your portfolio.