Archive for the ‘MAPF’ Category

MAPF Performance: September, 2023

Sunday, October 1st, 2023

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close September 29, 2023, was $7.9922 after a dividend distribution of 0.120186 per Unit.

Performance was affected by MIC.PR.A underperforming at +1.44% , BN.PR.R at +2.36% [repeating last month’s underperformance] and several low-weight, junk-rated issues underperforming at -4.95% to -0.58%. This was more than compensated for by good performance from TRP.PR.D (+6.44%), TD.PF.C (+6.36%, recovering from last month’s underperformance) and NA.PR.W (+5.66)[small holdings are not considered for individual mention here].

I feel it is only a matter of time before investors start paying attention to the fundamental risk of these instruments compared to their eye-popping interest-equivalent yields. In addition, the market appears to be giving considerable weight to Current Yield as a measure of valuation, ignoring or strongly deprecating the potential for large dividend increases on the next few years of resets.

FixedResets continue to yield more, in general, than PerpetualDiscounts; on September 29, I reported median YTWs of 9.18% and 7.07%, respectively, for these two indices; compare with mean Current Yields of 5.97% and 6.87%, respectively. RY.PR.J, to take a representative example, is calculated by HIMIPref™ as having a yield-to-worst of 9.35% at monthend (Current Yield of 4.49%); bid at 17.80, resetting 2025-5-24 at a spread of 274bp over GOC-5 (assumed to be constant at 4.31%) and currently paying 0.80 p.a. (3.20% annually). The next pay-date is 2023-11-24; it is trading cum-dividend.

If we plug the above data into the yield calculator for resets (which is discussed here and has recently been slightly modified), we arrive at a annualized (compounded semi-annually) yield of 9.24% for RY.PR.J . To take this up 11bp (the difference between the spreadsheets and HIMIPref™) above the PerpetualDiscount median index yield of 7.07% (to account for the calculation methodological differences), which is to say 7.18%, requires the assumption that GOC-5 will be 2.57% forever, as opposed the ‘constant rate’ assumption of 4.31%. Well … pays yer money and takes yer chances, gents! Assiduous Readers with long memories will liken this to all the calculations of Break-even Rate Shock when the puzzle represented the same problem with a different sign! Note that even if the unfavourable scenario of GOC-5 = 2.57% is realized, this has only reduced the yield of RY.PR.J to that of the median PerpetualDiscount yield, which isn’t the worst outcome one might fear from one’s investments!

Returns to September 29, 2023
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month +3.74% +1.44% N/A
Three Months +1.16% -1.43% N/A
One Year +0.12% -4.47% -4.92%
Two Years (annualized) -9.63% -9.35% N/A
Three Years (annualized) +7.97% +1.18% +0.66%
Four Years (annualized) +6.08% +1.57% N/A
Five Years (annualized) +0.12% -0.93% -1.49%
Six Years (annualized) +1.74% +0.05% N/A
Seven Years (annualized) +4.83% +2.24% N/A
Eight Years (annualized) +5.34% +3.01% N/A
Nine Years (annualized) +1.98% +0.21% N/A
Ten Years (annualized) +2.72% +0.72% N/A
Eleven Years (annualized) +2.36% +0.57%  
Twelve Years (annualized) +3.18% +1.05%  
Thirteen Years (annualized) +3.16% +1.37%  
Fourteen Years (annualized) +3.99% +1.89%  
Fifteen Years (annualized) +7.10% +2.36%  
Sixteen Years (annualized) +6.39% +1.67%  
Seventeen Years (annualized) +6.08%    
Eighteen Years (annualized) +6.07%    
Nineteen Years (annualized) +6.13%    
Twenty Years (annualized) +6.58%    
Twenty-One Years (annualized) +7.66%    
Twenty-Two Years (annualized) +7.06%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
Figures for National Bank Preferred Equity Income Fund (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are +1.48%, -0.94% and -3.74%, respectively, according to Globe & Mail / Fundata after all fees & expenses. Three year performance is +2.70%; five year is +0.21%; ten year is +1.60%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are +1.58%, -0.54% & -2.93%, respectively. Three year performance is +3.45%, five-year is -0.71%, ten year is +1.47%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are +2.13%, -0.06% and -2.55% for one-, three- and twelve months, respectively. Three year performance is +3.71%; five-year is -0.46%; ten-year is +1.50%

Acccording to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical.

The last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is -4.44% for the past twelve months. Two year performance is -8.74%, three year is +3.39%, five year is -0.70%, ten year is 0.00%
Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to BMO are +1.89%, -0.96% and -5.64% for the past one-, three- and twelve-months, respectively. Two year performance is -10.62%; three year is -0.38%; five-year is -3.10%; ten-year is -1.10%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are +2.0%, -0.2% and -3.0% for the past one, three and twelve months, respectively. Three year performance is +5.5%, five-year is -1.0%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are +1.17%, -1.69% and -4.57% for the past one, three and twelve months, respectively. Two year performance is -10.05%, three-year is +0.86%, five-year is -2.22%
Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as +0.85%, -2.57% and -7.03% for the past one, three and twelve months, respectively. Three-year performance is +2.10%, five-year is -1.77%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are +1.5%, -0.7% and -1.2% for the past one, three and twelve months, respectively. Three-year performance is +5.9%; five-year is +0.9%
Figures for the Purpose Canadian Preferred Share Fund (Class F) are +2.47%, +0.87% and -3.94% for the past one, three and twelve months, respectively. Three-year performance is +6.02%; five-year is -0.79%; seven-year is +2.47%; ten-year is +4.39%.

The five-year Canada yield increased, with the five-year Canada yield (“GOC-5”) rising from 4.08% at August month-end to 4.31% at September month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 390bp as of 2023-9-27 (although this is based on suspect data from BMO) (chart end-date 2023-9-8) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly from its 2021-11-10 low of 344bp to its current level of 762bp (as of 2023-9-27) … (chart end-date 2023-9-8):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -274bp (as of 2023-9-29) from its 2021-7-28 level of +170bp (chart end-date 2023-8-11):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues, which is normal because there is a lot of noise in this inefficient market.

However, the normally moderate correlations between Issue Reset Spread and three-month performance have disappeared again in this month’s check:

Results for the regressions of performance against term-to-reset echo those found last month. I interpret this as implying that the market is using the FixedReset market as a proxy to make interest rate forecasting bets, but I am at a loss to discern any coherent vision to results in the year to date.

