The Bank of Canada has reduced its policy percentage by 0.25%, so that it is brought to 2.5%. That is an exemption for mortgage holders with variable speed and also welcome news for bond investors who are still losing the losses of 2022 nursing.
On the other hand, it is less positive for savers who depend on guaranteed investment certificates (GICs) or high -interest savings accounts, since the return will fall on this (although only new problems are influenced for GICs).
But lower rates are not bad news for everyone. Two sectors of the Canadian market are especially ready to take advantage: utilities and real estate investments (Reit’s). This is why I, together with two exhibition -related fund (ETF) choices that I like to bet on it.
Why utilities and Reit’s benefit
Both utilities and reit’s are highly dependent on the debts to grow. Utility companies are borrowing and maintaining the power generation or transmission infrastructure, while REIT’s capital attracts to acquire and develop real estate properties.
In both cases, the aim is in both cases to spend in advance and then collect a steady cash flow stream for decades to support above -average dividends. If the debt is cheaper – either because new loans costs costs or management financing existing debts at lower rates – the obstacles for projects will come down.
This is crucial, because organic growth for utility companies is limited to expanding service areas or adding connections, which are limited by population growth. Reit’s are confronted with similar limits, since the occupancy rate and the rental increases so far only move; To expand meaningfully, they have to buy or develop more properties. Lower rates make that growth -roads much more feasible.
There is also a psychological perspective. When alternatives with a low risk no longer yield 4% or more, the steady dividends of utilities and reit’s look more attractive. In contrast to money products, these sectors also offer the potential for capital valuation as the income grows.
The ETFs to buy
For sector betting I prefer to avoid market-cap-weighting ETFs. These products are often too top heavy, with only two or three dominant companies that manage the performance. Instead, I tend to strategies for the same weight that spread the exposure more evenly across companies.
Two that I like are the BMO Equal Weight Utilities Index ETF (TSX: ZUT) and the BMO Equal Weight Reits Index ETF (TSX: ZRE).
Both draws a cost ratio of 0.6% and do exactly what their names suggest: equal weight their possession. This creates a systematic “buy low, sell high” effect as smaller companies are topped up and larger are cut during brought back in balance, reducing the risk of concentration.
They are also solid income games. Zut currently yields around 3.3%, while ZRE yields a higher 3.8%. The benefits of ZUT are usually eligible for dividends, making it more tax efficient than ZRe, whose payouts are handled as ordinary income.
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