Trading Costs and how they differ between Discretionary and Non Discretionary Investment Accounts

Commission per share will be normally much lower for a discretionary account where your adviser combines purchases and sales into block trades.

The bid and ask spread price also affects trading costs and this is largely affected by the liquidity of the security being transacted.

Hidden trading costs or execution costs are far larger than the combination of commissions and bid and ask spreads for most transactions.

For example an adviser that wants to complete a block purchase for all their discretionary accounts has to be cognizant of the amount of stock being offered, not simply the price. Assume a buy order is placed for 100,000 shares of a security with only 25,000 shares being offered. Even for a relatively liquid security, this order imbalance of 75,000 shares will drive the share price higher than the combination of the commission per share and the bid ask spread.

On the other hand, an adviser dealing with a non discretionary account may recommend the purchase of a small quantity of 200 shares for the same security. This purchase order is obviously much smaller than the previous block order and would not affect the share price materially over the bid and ask spread.

Lastly a client that has a discretionary account with their adviser must be very careful of the tax consequences for a non registered account.


While there are lower commission costs for discretionary accounts, the hidden execution costs are normally much greater than the commissions. In addition the increased probability of capital gains being realized will trigger more negative tax consequences.

Regardless of your adviser’s recommendations, my advice is to stick to a non discretionary type of account where you, the client, have the final say for all buy and sell transactions.


Please see our disclaimer at Copyright 2019 McMurtry Investment Report. All rights reserved. 

Canadian Banks – Quality of Management

TD, RBC and Bank of Montreal derive a material contribution to their revenues and earnings from the US market.

Scotiabank derives very little contribution from the US.


What does that imply about the quality of management of Scotiabank given the strength of the US economy?


Are large unrealized capital gains affecting your investment decisions?

Always manage your investments based on future outlook for earnings and dividend growth


Do not let the tax man paralyze you in making proper investment decisions


Take some profits for those with large unrealized capital gains in a few securities


Too many investors have massive holdings in Canadian financials, yet hesitate to take profits for fear of a large tax bill.


Critical to reduce overweight security holdings to reduce portfolio volatility


Keep a close watch on your recent investment performance to ensure that your overweight securities are not penalizing your returns

Adding Logitech International LOGI US American Depository Receipt

I am adding Logitech International’s US $ ADR to both the Income and Growth Portfolios. Logitech is a Swiss holding company that makes a range of products including computer mice, keyboards, wireless speakers, headphones, gamepads and steering wheels.

The company is benefiting from the new secular trends in video gaming, rise in E-sports and competitive PC gaming and in video collaboration devices used in business.

The company has a strong balance sheet with no long term debt. The company is a large generator of free cash flow that can be used to buy back stock, increase the dividend and to make acquisitions.

The revenues are expected to remain strong in fiscal 2020 with growth in the range of mid to high single digits. The fiscal year end for 2019 was March 31st. Non GAAP Earnings Per Share are expected to rise 5.7% in fiscal 2020 and rise by almost 12% in fiscal 2021. The stock is trading at a little over 18 times fiscal 2020 earnings and 16.5 times 2021 earnings. Gross margins are expected to remain high at 38%.

The dividend yield is 1.78% and the cash dividend payout is a very manageable 42.33%.


Save up to 1.5% in ongoing annual investment fees. Rotate out of mutual funds.

Switch into exchange traded funds (ETF’s) and individual stocks. Put the difference in fees in your pocket, not your advisor’s.

You must follow a strategy to minimize any remaining deferred sales charges or loads before you sell your mutual funds.

Stop immediately all ongoing contributions into mutual funds with deferred sales charges. Every time you make a new contribution it takes about seven years before the investment will be free of any sales charges upon redemption.

Every year you are entitled to redeem your fee free units without incurring any sales charges. Normally this works out to 10% of your initial investment, but varies by company. You can request this information simply by calling the head office of the mutual fund company to request the number of fee free units. Make sure you ask them for the final date of expiry of the sales charges and the total cost of the sales charges remaining. Every year you will need to call the head office of these fund companies to obtain the above information and to find out the number of fee free units.

