Split share investments.

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I am aware of your position on split share investments underperforming in a bull market.
My question is will they over perform in a bear market and will they provide some safety?
Thanks.

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Asked on May 7, 2021 7:11 am
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Hi there. This would be my position on covered call ETFs, which will underperform in a Bull Market, but will likely outperform in a bear market.

Depending on the structure of a split corp, this could be completely irrelevant. In bear markets, and especially market crashes, they actually tend to perform worse because you are leveraged. Unless they sell covered calls to boost income, in this case it could help them a bit.

If you look at a popular split corp like DFN during the 08 and 2020 crashes, you can see it fell MUCH more than the market overall. Same with something like Brompton Split Corp which trades under the ticker SBC.TO.

They attract investors with high yields, and in turn pay a distribution that in most cases is just taken out of the NAV (net asset value) of the fund. This is why you'll see most split corporations are heading down in price steadily over the course of their existence. In a way, you're buying in to the fund, and they're paying you back your own money as a distribution.

I'm not a fan of the products, at all.

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Posted by Dan Kent
Answered on May 7, 2021 7:56 am