There was a correlation of 21% for the Pfd-2 Group and the same value for the Pfd-3 (21%) Group for 1-Month performance against term-to-reset; there seems to be some additional effect of a less than one-year term to reset:

… and for three-month performance against term-to-reset, there were significant correlations for both the Pfd-2 Group (32%) and the Pfd-3 Group (39%):

It should be noted that to some extent such a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August 2022 PrefLetter. In the three months from June 30 to September 29, the GOC-5 rate increased from 3.74% to 4.31%. There may have well have been an effect from the surprise redemption of TD.PF.K, if enough investors thought this signalled the return of waves of redemptions.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year-odd has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2023-9-8).

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW
Leverage
Divisor
Securities
Average
YTW
Capital
Gains
Multiplier
Sustainable
Income
per
current
Unit
June, 2007 9.3114 5.16% 1.03 5.01% 1.3240 0.3524
September 9.1489 5.35% 0.98 5.46% 1.3240 0.3773
December, 2007 9.0070 5.53% 0.942 5.87% 1.3240 0.3993
March, 2008 8.8512 6.17% 1.047 5.89% 1.3240 0.3938
June 8.3419 6.034% 0.952 6.338% 1.3240 $0.3993
September 8.1886 7.108% 0.969 7.335% 1.3240 $0.4537
December, 2008 8.0464 9.24% 1.008 9.166% 1.3240 $0.5571
March 2009 $8.8317 8.60% 0.995 8.802% 1.3240 $0.5872
June 10.9846 7.05% 0.999 7.057% 1.3240 $0.5855
September 12.3462 6.03% 0.998 6.042% 1.3240 $0.5634
December 2009 10.5662 5.74% 0.981 5.851% 1.1141 $0.5549
March 2010 10.2497 6.03% 0.992 6.079% 1.1141 $0.5593
June 10.5770 5.96% 0.996 5.984% 1.1141 $0.5681
September 11.3901 5.43% 0.980 5.540% 1.1141 $0.5664
December 2010 10.7659 5.37% 0.993 5.408% 1.0298 $0.5654
March, 2011 11.0560 6.00% 0.994 5.964% 1.0298 $0.6403
June 11.1194 5.87% 1.018 5.976% 1.0298 $0.6453
September 10.2709 6.10%
Note
1.001 6.106% 1.0298 $0.6090
December, 2011 10.0793 5.63%
Note
1.031 5.805% 1.0000 $0.5851
March, 2012 10.3944 5.13%
Note
0.996 5.109% 1.0000 $0.5310
June 10.2151 5.32%
Note
1.012 5.384% 1.0000 $0.5500
September 10.6703 4.61%
Note
0.997 4.624% 1.0000 $0.4934
December, 2012 10.8307 4.24% 0.989 4.287% 1.0000 $0.4643
March, 2013 10.9033 3.87% 0.996 3.886% 1.0000 $0.4237
June 10.3261 4.81% 0.998 4.80% 1.0000 $0.4957
September 10.0296 5.62% 0.996 5.643% 1.0000 $0.5660
December, 2013 9.8717 6.02% 1.008 5.972% 1.0000 $0.5895
March, 2014 10.2233 5.55% 0.998 5.561% 1.0000 $0.5685
June 10.5877 5.09% 0.998 5.100% 1.0000 $0.5395
September 10.4601 5.28% 0.997 5.296% 1.0000 $0.5540
December, 2014 10.5701 4.83% 1.009 4.787% 1.0000 $0.5060
March, 2015 9.9573 4.99% 1.001 4.985% 1.0000 $0.4964
June, 2015 9.4181 5.55% 1.002 5.539% 1.0000 $0.5217
September 7.8140 6.98% 0.999 6.987% 1.0000 $0.5460
December, 2015 8.1379 6.85% 0.997 6.871% 1.0000 $0.5592
March, 2016 7.4416 7.79% 0.998 7.805% 1.0000 $0.5808
June 7.6704 7.67% 1.011 7.587% 1.0000 $0.5819
September 8.0590 7.35% 0.993 7.402% 1.0000 $0.5965
December, 2016 8.5844 7.24% 0.990 7.313% 1.0000 $0.6278
March, 2017 9.3984 6.26% 0.994 6.298% 1.0000 $0.5919
June 9.5313 6.41% 0.998 6.423% 1.0000 $0.6122
September 9.7129 6.56% 0.998 6.573% 1.0000 $0.6384
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
June 30 8.0197 9.19% 1.003 9.163% 1.0000 $0.7348
September 29, 2023 7.9922 9.86% 0.997 9.890% 1.0000 $0.7904
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains.
Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00%
The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99
Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested.
Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks.

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012.

These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:

Canada Yields Assumed in Calculations
Month-end GOC-5 3-Month Bill
September, 2015 0.78% 0.40%
December, 2015 0.71% 0.46%
March, 2016 0.70% 0.44%
June 0.57% 0.47%
September 0.58% 0.53%
December, 2016 1.16% 0.47%
March, 2017 1.08% 0.55%
June 1.35% 0.69%
September 1.79% 0.97%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March, 2023 2.93% 4.44%
June 3.74% 5.00%
September, 2023 4.31% 5.21%

MAPF Portfolio Composition: September, 2023

Sunday, October 1st, 2023

Turnover remained surprisingly high at 10% in September, saved from ignominy by a burst of activity following the surprise redemption of TD.PF.K and subsequent market movement.

Sectoral distribution of the MAPF portfolio on September 29, 2023, were:

MAPF Sectoral Analysis 2023-9-29
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 0% N/A N/A
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 0% N/A N/A
Fixed-Reset Discount 63.3% 9.75% 10.24
Insurance – Straight 3.2% 6.93% 12.64
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 9.0% 9.26% 10.78
Scraps – Ratchet 0% N/A N/A
Scraps – FixedFloater 1.4% 10.99% 10.00
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 0% N/A N/A
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 5.3% 7.60% 11.86
Scraps – FR Discount 17.5% 11.84% 8.83
Scraps – Insurance Straight 0% N/A N/A
Scraps – FloatingReset 0% N/A N/A
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 0% N/A N/A
Cash +0.2% 0.00% 0.00
Total 100% 9.86% 10.17
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
DeemedRetractibles were comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.

Note that the estimate for the time this will become effective for insurers and insurance holding companies was extended by three years in April 2013, due to the delays in OSFI’s providing clarity on the issue and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others.

