Archive for the ‘Index Construction / Reporting’ Category

HIMIPref™ Index Rebalancing: November 2010

Wednesday, December 1st, 2010
HIMI Index Changes, November 30, 2010
Issue From To Because
TD.PR.P PerpetualPremium PerpetualDiscount Price
CIU.PR.A Scraps PerpetualDiscount Volume
IGM.PR.B PerpetualDiscount PerpetualPremium Price
BMO.PR.H PerpetualDiscount PerpetualPremium Price
GWO.PR.L PerpetualDiscount PerpetualPremium Price
PWF.PR.H PerpetualDiscount PerpetualPremium Price

There were the following intra-month changes:

HIMI Index Changes during November 2010
Issue Action Index Because
CM.PR.R Delete OpRet Redeemed
CM.PR.A Delete OpRet Redeemed
GWL.PR.O Delete PerpetualDiscount Redeemed
SPL.A Delete Scraps Wound up
TDS.PR.B Delete Scraps Redeemed
TDS.PR.C Add SplitShare New Issue
GWO.PR.N Add FixedReset New Issue

FixedReset Index Yield Sets New All-Time Low

Thursday, November 4th, 2010

As briefly noted yesterday, the FixedReset Index set a new all-time low yield record as of the close November 3 with a mark of 2.88%.


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This is all the more impressive since changes to the index in October added three lower-quality, higher-yielding issues to the index, which had an effect on the determination of the median yield.

To celebrate, I am publishing the constituents of the FixedReset index, sorted in various ways:

Given that the DEX Short-Term Corporate Index yields about 2.5% and the ZCS short term corporate ETF yields 2.4% before fees, a yield of 2.88% is not entirely unreasonable: the interest-equivalent is 4.03%, giving a pre-tax spread of about 150bp to cover things like the additional credit risk and extension risk of the FixedResets. But I’m not entirely convinced that the market actually thinks that way.

Index Performance: October 2010

Tuesday, November 2nd, 2010

Performance of the HIMIPref™ Indices for October, 2010, was:

Total Return
Index Performance
October 2010
Three Months
to
October 29, 2010
Ratchet +1.81% *** +5.11% ***
FixFloat +1.81% ** +5.11% **
Floater +1.81% +5.11%
OpRet +0.13% +1.38%
SplitShare +1.50% +7.48%
Interest +0.13%**** +1.38%****
PerpetualPremium +1.07% +4.06
PerpetualDiscount +2.31% +8.70%
FixedReset +0.71% +2.17%
** The last member of the FixedFloater index was transferred to Scraps at the June, 2010, rebalancing; subsequent performance figures are set equal to the Floater index
*** The last member of the RatchetRate index was transferred to Scraps at the July, 2010, rebalancing; subsequent performance figures are set equal to the Floater index
**** The last member of the InterestBearing index was transferred to Scraps at the June, 2009, rebalancing; subsequent performance figures are set equal to the OperatingRetractible index
Passive Funds (see below for calculations)
CPD +1.40% +4.73%
DPS.UN +0.17% +5.92%
Index
BMO-CM 50 +2.02% +5.84%
TXPR Total Return +1.55% +5.16%

CPD again took a good hit on its tracking error against TXPR, down 15bp on the month and 43bp on the quarter. The advertised MER of 0.48% implies these figures should be 4bp and 12bp in the absence of trading frictions. I’m happy! One man’s market impact cost is another man’s market-making gain, and if Claymore is incurring market impact costs in the neighborhood of 100bp p.a., that’s over $5-million on the table to be divvied up by guys like me.

The pre-tax interest equivalent spread of PerpetualDiscounts over Long Corporates (which I also refer to as the Seniority Spread) ended the month at 235bp, a significant decline from the 265bp reported at September month-end. Long corporate yields declined to 5.2% from 5.3% during the period while PerpetualDiscounts had a larger decline in dividend terms, from 5.69% to 5.41%, which became from 7.97% to 7.57% in interest-equivalent terms at the standard conversion factor of 1.4x. I would be happier with long corporates in the 6.00-6.25% range with a seniority spread in the range of 100-150bp, but what do I know? The market has never shown any particular interest in my happiness.

