FGP manager makes the case for preferred shares

Risk of another meltdown is minimal, Ryan Domsy says.

Michael Ryval 13 September, 2018 | 5:00PM

Although some investors may be concerned about the risk of investing in preferred shares at this point of the equity market cycle, Ryan Domsy argues that these concerns are unfounded. Indeed, because of the low correlation with other asset classes, Domsy maintains this could be an opportune time to use preferred shares as a diversification tool in one's portfolio.

"Preferred shares are at a point where valuations are still quite attractive. We see considerable upside," says Domsy, vice-president, head of credit research and fixed income portfolio manager at Toronto-based investment counselors Foyston, Gordon & Payne. The firm is sub-advisor to the $103.6 million Evolve Active Canadian Preferred Share ETF (DIVS), which was launched in September 2017 by Evolve Funds Group in Toronto. DIVS is managed in a similar fashion as FGP Preferred Share, a pooled fund available to high-net-worth and institutional investors that Domsy and his team have managed since December 2015.

"It's not just about the market cycle for preferred shares themselves, but how they react when other types of securities are in weak points of their cycles. When you see sell-offs in equities or bonds, preferred shares have low correlations and the market cycles are not perfectly lined up. This is a positive feature of preferreds," says Domsy, a 10-year industry veteran who graduated in 2008 with a master's degree in economics from Queen's University and joined FGP in 2010. The asset class has a near-zero correlation with bonds, Domsy notes, and correlations of 30% to 40 % with equities.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Enbridge Inc40.15 CAD-0.12
The Toronto-Dominion Bank59.92 CAD2.01

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Michael Ryval

Michael Ryval  

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