The name of this subindex has been changed to “Insurance Straight” as of November, 2020

Calculations of yield and related attributes of resettable instruments are performed assuming a constant GOC-5 rate of 4.31%, a constant 3-Month Bill rate of 5.21% and a constant Canada Prime Rate of 7.20%

The “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.

Credit distribution is:

MAPF Credit Analysis 2023-9-29
DBRS Rating MAPF Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 44.4%
Pfd-2 20.0%
Pfd-2(low) 16.4%
Pfd-3(high) 14.1%
Pfd-3 1.4%
Pfd-3(low) 3.2%
Pfd-4(high) 0.3%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0%
Pfd-5 0%
Cash +0.2%
Totals will not add precisely due to rounding.
A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous.

Liquidity Distribution is:

MAPF Liquidity Analysis 2023-9-29
Average Daily Trading MAPF Weighting
<$50,000 20.1%
$50,000 – $100,000 15.6%
$100,000 – $200,000 50.7%
$200,000 – $300,000 12.9%
>$300,000 0.4%
Cash +0.2%
Totals will not add precisely due to rounding.

The distribution of Issue Reset Spreads is:

Range MAPF Weight
<100bp 0%
100-149bp 4.8%
150-199bp 11.2%
200-249bp 62.8%
250-299bp 8.1%
300-349bp 2.3%
350-399bp 0.5%
400-449bp 0%
450-499bp 0%
500-549bp 0%
550-599bp 0%
>= 600bp 0%
Undefined 10.2%

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

Range MAPF Weight
Currently Floating 0%
0-1 Year 23.6%
1-2 Years 35.1%
2-3 Years 18.6%
3-4 Years 8.0%
4-5 Years 5.8%
5-6 Years 0%
>6 Years 0%
Not Floating Rate 8.8%

MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available the fund’s web page. The fund may be purchased directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a prospectus This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission). Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

MAPF Performance: August, 2023

Monday, September 4th, 2023

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close August 31, 2023, was $7.8199.

Performance was affected by BN.PR.R underperforming at -7.75% [more than offsetting last month’s outperformance], TD.PF.C at -7.05% [again, more than offsetting last month] and NA.PR.W at -5.92%. This was mitigated by good performance (relatively speaking!) from FTS.PR.M [-3.25%], PWF.PR.P [-3.53%, almost offsetting last month] and NA.PR.S [-3.57%] [small holdings are not considered for mention here].

I feel it is only a matter of time before investors start paying attention to the fundamental risk of these instruments compared to their eye-popping interest-equivalent yields. In addition, the market appears to be giving considerable weight to Current Yield as a measure of valuation, ignoring or strongly deprecating the potential for large dividend increases on the next few years of resets.

FixedResets continue to yield more, in general, than PerpetualDiscounts; on August 31, I reported median YTWs of 9.18% and 7.13%, respectively, for these two indices; compare with mean Current Yields of 6.07% and 6.95%, respectively. RY.PR.J, to take a representative example, is calculated by HIMIPref™ as having a yield-to-worst of 9.26% at monthend (Current Yield of 4.62%); bid at 17.30, resetting 2025-5-24 at a spread of 274bp over GOC-5 (assumed to be constant at 4.08%) and currently paying 0.80 p.a. (3.20% annually). The next pay-date is 2023-11-24; it is trading cum-dividend.

If we plug the above data into the yield calculator for resets (which is discussed here), we arrive at a quarterly annualized yield of 9.05% for RY.PR.J (this is quarterly compounded yield, not semi-annually as in HIMIPref™ there are also implementation differences). To take this down to 21bp (the difference between the spreadsheets and HIMIPref™) below the PerpetualDiscount median index yield of 7.13% (to account for the calculation methodological differences), which is to say 6.92%, requires the assumption that GOC-5 will be 2.28% forever, as opposed the ‘constant rate’ assumption of 4.08%. Well … pays yer money and takes yer chances, gents! Assiduous Readers with long memories will liken this to all the calculations of Break-even Rate Shock when the puzzle represented the same problem with a different sign! Note that even if the unfavourable scenario of GOC-5 = 2.28% is realized, this has only reduced the yield of RY.PR.J to that of the median PerpetualDiscount yield, which isn’t the worst outcome one might fear from one’s investments!

Returns to August 31, 2023
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month -4.42% -4.21% N/A
Three Months +1.73% -1.58% N/A
One Year -10.99% -12.31% -12.68%
Two Years (annualized) -10.45% -9.60% N/A
Three Years (annualized) +6.20% +0.75% +0.24%
Four Years (annualized) +5.94% +2.05% N/A
Five Years (annualized) -0.65% -1.28% -1.63%
Six Years (annualized) +1.29% +0.04% N/A
Seven Years (annualized) +4.35% +2.02% N/A
Eight Years (annualized) +3.96% +2.09% N/A
Nine Years (annualized) +1.49% -0.02% N/A
Ten Years (annualized) +2.44% +0.63% N/A
Eleven Years (annualized) +2.12% +0.48%  
Twelve Years (annualized) +2.29% +0.86%  
Thirteen Years (annualized) +3.20% +1.43%  
Fourteen Years (annualized) +3.64% +1.75%  
Fifteen Years (annualized) +6.62% +2.06%  
Sixteen Years (annualized) +6.10% +1.51%  
Seventeen Years (annualized) +5.94%    
Eighteen Years (annualized) +5.94%    
Nineteen Years (annualized) +5.97%    
Twenty Years (annualized) +6.54%    
Twenty-One Years (annualized) +7.08%    
Twenty-Two Years (annualized) +7.08%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
Figures for National Bank Preferred Equity Income Fund (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are +%, -% and -%, respectively, according to Globe & Mail / Fundata after all fees & expenses. Three year performance is +%; five year is +%; ten year is +%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are -3.79%, +0.03% & -11.19%, respectively. Three year performance is +2.73%, five-year is -1.12%, ten year is +1.39%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are +%, +% and -% for one-, three- and twelve months, respectively. Three year performance is +%; five-year is -%; ten-year is +%

Acccording to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical.