Long Corporates reached a plateau in October:


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Charts related to the Seniority Spread and the Bozo Spread (PerpetualDiscount Current Yield less FixedReset Current Yield) are published in PrefLetter.

The trailing year returns are starting to look a bit more normal.


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Floaters have had a wild ride; the latest decline is presumably due to the idea that the BoC will be slower rather than faster in hiking the overnight rate. I’m going to keep publishing updates of this graph until the one-year trailing return for the sector no longer looks so gigantic:


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Volumes are on their way back up Volume may be under-reported due to the influence of Alternative Trading Systems (as discussed in the November PrefLetter), but I am biding my time before incorporating ATS volumes into the calculations, to see if the effect is transient or not.



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Compositions of the passive funds were discussed in the September, 2010, edition of PrefLetter.

Claymore has published NAV and distribution data (problems with the page in IE8 can be kludged by using compatibility view) for its exchange traded fund (CPD) and I have derived the following table:

CPD Return, 1- & 3-month, to October 29, 2010
Date NAV Distribution Return for Sub-Period Monthly Return
July 30, 2010 16.66    
August 26 16.76 0.069 +1.01% +1.12%
August 31 16.78   +0.11%
September 27 17.12 0.069 +2.44% +2.14%
September 30 17.07   -0.29%
October 26 17.21 0.069 +1.22% +1.40%
October 29, 2010 17.24   +0.17%
Quarterly Return +4.73%

Claymore currently holds $559,641,405 (advisor & common combined) in CPD assets, up about $24-million from the $486,846,162 reported at August month-end and up about $186-million from the $373,729,364 reported at year-end. Their tracking error does not seem to be affecting their ability to gather assets!

The DPS.UN NAV for September 1 has been published so we may calculate the approximate August returns.

DPS.UN NAV Return, September-ish and October-ish 2010
Date NAV Distribution Return for sub-period Return for period
September 1, 2010 20.57      
September 28 21.17 ** 0.30 +4.38%  
September 29 21.12   -0.23%  
October 27 21.12   0.00%  
Estimated September Beginning Stub +0.24% *
Estimated September Ending Stub 0.0% ***
Estimated October Ending Stub +0.17% *****
Estimated September Return +4.39% ****
Estimated October Return +0.17% ******
*CPD had a NAVPU of 16.82 on September 1 and 16.78 on August 31, hence the total return for the period for CPD was +0.24%. The return for DPS.UN in this period is presumed to be equal.
**CPD had a NAVPU of 17.11 on September 28 and 17.07 on September 29, therefore the return for the day was -0.23%. The reported NAV of DPS.UN was 21.12 on September 29, so, assuming returns were approximately equal for the day, the NAV would have been 21.17
***CPD had a NAVPU of 17.07 on September 29 and 17.07 on September 30, hence the total return for the period for CPD was +0.00%. The return for DPS.UN in this period is presumed to be equal.
**** The estimated September return for DPS.UN’s NAV is therefore the product of four period returns, +0.24%, +4.38%, -0.23% and 0.00% to arrive at an estimate for the calendar month of +4.39%
*****CPD had a NAVPU of 17.21 on October 27 and 17.24 on October 29, hence the total return for the period for CPD was +0.17%. The return for DPS.UN in this period is presumed to be equal.
**** The estimated October return for DPS.UN’s NAV is therefore the product of three period returns, +0.00%, +0.00%, +0.17% to arrive at an estimate for the calendar month of +0.17%

Note that Sentry Select claims September performance of 3.7%, but I believe this is price-based, whereas my calculations are NAV-based. DPS.UN currently trades at a discount of about 4% to its NAV.

