On Tuesday, the S&P 500 was about unchanged and Toronto was up 0.4%
There as a new issue of “split shares” stocks and debt today form a company called. NewGrowth Corp. That’s interesting, a company with a name that contains absolutely no clue about what line of business it is in. From the name all we know is that it is new and intends to grow. While overall the market may not be over-valued, the existence of this company seems a little scary. I realize that one could read its prospectus to find out what it does or in tends to do. The reality is that few investors read the prospectus and in many cases there is literally no time to to do so as the issues often fill and close out very quickly. In this case, and I think it is not surprising, the issue ahs not yet sold out.
Apparently this entity already trades and appears to be a closed end ETF. It was apparently created by Scotia Bank to invest in banks and utility companies. It splits out the income from dividends versus capital gains.
I have never bothered to look into the mechanics of any of these “split” corporations. To me, they just add in a lot of complexity and some fees. If I want dividend shares I will buy dividends shares. If I want capital gains I can buy directly shares in companies that I expect to grow. Bank shares typically offer both and I don’t see any value in separating them. Most advisors suggest having some of each in any portfolio so why separate them? I doubt that these split entities add any value to the market. And I doubt that very many investors would understand much about how these entities work.
I suppose I might consider it if the closed end fund were trading at a large discount to the underlying shares.
There might be the odd situation where someone with no other income wants a portfolio with 100% dividend income because there is very little tax in that situation. But that is a rather rare situation, I suspect. It could perhaps be arranged for a non-working spouse but seems to be an aggressive form of tax planning and revenue Canada might want a very clean paper trail on where the funds came from that are generation say $60k in dividends, in a taxable account, for someone who is not working or drawing a pension. While such cases might exist, it does not apply to me and I have no interest in this at this time. Even if I was especially hungry for dividend income I don’t think I would look to the complexity of split shares. They are derivatives. Nothing inherently wrong with that but it definitely adds complexity.
Overall I just don’t see it as useful to spend any time looking at this or any other “split share” entity.
And it is just very hard to take seriously an entity called NewGrowth Corp.