The last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is -12.78% for the past twelve months. Two year performance is -9.11%, three year is +2.56%, five year is -1.10%, ten year is -0.17%
Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to BMO are -4.48%, -1.28% and -13.67% for the past one-, three- and twelve-months, respectively. Two year performance is -11.26%; three year is -1.15%; five-year is -3.60%; ten-year is -1.25%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are -3.2%, -1.1% and -11.1% for the past one, three and twelve months, respectively. Three year performance is +4.7%, five-year is -1.7%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are -4.03%, -1.34% and -12.00% for the past one, three and twelve months, respectively. Two year performance is -10.21%, three-year is +0.29%, five-year is -2.56%
Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as -4.90%, -0.94% and -14.73% for the past one, three and twelve months, respectively. Three-year performance is +1.58%, five-year is -2.03%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are +%, -% and -% for the past one, three and twelve months, respectively. Three-year performance is +%; five-year is +%
Figures for the Purpose Canadian Preferred Share Fund (Class F) are -3.84%, -1.21% and -7.45% for the past one, three and twelve months, respectively. Three-year performance is +4.89%; five-year is -1.33%; seven-year is +2.09%; ten-year is +4.43%.

The five-year Canada yield increased, with the five-year Canada yield (“GOC-5”) rising from 3.97% at July month-end to 4.08% at August month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 390bp as of 2023-8-31 (chart end-date 2023-8-11) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly from its 2021-11-10 low of 344bp to its current level of 798bp (as of 2023-8-30) … (chart end-date 2023-8-11):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -266bp (as of 2023-8-31) from its 2021-7-28 level of +170bp (chart end-date 2023-8-11):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues, which is normal because there is a lot of noise in this inefficient market.

However, the normally moderate correlations between Issue Reset Spread and three-month performance have disappeared again in this month’s check:

Results for the regressions of performance against term-to-reset echo those found last month. I interpret this as implying that the market is using the FixedReset market as a proxy to make interest rate forecasting bets, but I am at a loss to discern any coherent vision to results in the year to date.

There no significant correlation for the Pfd-2 Group but there was a small one for the Pfd-3 (15%) Group for 1-Month performance against term-to-reset; there seems to be some additional effect of a less than one-year term to reset:

… and for three-month performance against term-to-reset, there were significant correlations for both the Pfd-2 Group (27%) and the Pfd-3 Group (36%):

It should be noted that to some extent such a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August 2022 PrefLetter. In the three months from May 31 to August 31, the GOC-5 rate increased from 3.61% to 4.08%.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year-odd has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2023-8-11).

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW
Leverage
Divisor
Securities
Average
YTW
Capital
Gains
Multiplier
Sustainable
Income
per
current
Unit
June, 2007 9.3114 5.16% 1.03 5.01% 1.3240 0.3524
September 9.1489 5.35% 0.98 5.46% 1.3240 0.3773
December, 2007 9.0070 5.53% 0.942 5.87% 1.3240 0.3993
March, 2008 8.8512 6.17% 1.047 5.89% 1.3240 0.3938
June 8.3419 6.034% 0.952 6.338% 1.3240 $0.3993
September 8.1886 7.108% 0.969 7.335% 1.3240 $0.4537
December, 2008 8.0464 9.24% 1.008 9.166% 1.3240 $0.5571
March 2009 $8.8317 8.60% 0.995 8.802% 1.3240 $0.5872
June 10.9846 7.05% 0.999 7.057% 1.3240 $0.5855
September 12.3462 6.03% 0.998 6.042% 1.3240 $0.5634
December 2009 10.5662 5.74% 0.981 5.851% 1.1141 $0.5549
March 2010 10.2497 6.03% 0.992 6.079% 1.1141 $0.5593
June 10.5770 5.96% 0.996 5.984% 1.1141 $0.5681
September 11.3901 5.43% 0.980 5.540% 1.1141 $0.5664
December 2010 10.7659 5.37% 0.993 5.408% 1.0298 $0.5654
March, 2011 11.0560 6.00% 0.994 5.964% 1.0298 $0.6403
June 11.1194 5.87% 1.018 5.976% 1.0298 $0.6453
September 10.2709 6.10%
Note
1.001 6.106% 1.0298 $0.6090
December, 2011 10.0793 5.63%
Note
1.031 5.805% 1.0000 $0.5851
March, 2012 10.3944 5.13%
Note
0.996 5.109% 1.0000 $0.5310
June 10.2151 5.32%
Note
1.012 5.384% 1.0000 $0.5500
September 10.6703 4.61%
Note
0.997 4.624% 1.0000 $0.4934
December, 2012 10.8307 4.24% 0.989 4.287% 1.0000 $0.4643
March, 2013 10.9033 3.87% 0.996 3.886% 1.0000 $0.4237
June 10.3261 4.81% 0.998 4.80% 1.0000 $0.4957
September 10.0296 5.62% 0.996 5.643% 1.0000 $0.5660
December, 2013 9.8717 6.02% 1.008 5.972% 1.0000 $0.5895
March, 2014 10.2233 5.55% 0.998 5.561% 1.0000 $0.5685
June 10.5877 5.09% 0.998 5.100% 1.0000 $0.5395
September 10.4601 5.28% 0.997 5.296% 1.0000 $0.5540
December, 2014 10.5701 4.83% 1.009 4.787% 1.0000 $0.5060
March, 2015 9.9573 4.99% 1.001 4.985% 1.0000 $0.4964
June, 2015 9.4181 5.55% 1.002 5.539% 1.0000 $0.5217
September 7.8140 6.98% 0.999 6.987% 1.0000 $0.5460
December, 2015 8.1379 6.85% 0.997 6.871% 1.0000 $0.5592
March, 2016 7.4416 7.79% 0.998 7.805% 1.0000 $0.5808
June 7.6704 7.67% 1.011 7.587% 1.0000 $0.5819
September 8.0590 7.35% 0.993 7.402% 1.0000 $0.5965
December, 2016 8.5844 7.24% 0.990 7.313% 1.0000 $0.6278
March, 2017 9.3984 6.26% 0.994 6.298% 1.0000 $0.5919
June 9.5313 6.41% 0.998 6.423% 1.0000 $0.6122
September 9.7129 6.56% 0.998 6.573% 1.0000 $0.6384
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
June 30 8.0197 9.19% 1.003 9.163% 1.0000 $0.7348
August 31, 2023 7.8199 9.77% 0.993 9.839% 1.0000 $0.7694
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains.
Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00%
The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99
Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested.
Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks.

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012.