Now, to see the DPS.UN quarterly NAV approximate return, we refer to the calculations for August:

DPS.UN NAV Returns, three-month-ish to end-October-ish, 2010
August-ish +1.29%
September-ish +4.39%
October-ish +0.17%
Three-months-ish +5.92%

Sentry Select is now publishing performance data for DPS.UN, but this appears to be price-based, rather than NAV-based. I will continue to report NAV-based figures.

HIMIPref™ Index Rebalancing: October 2010

Sunday, October 31st, 2010
HIMI Index Changes, October 29, 2010
Issue From To Because
IGM.PR.B PerpetualPremium PerpetualDiscount Price
PWF.PR.H PerpetualPremium PerpetualDiscount Price
FTS.PR.H Scraps FixedReset Credit
FTS.PR.G Scraps FixedReset Credit
FTS.PR.F Scraps PerpetualDiscount Credit
FTS.PR.E Scraps OpRet Credit
CM.PR.R Scraps OpRet Volume
TRI.PR.B Scraps Floater Volume
BAM.PR.G Scraps FixFloat Volume
TCA.PR.X PerpetualDiscount PerpetualPremium Price
TCA.PR.Y PerpetualDiscount PerpetualPremium Price
IAG.PR.F PerpetualDiscount PerpetualPremium Price
CM.PR.P PerpetualDiscount PerpetualPremium Price
CM.PR.E PerpetualDiscount PerpetualPremium Price
GWO.PR.M PerpetualDiscount PerpetualPremium Price
TD.PR.P PerpetualDiscount PerpetualPremium Price

It’s very nice to see that there is now an issue in the FixFloat index! It became empty as of the June, 2010, rebalancing.

There were the following intra-month changes:

HIMI Index Changes during October 2010
Issue Action Index Because
FFH.PR.I Add Scraps New Issue
BPO.PR.P Add Scraps New Issue
BAM.PR.T Add FixedReset New Issue

HIMIPref™ Index Rebalancing: September 2010

Friday, October 1st, 2010
HIMI Index Changes, September 30, 2010
Issue From To Because
PWF.PR.A Scraps Floater Volume
GWL.PR.O PerpetualPremium PerpetualDiscount Price
PWF.PR.G PerpetualDiscount PerpetualPremium Price
ENB.PR.A PerpetualDiscount PerpetualPremium Price
GWO.PR.F PerpetualDiscount PerpetualPremium Price
PWF.PR.O PerpetualDiscount PerpetualPremium Price
PWF.PR.H PerpetualDiscount PerpetualPremium Price
IGM.PR.B PerpetualDiscount PerpetualPremium Price
TRI.PR.B Floater Scraps Volume

It’s nice to see the continued meaningful migration into the PerpetualPremium index! The sole counter-flow issue, GWL.PR.O, has been called for redemption. The PWF.PR.A move reverses the adjustment for this issue performed in August.

There were the following intra-month changes:

HIMI Index Changes during September 2010
Issue Action Index Because
INE.PR.A Add Scraps New Issue

FixedReset Index YTW Now Through 3.00%

Monday, September 20th, 2010

It seems like only yesterday that I was excited that the FixedReset Index YTW had hit an all-time low of 3.26% … but no, that happened on August 19. It only took another month to hop over the next milestone, as the median weighted average Yield-to-Worst of the FixedReset index is now firmly below 3.00%.


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To celebrate, I am publishing the FixedReset index constituent list, sorted three ways:

Short corporates now yield about 2.7%, so one can certainly make a case for the idea that a yield below 3.0% for FixedResets is fair and reasonable – that allows 150bp for extension and credit risk on a pre-tax interest-equivalent basis – but I don’t think the market thinks like that and I think the market will receive a rude shock when the issuers start calling these things.

I was interviewed today by a reporter for a major Canadian newspaper and talked about what I liked for 15 minutes … then told her ‘wait a minute, you have to put something about FixedResets in this article or you’ll get about 100 eMails following publication, because a lot of people love these things.’ Not to worry – apparently the other experts she interviewed for the piece strongly recommended FixedResets. Hopefully, I’ll get a look at the article later this week.