Once you have determined  the cost of liquidation, you can decide the best course of action. You need to keep in mind that the annual cost savings by switching into ETF’s and stocks will be substantial. You can compare the annual cost savings with the sales charges remaining to determine how long it will take you to break even.



Stop all your monthly contributions into load funds immediately.

Never request the liquidation of your mutual funds without obtaining all the remaining sales charge information in advance. Mutual fund companies can charge up to 5.5% of the market value and you never want to be faced with this charge. Only when you are equipped with the relevant details can you make a proper decision to liquidate your funds or not. 

Liquidate all your fee free units every year.

Once you have done the above points, you will need to once again ask the head office of the fund company the dollar value amount of sales charges remaining and the expiry date of the funds you hold.

Make a comparison of your estimated ongoing annual management fees by investing in individual stocks and exchange traded funds to your annual costs of the mutual funds you own.

Determine the number of years for you to break even as follows:

If the annual difference in fees works out to 1.5% and you have $300,000 invested, this works out to an annual savings of $4,500. If the remaining deferred sales charges works out to be $4,000, it will take you 0.89 of a year to break even.

Determine a break even compromise that makes sense to you. After making all these calculations, you may decide to only liquidate the 10% fee free units annually, but it is essential having all your facts before doing anything.






Having Difficulty Achieving Satisfactory Investment Returns

Maybe you are over diversified in mutual funds with high management fees negatively affecting your performance. Maybe you are taking on too much risk by placing all your bets on a few securities that are not working out.

Tone down your bet in any one security.

The key is to make a lot of small bets rather than one or two large ones. The probability of achieving better, more consistent investment returns with less volatility is much higher.






Dividend Growth vs. Dividend Yield – Which strategy offers better returns?

Do not invest in companies that borrow to pay the dividend. Free Cash Flow takes into account operating cash flow less capital expenditures and is a much better statistic in the calculation of a realistic dividend payout ratio.

Invest in companies that are financially sound with a lower debt / equity level relative to their peers. Companies that are less levered are more likely to increase their dividends over time.

Invest in companies that consistently increase their dividends every year. As a general rule, do not invest in companies that offer high dividend yields with little dividend growth prospects.

Invest in companies with growing operating and free cash flows as this is more likely to lead to rising dividends. Companies that have a low dividend payout ratio are preferred.

As many companies cut their dividends in a recession, do not invest in cyclical companies where the dividend may be cut.



Dividend growth companies are the preferred choice for long term investors.




New Website now available

Our new website is now up and running

Hopefully you will find the new design an improvement

For those of you who are not subscribers, there are free samples of my newsletter, model portfolios and a personalized portfolio review.

I will also be adding YouTube videos in the future that address the concerns of all investors.

Happy reading.

Reset Preferreds vs. High Yield Bonds – Best one for Income?

iShares XHY US High Yield Corporates in Cdn $


Horizons HPR Active Cdn Preferreds


Total Return                                       Year to Date                                 1 year

XHY                                                           3.77                                                    0.25

HPR                                                        -4.01                                               -14.50


The current dividend yield is 5.61% for XHY and 4.79% for HPR

The difference in performance is quite dramatic.

The High Yield Corporate ETF, XHY,  does well when economy is strong and does poorly in a recession

Rate reset preferreds perform well when rates are rising and perform poorly when rates fall


Canadian preferreds eligible for dividend tax credit while the High Yield bonds are not.

Despite the tax advantage for preferreds, I do not recommend them.

In a recession neither ETF will perform well

In a slow growth economy with flat to declining rates but no recession, the High Yield ETF XHY will outperform rate reset preferreds

Currently we are not in a recession, but in a slower growth environment going forward.

In this environment High yield will continue to outperform Rate reset preferreds.