These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:

Canada Yields Assumed in Calculations
Month-end GOC-5 3-Month Bill
September, 2015 0.78% 0.40%
December, 2015 0.71% 0.46%
March, 2016 0.70% 0.44%
June 0.57% 0.47%
September 0.58% 0.53%
December, 2016 1.16% 0.47%
March, 2017 1.08% 0.55%
June 1.35% 0.69%
September 1.79% 0.97%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March, 2023 2.93% 4.44%
June 3.74% 5.00%
August, 2023 4.08% 5.24%

MAPF Portfolio Composition: August, 2023

Sunday, September 3rd, 2023

Turnover remained surprisingly high at 10% in August.

Sectoral distribution of the MAPF portfolio on August 31, 2023, were:

MAPF Sectoral Analysis 2023-8-31
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 0% N/A N/A
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 0% N/A N/A
Fixed-Reset Discount 54.2% 9.65% 10.22
Insurance – Straight 3.4% 6.90% 12.74
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 7.9% 9.03% 10.98
Scraps – Ratchet 0.9% 10.18% 9.98
Scraps – FixedFloater 0.6% 10.42% 10.47
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 0.4% 7.96% 3.64
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 5.7% 7.68% 11.65
Scraps – FR Discount 26.1% 11.35% 9.22
Scraps – Insurance Straight 0% N/A N/A
Scraps – FloatingReset 0% N/A N/A
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 0.0% 9.93% 10.68
Cash +0.7% 0.00% 0.00
Total 100% 9.77% 10.08
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
DeemedRetractibles were comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.

Note that the estimate for the time this will become effective for insurers and insurance holding companies was extended by three years in April 2013, due to the delays in OSFI’s providing clarity on the issue and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others.

The name of this subindex has been changed to “Insurance Straight” as of November, 2020

Calculations of resettable instruments are performed assuming a constant GOC-5 rate of 4.08%, a constant 3-Month Bill rate of 5.24% and a constant Canada Prime Rate of 7.20%

The “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.

Credit distribution is:

MAPF Credit Analysis 2023-8-31
DBRS Rating MAPF Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 44.9%
Pfd-2 17.0%
Pfd-2(low) 17.0%
Pfd-3(high) 14.7%
Pfd-3 2.0%
Pfd-3(low) 3.5%
Pfd-4(high) 0.3%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0%
Pfd-5 0%
Cash +0.7%
Totals will not add precisely due to rounding.
A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous.

Liquidity Distribution is:

MAPF Liquidity Analysis 2023-8-31
Average Daily Trading MAPF Weighting
<$50,000 17.1%
$50,000 – $100,000 13.7%
$100,000 – $200,000 49.6%
$200,000 – $300,000 18.8%
>$300,000 0%
Cash +0.7%
Totals will not add precisely due to rounding.

The distribution of Issue Reset Spreads is:

Range MAPF Weight
<100bp 0%
100-149bp 3.6%
150-199bp 9.3%
200-249bp 65.0%
250-299bp 7.2%
300-349bp 2.5%
350-399bp 0.5%
400-449bp 0%
450-499bp 0%
500-549bp 0%
550-599bp 0%
>= 600bp 0%
Undefined 11.8%

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

Range MAPF Weight
Currently Floating 0.9%
0-1 Year 27.0%
1-2 Years 32.3%
2-3 Years 18.4%
3-4 Years 4.4%
4-5 Years 6.8%
5-6 Years 0%
>6 Years 0%
Not Floating Rate 10.3%

MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available the fund’s web page. The fund may be purchased directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a prospectus This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission). Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

MAPF Performance: July, 2023

Tuesday, August 15th, 2023

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close July, 2023, was $8.1816.

Performance was affected by MIC.PR.A underperforming at -4.37% [continuing last month’s underperformance] and PWF.PR.P at -3.80% [compared to last month’s outperformance]. This was more than offset by good performance from BN.PR.R [+7.07%, continuing last month’s outperformance] and TD.PF.C (+4.71) [small holdings are not considered for mention here].

The market it showing some signs of a possible recovery; I feel it is only a matter of time before investors start paying attention to the fundamental risk of these instruments compared to their eye-popping interest-equivalent yields. In addition, the market appears to be giving considerable weight to Current Yield as a measure of valuation, ignoring or strongly deprecating the potential for large dividend increases on the next few years of resets.

FixedResets continue to yield more, in general, than PerpetualDiscounts; on July 31, I reported median YTWs of 8.51% and 6.83%, respectively, for these two indices; compare with mean Current Yields of 5.78% and 6.64%, respectively. RY.PR.J, to take a representative example, is calculated by HIMIPref™ as having a yield-to-worst of 8.43% at monthend (Current Yield of 4.29%); bid at 18.65, resetting 2025-5-24 at a spread of 274bp over GOC-5 (assumed to be constant at 3.74%) and currently paying 0.80 p.a. (3.20% annually). The next pay-date is 2023-8-24; it is trading ex-dividend.

If we plug the above data into the yield calculator for resets (which is discussed here), we arrive at a quarterly annualized yield of 8.25% for RY.PR.J (this is quarterly compounded yield, not semi-annually as in HIMIPref™ there are also implementation differences). To take this down to 18bp below the PerpetualDiscount median index yield of 6.83% (to account for the calculation methodological differences), which is to say 6.65%, requires the assumption that GOC-5 will be 2.51% forever, as opposed the ‘constant rate’ assumption of 3.97%. Well … pays yer money and take yer chances, gents! Assiduous Readers with long memories will liken this to all the calculations of Break-even Rate Shock when the puzzle represented the same problem with a different sign! Note that even if the unfavourable scenario of GOC-5 = 2.51% is realized, this has only reduced the yield of RY.PR.J to that of the median PerpetualDiscount yield, which isn’t the worst outcome one might fear from one’s investments!