How about that PWF.PR.P, eh? It’s a 4.40%+160 FixedReset issued in June …. now trading at 26.23-34, but given a 5-Year GOC yield of 2.11%, it’s not expected to be called 2016-1-31.

Index Performance: August 2010

Sunday, September 5th, 2010

Performance of the HIMIPref™ Indices for August, 2010, was:

Total Return
Index Performance
August 2010
Three Months
to
August 31, 2010
Ratchet -2.04% *** -1.99% ***
FixFloat -2.04% ** +0.05% **
Floater -2.04% -2.23%
OpRet +0.42% +2.11%
SplitShare +3.65% +7.48%
Interest +0.42%**** +2.11%****
PerpetualPremium +1.68%* +8.25%*
PerpetualDiscount +2.40% +10.72%
FixedReset +1.13% +4.57%
* The last member of the PerpetualPremium index was transferred to PerpetualDiscount at the May, 2010, rebalancing; the June performance is set equal to the PerpetualDiscount index; the index was repopulated (from the PerpetualDiscount index) at the June rebalancing.
** The last member of the FixedFloater index was transferred to Scraps at the June, 2010, rebalancing; subsequent performance figures are set equal to the Floater index
*** The last member of the RatchetRate index was transferred to Scraps at the July, 2010, rebalancing; subsequent performance figures are set equal to the Floater index
**** The last member of the InterestBearing index was transferred to Scraps at the June, 2009, rebalancing; subsequent performance figures are set equal to the OperatingRetractible index
Passive Funds (see below for calculations)
CPD +1.12% +5.36%
DPS.UN +1.29% +6.90%
Index
BMO-CM 50 +1.31% +6.16%
TXPR Total Return +1.29% +5.74%

There was another month of significant tracking error for CPD, as it implemented the July 2010 TXPR Rebalancing.

The pre-tax interest equivalent spread of PerpetualDiscounts over Long Corporates (which I also refer to as the Seniority Spread) ended the month at 265bp, a significant decline from the 275bp recorded at July month-end. Long corporate yields declined to 5.3% from 5.5% during the period while PerpetualDiscounts had the same decline in dividend terms, from 5.89% to 5.69%, which became a larger move in interest-equivalent terms, from 8.25% to 7.97%. I would be happier with long corporates in the 6.00-6.25% range, but what do I know? The market has never shown any particular interest in my happiness.

Long Corporates have simply been on wheels:


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Charts related to the Seniority Spread and the Bozo Spread (PerpetualDiscount Current Yield less FixedReset Current Yield) are published in PrefLetter.

The trailing year returns are starting to look a bit more normal.


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But I suggest that eventually yields will make a difference:


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FixedResets set an all time low in median weighted average yield-to-worst during the month … this is going to end in tears.

And look, I know the index yield for Floaters shows discontinuities – it’s a result of index rebalancings due to volume shifting the mid point back and forth between the two BAM issues and either one of the PWF or the TRI issues. Give me better data and I’ll give you a better graph!

Floaters have had a wild ride; the latest decline is presumably due to the idea that the BoC will be slower rather than faster in hiking the overnight rate:


Click for big

FixedReset volume declined during the month after their burst of activity in April when they performed poorly. Volume may be under-reported due to the influence of Alternative Trading Systems (as discussed in the November PrefLetter), but I am biding my time before incorporating ATS volumes into the calculations, to see if the effect is transient or not.


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Compositions of the passive funds were discussed in the September, 2009, edition of PrefLetter.