NFI Group – Adding to both equity portfolios

Recent acquisition of Alexander Dennis, the British double decker bus manufacturer, will be immediately accretive

The purchase will also better diversify globally the company’s sales

The shares are cheap, trading just over 10 times 2019 earnings

Current dividend yield is 4.67% with free cash flow yield of 5.15%

The cash dividend payout is 82%

The acquisition will offer the company operating cost synergies.

The Federal Reserve just squashed the possibility of a rate cut

Today the Federal Reserve Chairman indicated that the current low inflationary pressures may only be transitory.

This implies that the US Central Bank has backed away from cutting rates

Recent consensus was calling for a reduction in rates, so this announcement was a surprise to markets

Recent strength in both stock and bond markets can be attributed to an accomodative Central Bank

Possible repercussions from Governor Powell’s remarks are as follows:

  • Higher US dollar globally
  • Lower bond and equity prices
  • Lower commodity prices especially gold and base metals
  • Equity Sector Beneficiaries : Financial Stocks
  • Equity Sector Casualties: Gold and base metal stocks, Interest Sensitive sectors like Utilities,Reits and Consumer Staples

Laurentian Bank rate reset preferred H -Avoid

Recently a friend was given very bad advice in regards to this issue.

I wish he had checked with me  first, but he got his advice from someone who was not qualified to give it.

I am only offering objective advice and am not selling product.

I am asking all of you to consult with me first before you make a decision you will regret later

This preferred was issued five years ago at an issue yield of 4.3%

The issue is rated P-3 Low by S&P

The current yield is 6.4%

The shares are callable at$25 on June 25 of this year

The shares are subject to being reset on the same date with a reset spread of 255 basis points plus the 5 year Canada yield of 1.53% to total 4.08%.

My friend was told that this issue will be called at $25, a substantial premium  from the current price of $17

This is very poor advice. There is absolutely no incentive for the company to call this issue. Current yields are higher than the issue yield for the same credits.

The company can purchase shares on the open market at $17 rather than calling the issue at $25

All the company will do is to reset the dividend in June to 4.08%, assuming 5 year Canada yields remain the same as today.

This reset yield of 4.08% is lower than the issue yield of 4.30%.


Rate reset preferreds do not perform well when rates are falling

Very illiquid reset preferreds like this one perform even worse

This issue will not be called.

Avoid this issue.










Always get a Second Opinion

Why do some of us blindly listen  to our doctors telling us we have sleep apnea and need to buy an expensive $5,000 machine?

Why do some of us listen to our eye doctors’ advice suggesting we have expensive laser surgery costing  $5,000 or more?

To our astonishment, some doctors’ opinions are based on profit and not on our health

Why are some of you not questioning your current financial advisers’ recommendations, knowing that they are selling products, not objective advice?

Where is the logic?

Always obtain a second opinion whether it be your finances or your health and make sure that the opinion is an unbiased one.



Parex Resources

Today Parex reported estimated 1st quarter production of 51,200 barrels per day, up from 49,300 in the 4th quarter of last year

This is the company’s 27th quarterly increase in production

Company expects 2nd Quarter production to reach 52,000 barrels per day

Trailing twelve month Return on Equity is over 36%

Many domestic analysts and portfolio  managers have mistakenly ignored investing in the stock as a result of its energy exposure in Columbia

While Columbia is not Canada, the country has been actively pursuing foreign investment and is very much pro business

The shares continue to outperform most Canadian energy stocks




Canadian Apartment REIT – New Issue provides buying opportunity

Announced a $300 million new issue at $49 per share representing a 3.9% discount from yesterday’s closing price

While the new issue was sold out quickly, the shares are still trading at $49.46 or almost 3%  below yesterday’s close

Concurrently with the new issue announcement, the company announced the acquisition of $182 million of Manufactured Community Housing units.

The acquired properties are located in Atlantic Canada, Ontario and Alberta with an overall occupancy of 95.4%

This purchase is expected to be immediately accretive to their NFFO per unit.

This high quality apartment REIT’s portfolio still has a high concentration in the GTA, the most favourable apartment market in Canada.


Use the current price weakness to add to your positions.