Returns to July 31, 2023
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month +2.02% +1.45% N/A
Three Months +2.28% -0.92% N/A
One Year -3.68% -7.42% -7.86%
Two Years (annualized) -7.32% -7.15% N/A
Three Years (annualized) +9.87% +3.73% +3.19%
Four Years (annualized) +5.54% +2.11% N/A
Five Years (annualized) +0.38% -0.27% -0.83%
Six Years (annualized) +2.01% +0.63% N/A
Seven Years (annualized) +5.36% +2.81% N/A
Eight Years (annualized) +3.82% +2.15% N/A
Nine Years (annualized) +2.11% +0.53% N/A
Ten Years (annualized) +2.81% +0.95% N/A
Eleven Years (annualized) +2.73% +0.90%  
Twelve Years (annualized) +2.74% +1.18%  
Thirteen Years (annualized) +3.69% +1.86%  
Fourteen Years (annualized) +4.49% +2.29%  
Fifteen Years (annualized) +7.35% +2.52%  
Sixteen Years (annualized) +6.38% +1.81%  
Seventeen Years (annualized) +6.33%    
Eighteen Years (annualized) +6.23%    
Nineteen Years (annualized) +6.29%    
Twenty Years (annualized) +6.90%    
Twenty-One Years (annualized) +7.20%    
Twenty-Two Years (annualized) +7.39%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
Figures for National Bank Preferred Equity Income Fund (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are +1.69%, -0.43% and -7.07%, respectively, according to Globe & Mail / Fundata after all fees & expenses. Three year performance is +5.22%; five year is +0.80%; ten year is +1.83%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are +1.77%, +0.05% & -6.51%, respectively. Three year performance is +5.92%, five-year is -0.21%, ten year is +1.70%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are +1.80%, +0.35% and -6.45% for one-, three- and twelve months, respectively. Three year performance is +6.03%; five-year is -0.03%; ten-year is +1.61%

Acccording to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical.

The last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is -7.22% for the past twelve months. Two year performance is -6.56%, three year is +5.83%, five year is -0.05%, ten year is +0.19%
Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to BMO are +1.76%, -0.68% and -8.82% for the past one-, three- and twelve-months, respectively. Two year performance is -8.76%; three year is +2.00%; five-year is -2.56%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are +1.1%, -0.5% and -7.5% for the past one, three and twelve months, respectively. Three year performance is +6.6%, five-year is -1.5%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are +1.26%, -0.83% and -7.15% for the past one, three and twelve months, respectively. Two year performance is -7.85%, three-year is +3.12%, five-year is -1.63%
Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as +1.58%, +0.08% and -8.74% for the past one, three and twelve months, respectively. Three-year performance is +5.00%, five-year is -0.99%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are +1.5%, -0.5% and -3.9% for the past one, three and twelve months, respectively. Three-year performance is +8.4%; five-year is +1.4%
Figures for the Purpose Canadian Preferred Share Fund (Class F) are +2.38%, +1.37% and -8.39% for the past one, three and twelve months, respectively. Three-year performance is +8.64%; five-year is -0.40%; seven-year is +2.83%; ten-year is +4.79%.

The five-year Canada yield increased, with the five-year Canada yield (“GOC-5”) rising from 3.74% at June month-end to 3.97% at July month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 360bp as of 2023-7-26 (chart end-date 2023-7-14) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly from its 2021-11-10 low of 344bp to its current level of 709bp (as of 2023-7-31) … (chart end-date 2023-7-14):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -218bp (as of 2023-7-31) from its 2021-7-28 level of +170bp (chart end-date 2023-7-14):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues, which is normal because there is a lot of noise in this inefficient market.

However, the normally moderate correlations between Issue Reset Spread and three-month performance have disappeared again in this month’s check:

There no significant correlation for the Pfd-2 Group but there was a small one for the Pfd-3 (11%) Group for 1-Month performance against term-to-reset; there seems to be some additional effect of a less than one-year term to reset:

… and for three-month performance against term-to-reset, there were significant correlations for both the Pfd-2 Group (36%) and the Pfd-3 Group (40%):

It should be noted that to some extent such a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August PrefLetter. In the three months from April 28 to July 31, the GOC-5 rate increased from 3.12% to 3.97%.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year-odd has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2023-7-14).

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW
Leverage
Divisor
Securities
Average
YTW
Capital
Gains
Multiplier
Sustainable
Income
per
current
Unit
June, 2007 9.3114 5.16% 1.03 5.01% 1.3240 0.3524
September 9.1489 5.35% 0.98 5.46% 1.3240 0.3773
December, 2007 9.0070 5.53% 0.942 5.87% 1.3240 0.3993
March, 2008 8.8512 6.17% 1.047 5.89% 1.3240 0.3938
June 8.3419 6.034% 0.952 6.338% 1.3240 $0.3993
September 8.1886 7.108% 0.969 7.335% 1.3240 $0.4537
December, 2008 8.0464 9.24% 1.008 9.166% 1.3240 $0.5571
March 2009 $8.8317 8.60% 0.995 8.802% 1.3240 $0.5872
June 10.9846 7.05% 0.999 7.057% 1.3240 $0.5855
September 12.3462 6.03% 0.998 6.042% 1.3240 $0.5634
December 2009 10.5662 5.74% 0.981 5.851% 1.1141 $0.5549
March 2010 10.2497 6.03% 0.992 6.079% 1.1141 $0.5593
June 10.5770 5.96% 0.996 5.984% 1.1141 $0.5681
September 11.3901 5.43% 0.980 5.540% 1.1141 $0.5664
December 2010 10.7659 5.37% 0.993 5.408% 1.0298 $0.5654
March, 2011 11.0560 6.00% 0.994 5.964% 1.0298 $0.6403
June 11.1194 5.87% 1.018 5.976% 1.0298 $0.6453
September 10.2709 6.10%
Note
1.001 6.106% 1.0298 $0.6090
December, 2011 10.0793 5.63%
Note
1.031 5.805% 1.0000 $0.5851
March, 2012 10.3944 5.13%
Note
0.996 5.109% 1.0000 $0.5310
June 10.2151 5.32%
Note
1.012 5.384% 1.0000 $0.5500
September 10.6703 4.61%
Note
0.997 4.624% 1.0000 $0.4934
December, 2012 10.8307 4.24% 0.989 4.287% 1.0000 $0.4643
March, 2013 10.9033 3.87% 0.996 3.886% 1.0000 $0.4237
June 10.3261 4.81% 0.998 4.80% 1.0000 $0.4957
September 10.0296 5.62% 0.996 5.643% 1.0000 $0.5660
December, 2013 9.8717 6.02% 1.008 5.972% 1.0000 $0.5895
March, 2014 10.2233 5.55% 0.998 5.561% 1.0000 $0.5685
June 10.5877 5.09% 0.998 5.100% 1.0000 $0.5395
September 10.4601 5.28% 0.997 5.296% 1.0000 $0.5540
December, 2014 10.5701 4.83% 1.009 4.787% 1.0000 $0.5060
March, 2015 9.9573 4.99% 1.001 4.985% 1.0000 $0.4964
June, 2015 9.4181 5.55% 1.002 5.539% 1.0000 $0.5217
September 7.8140 6.98% 0.999 6.987% 1.0000 $0.5460
December, 2015 8.1379 6.85% 0.997 6.871% 1.0000 $0.5592
March, 2016 7.4416 7.79% 0.998 7.805% 1.0000 $0.5808
June 7.6704 7.67% 1.011 7.587% 1.0000 $0.5819
September 8.0590 7.35% 0.993 7.402% 1.0000 $0.5965
December, 2016 8.5844 7.24% 0.990 7.313% 1.0000 $0.6278
March, 2017 9.3984 6.26% 0.994 6.298% 1.0000 $0.5919
June 9.5313 6.41% 0.998 6.423% 1.0000 $0.6122
September 9.7129 6.56% 0.998 6.573% 1.0000 $0.6384
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
June 30 8.0197 9.19% 1.003 9.163% 1.0000 $0.7348
July 31, 2023 8.1816 9.25% 1.004 9.213% 1.0000 $0.7538
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains.
Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00%
The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99
Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested.
Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks.