Claymore has published NAV and distribution data (problems with the page in IE8 can be kludged by using compatibility view) for its exchange traded fund (CPD) and I have derived the following table:

CPD Return, 1- & 3-month, to August 31, 2010
Date NAV Distribution Return for Sub-Period Monthly Return
May 31, 2010 16.26      
June 25 16.47 0.21 +2.58% +2.58%
June 30 16.47 0.00 0.00%
July 27 16.62 0.069 +1.33% +1.57%
July 30 16.66 0.00 +0.24%
August 26 16.76 0.069 +1.01% +1.12%
August 31, 2010 16.78   +0.11%
Quarterly Return +5.36%

Claymore currently holds $486,846,162 (advisor & common combined) in CPD assets, up about $24-million from the $462,433,680 reported last month and up about $113-million from the $373,729,364 reported at year-end. The monthly increase in AUM of about 5% is larger than the total return of +0.72%, implying that the ETF experienced significant net subscriptions in August.

The DPS.UN NAV for September 1 has been published so we may calculate the approximate August returns.

p

DPS.UN NAV Return, August-ish 2010
Date NAV Distribution Return for sub-period Return for period
July 28, 2010 20.21      
September 1, 2010 20.57     +1.78%
Estimated July Ending Stub -0.24% **
Estimated September Beginning Stub -0.24% *
Estimated August Return +1.29% ***
*CPD had a NAVPU of 16.82 on September 1 and 16.78 on August 31, hence the total return for the period for CPD was +0.24%. The return for DPS.UN in this period is presumed to be equal.
**CPD had a NAVPU of 16.62 on July 28 and 16.66 on July 30, hence the total return for the period for CPD was +0.24%. The return for DPS.UN in this period is presumed to be equal.
*** The estimated August return for DPS.UN’s NAV is therefore the product of three period returns, +1.78%, -0.24% and -0.24% to arrive at an estimate for the calendar month of +1.29%

Now, to see the DPS.UN quarterly NAV approximate return, we refer to the calculations for June and July:

DPS.UN NAV Returns, three-month-ish to end-August-ish, 2010
June-ish +3.42%
July-ish +2.05%
Augusts-ish +1.29%
Three-months-ish +6.90%

Sentry Select is now publishing performance data for DPS.UN, but this appears to be price-based, rather than NAV-based. I will continue to report NAV-based figures.

HIMIPref™ Index Rebalancing: August 2010

Wednesday, September 1st, 2010
HIMI Index Changes, August 31, 2010
Issue From To Because
CM.PR.D PerpetualDiscount PerpetualPremium Price
TD.PR.R PerpetualDiscount PerpetualPremium Price
NA.PR.K PerpetualDiscount PerpetualPremium Price
TD.PR.Q PerpetualDiscount PerpetualPremium Price
PWF.PR.I PerpetualDiscount PerpetualPremium Price
BNS.PR.O PerpetualDiscount PerpetualPremium Price
IAG.PR.E PerpetualDiscount PerpetualPremium Price
CIU.PR.A PerpetualDiscount Scraps Volume
PWF.PR.A Floater Scraps Volume

It’s nice to see a meaningful migration into the PerpetualPremium index!

There were the following intra-month changes:

HIMI Index Changes during August 2010
Issue Action Index Because
PWF.PR.J Delete OpRet Redeemed
ALA.PR.A Add Scraps New Issue

FixedReset Index Sets All-Time Low Median-YTW Record

Friday, August 20th, 2010

The HIMIPref™ FixedReset Index set a new record low median-YTW record today, as this value dropped to a niggardly 3.26%, a new low.


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To celebrate, I am publishing the constituents of this index, with three sorts:

Index Performance: July 2010

Monday, August 2nd, 2010

Performance of the HIMIPref™ Indices for July, 2010, was:

Total Return
Index Performance
July 2010
Three Months
to
July 30, 2010
Ratchet +1.48% -3.04%
FixFloat +0.25% ** -2.74% **
Floater +0.25% -6.79%
OpRet +0.28% +1.69%
SplitShare +2.33% +4.50%
Interest +0.28%**** +1.69%****
PerpetualPremium +1.09%* +6.29%*
PerpetualDiscount +2.67% +9.55%
FixedReset +1.78% +4.71%
* The last member of the PerpetualPremium index was transferred to PerpetualDiscount at the May, 2010, rebalancing; the June performance is set equal to the PerpetualDiscount index; the index was repopulate (from the PerpetualPremium index) at the June rebalancing.
** The last member of the FixedFloater index was transferred to Scraps at the June, 2010, rebalancing; subsequent performance figures are set equal to the Floater index
**** The last member of the InterestBearing index was transferred to Scraps at the June, 2009, rebalancing; subsequent performance figures are set equal to the OperatingRetractible index
Passive Funds (see below for calculations)
CPD +1.57% +5.16%
DPS.UN +2.05% +5.77%
Index
BMO-CM 50 +1.87% +5.11%
TXPR Total Return +1.70% +5.40%

Unofficial data for TXPR indicates a total return of +1.70% for July, indicating a rather large tracking error of 55bp for CPD on the month, probably due to the semi-annual July rebalancing. No accounting had been made in the original post for the change to monthly distributions. This error has now been corrected. The tracking error for July is therefore 13bp – still rather large, but much smaller than the estimate that did not account for the distribution.

The pre-tax interest equivalent spread of PerpetualDiscounts over Long Corporates (which I also refer to as the Seniority Spread) ended the month at 275bp, a significant decline from the 290bp recorded at June month-end. Long corporate yields increased slightly, to 5.5% from 5.45%. I would be happier with long corporates in the 6.00-6.25% range, but what do I know? The market has never shown any particular interest in my happiness.

Charts related to the Seniority Spread and the Bozo Spread (PerpetualDiscount Current Yield less FixedReset Current Yield) are published in PrefLetter.

The trailing year returns are starting to look a bit more normal.


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But I suggest that eventually yields will make a difference:


Click for big

Floaters have had a wild ride


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FixedReset volume declined during the month after their burst of activity in April when they performed poorly. Volume may be under-reported due to the influence of Alternative Trading Systems (as discussed in the November PrefLetter), but I am biding my time before incorporating ATS volumes into the calculations, to see if the effect is transient or not.


Click for big

Compositions of the passive funds were discussed in the September, 2009, edition of PrefLetter.

Claymore has published NAV and distribution data (problems with the page in IE8 can be kludged by using compatibility view) for its exchange traded fund (CPD) and I have derived the following table:

CPD Return, 1- & 3-month, to July, 2010
Date NAV Distribution Return for Sub-Period Monthly Return
April 30 16.11      
May 31 16.26     +0.93%
June 25 16.47 0.21 +2.58% +2.58%
June 30, 2010 16.47 0.00 0.00%
July 27 16.62 0.069 +1.33% +1.57%
July 30, 2010 16.66 0.00 0.24%
Quarterly Return +5.16%

Claymore currently holds $462,433,680 (advisor & common combined) in CPD assets, up about $18-million from the $444,847,391 reported last month and up about $88-million from the $373,729,364 reported at year-end. The monthly increase in AUM of about 3.95% is larger than the total return of +1.15%, implying that the ETF experienced net subscriptions in July.

The DPS.UN NAV for July 28 has been published so we may calculate the approximate July returns.

DPS.UN NAV Return, July-ish 2010
Date NAV Distribution Return for sub-period Return for period
June 30, 2010 19.85      
July 28, 2010 20.21     +1.81%
Estimated July Ending Stub +0.24% **
Estimated July Return +2.05% ***
**CPD had a NAVPU of 16.62 on July 28 and 16.66 on July 30, hence the total return for the period for CPD was +0.24%. The return for DPS.UN in this period is presumed to be equal.
*** The estimated July return for DPS.UN’s NAV is therefore the product of two period returns, +1.81% and +0.24% to arrive at an estimate for the calendar month of +2.05%

Now, to see the DPS.UN quarterly NAV approximate return, we refer to the calculations for May and June:

DPS.UN NAV Returns, three-month-ish to end-July-ish, 2010
May-ish +0.22%
June-ish +3.42%
July-ish +2.05%
Three-months-ish +5.77%