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012.

These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:

Canada Yields Assumed in Calculations
Month-end GOC-5 3-Month Bill
September, 2015 0.78% 0.40%
December, 2015 0.71% 0.46%
March, 2016 0.70% 0.44%
June 0.57% 0.47%
September 0.58% 0.53%
December, 2016 1.16% 0.47%
March, 2017 1.08% 0.55%
June 1.35% 0.69%
September 1.79% 0.97%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March, 2023 2.93% 4.44%
June 3.74% 5.00%
July, 2023 3.97% 5.13%

MAPF Portfolio Composition: July, 2023

Monday, August 7th, 2023

Turnover remained surprisingly high at 10% in July.

Sectoral distribution of the MAPF portfolio on July 31, 2023, were:

MAPF Sectoral Analysis 2023-7-31
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 0% N/A N/A
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 0% N/A N/A
Fixed-Reset Discount 54.4% 8.96% 10.83
Insurance – Straight 3.4% 6.68% 12.91
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 4.0% 8.20% 11.53
Scraps – Ratchet 0.9% 9.88% 10.24
Scraps – FixedFloater 0.6% 9.50% 11.24
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 1.5% 9.16% 2.02
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 5.7% 7.28% 12.18
Scraps – FR Discount 25.2% 10.66% 9.69
Scraps – Insurance Straight 0% N/A N/A
Scraps – FloatingReset 0% N/A N/A
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 4.7% 9.45% 10.92
Cash -0.4% 0.00% 0.00
Total 100% 9.25% 10.64
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
DeemedRetractibles were comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.

Note that the estimate for the time this will become effective for insurers and insurance holding companies was extended by three years in April 2013, due to the delays in OSFI’s providing clarity on the issue and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others.

The name of this subindex has been changed to “Insurance Straight” as of November, 2020

Calculations of resettable instruments are performed assuming a constant GOC-5 rate of 3.97%, a constant 3-Month Bill rate of 5.13% and a constant Canada Prime Rate of 7.20%

The “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.

Credit distribution is:

MAPF Credit Analysis 2023-7-31
DBRS Rating MAPF Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 43.4%
Pfd-2 19.1%
Pfd-2(low) 17.4%
Pfd-3(high) 15.1%
Pfd-3 2.5%
Pfd-3(low) 2.7%
Pfd-4(high) 0.3%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0%
Pfd-5 0%
Cash -0.4%
Totals will not add precisely due to rounding.
A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous.

Liquidity Distribution is:

MAPF Liquidity Analysis 2023-7-31
Average Daily Trading MAPF Weighting
<$50,000 22.8%
$50,000 – $100,000 23.2%
$100,000 – $200,000 47.2%
$200,000 – $300,000 6.2%
>$300,000 1.0%
Cash -0.4%
Totals will not add precisely due to rounding.

The distribution of Issue Reset Spreads is:

Range MAPF Weight
<100bp 0%
100-149bp 5.6%
150-199bp 9.3%
200-249bp 64.0%
250-299bp 6.0%
300-349bp 2.6%
350-399bp 0.8%
400-449bp 0%
450-499bp 0%
500-549bp 0%
550-599bp 0%
>= 600bp 0%
Undefined 11.7%

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

Range MAPF Weight
Currently Floating 0.9%
0-1 Year 23.0%
1-2 Years 36.9%
2-3 Years 20.0%
3-4 Years 4.5%
4-5 Years 4.6%
5-6 Years 0%
>6 Years 0%
Not Floating Rate 10.2%

MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available the fund’s web page. The fund may be purchased directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a prospectus This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission). Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

MAPF Performance: June, 2023

Sunday, July 9th, 2023

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close June 30, 2023, was $8.0197 after a distribution of $0.113322 per unit.

Performance was affected by MIC.PR.A underperforming at -2.76% [reversing last month’s outperformance]. This was more than offset by good performance from PWF.PR.P (+8.39%) and BN.PR.R (+6.06%, finally ending several months of underperformance) [small holdings are not considered for mention here].

There is still a pronounced ‘risk-off’ sentiment in the market, but I feel it is only a matter of time before investors start paying attention to the fundamental risk of these instruments compared to their eye-popping interest-equivalent yields. In addition, the market appears to be giving considerable weight to Current Yield as a measure of valuation, ignoring or strongly deprecating the potential for large dividend increases on the next few years of resets.

FixedResets continue to yield more, in general, than PerpetualDiscounts; on June 30, I reported median YTWs of 8.48% and 6.87%, respectively, for these two indices; compare with mean Current Yields of 5.89% and 6.67%, respectively. RY.PR.J, to take a representative example, is calculated by HIMIPref™ as having a yield-to-worst of 8.42% at monthend (Current Yield of 4.41%); priced at 18.15, resetting 2025-5-24 at a spread of 274bp over GOC-5 (assumed to be constant at 3.74%) and currently paying 0.80 p.a. (3.20% annually). The next pay-date is 2023-8-24; it is trading cum-dividend.

If we plug the above data into the yield calculator for resets (which is discussed here), we arrive at a quarterly annualized yield of 8.25% for RY.PR.J (this is quarterly compounded yield, not semi-annually as in HIMIPref™ there are also implementation differences). To take this down to 17bp below the PerpetualDiscount median index yield of 6.87% (to account for the calculation methodological differences), which is to say 6.70%, requires the assumption that GOC-5 will be 2.36% forever, as opposed the ‘constant rate’ assumption of 3.74%. Well … pays yer money and take yer chances, gents! Assiduous Readers with long memories will liken this to all the calculations of Break-even Rate Shock when the puzzle represented the same problem with a different sign! Note that even if the unfavourable scenario of GOC-5 = 2.36% is realized, this has only reduced the yield of RY.PR.J to that of the median PerpetualDiscount yield, which isn’t the worst outcome one might fear from one’s investments!

Returns to June 30, 2023
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month +4.33% +1.28% N/A
Three Months +0.67% -2.07% N/A
One Year -9.51% -8.98% -9.39%
Two Years (annualized) -8.02% -7.44% N/A
Three Years (annualized) +13.09% +5.39% +4.83%
Four Years (annualized) +5.14% +2.08% N/A
Five Years (annualized) +0.19% -0.33% -0.89%
Six Years (annualized) +2.02% +0.58% N/A
Seven Years (annualized) +5.59% +3.12% N/A
Eight Years (annualized) +2.95% +1.43% N/A
Nine Years (annualized) +1.85% +0.41% N/A
Ten Years (annualized) +2.45% +0.71% +0.23%
Eleven Years (annualized) +2.78% +0.87%  
Twelve Years (annualized) +2.53% +1.12%  
Thirteen Years (annualized) +3.76% +1.88%  
Fourteen Years (annualized) +4.89% +2.42%  
Fifteen Years (annualized) +7.04% +2.27%  
Sixteen Years (annualized) +6.28% +1.72%  
Seventeen Years (annualized) +6.22%    
Eighteen Years (annualized) +6.13%    
Nineteen Years (annualized) +6.32%    
Twenty Years (annualized) +6.98%    
Twenty-One Years (annualized) +6.99%    
Twenty-Two Years (annualized) +7.36%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
Figures for National Bank Preferred Equity Income Fund (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are +2.16%, -2.01% and -9.07%, respectively, according to Globe & Mail / Fundata after all fees & expenses. Three year performance is +6.87%; five year is +0.68%; ten year is +1.64%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are +2.17%, -1.37% & -8.31%, respectively. Three year performance is +7.79%, five-year is -0.29%, ten year is +1.48%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are +2.53%, -0.93% and -8.16% for one-, three- and twelve months, respectively. Three year performance is +7.84%; five-year is -0.14%; ten-year is +1.33%

Acccording to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical.

The last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is -9.44% for the past twelve months. Two year performance is -6.97%, three year is +7.85%, five year is -0.17%, ten year is -0.15%
Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to BMO are +1.56%, -2.26% and -10.41% for the past one-, three- and twelve-months, respectively. Two year performance is -9.16%; three year is +4.00%; five-year is -2.68%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are +1.0%, -2.1% and -9.0% for the past one, three and twelve months, respectively. Three year performance is +8.1%, five-year is -1.5%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are +1.53%, -1.93% and -9.11% for the past one, three and twelve months, respectively. Two year performance is -8.09%, three-year is +4.77%, five-year is -1.65%
Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as +2.54%, -0.94% and -10.80% for the past one, three and twelve months, respectively. Three-year performance is +7.16%, five-year is -0.90%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are +1.7%, -1.9% and -5.5% for the past one, three and twelve months, respectively. Three-year performance is +10.2%; five-year is +1.4%
Figures for the Purpose Canadian Preferred Share Fund (Class F) are +2.80%, -0.78% and -11.48% for the past one, three and twelve months, respectively. Three-year performance is +10.33%; five-year is -0.58%; seven-year is +2.84%; ten-year is +4.50%.

The five-year Canada yield increased, with the five-year Canada yield (“GOC-5”) rising from 3.61% at May month-end to 3.74% at June month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 385bp as of 2023-6-28 (chart end-date 2023-6-9) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly from its 2021-11-10 low of 344bp to its current level of 744bp (as of 2023-6-28) … (chart end-date 2023-6-9):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -209bp (as of 2023-6-28) from its 2021-7-28 level of +170bp (chart end-date 2023-6-9):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues, which is normal because there is a lot of noise in this inefficient market.

However, the normally moderate correlations between Issue Reset Spread and three-month performance have disappeared again in this month’s check:

There is a significant correlation(17%) for the Pfd-2 Group but not for the Pfd-3 Group for 1-Month performance against term-to-reset; there seems to be some additional effect of a less than one-year term to reset:

… and for three-month performance against term-to-reset, there were significant correlations for both the Pfd-2 Group (42%) and the Pfd-3 Group (19%):

It should be noted that to some extent such a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August PrefLetter.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year-odd has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2023-6-9).

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW
Leverage
Divisor
Securities
Average
YTW
Capital
Gains
Multiplier
Sustainable
Income
per
current
Unit
June, 2007 9.3114 5.16% 1.03 5.01% 1.3240 0.3524
September 9.1489 5.35% 0.98 5.46% 1.3240 0.3773
December, 2007 9.0070 5.53% 0.942 5.87% 1.3240 0.3993
March, 2008 8.8512 6.17% 1.047 5.89% 1.3240 0.3938
June 8.3419 6.034% 0.952 6.338% 1.3240 $0.3993
September 8.1886 7.108% 0.969 7.335% 1.3240 $0.4537
December, 2008 8.0464 9.24% 1.008 9.166% 1.3240 $0.5571
March 2009 $8.8317 8.60% 0.995 8.802% 1.3240 $0.5872
June 10.9846 7.05% 0.999 7.057% 1.3240 $0.5855
September 12.3462 6.03% 0.998 6.042% 1.3240 $0.5634
December 2009 10.5662 5.74% 0.981 5.851% 1.1141 $0.5549
March 2010 10.2497 6.03% 0.992 6.079% 1.1141 $0.5593
June 10.5770 5.96% 0.996 5.984% 1.1141 $0.5681
September 11.3901 5.43% 0.980 5.540% 1.1141 $0.5664
December 2010 10.7659 5.37% 0.993 5.408% 1.0298 $0.5654
March, 2011 11.0560 6.00% 0.994 5.964% 1.0298 $0.6403
June 11.1194 5.87% 1.018 5.976% 1.0298 $0.6453
September 10.2709 6.10%
Note
1.001 6.106% 1.0298 $0.6090
December, 2011 10.0793 5.63%
Note
1.031 5.805% 1.0000 $0.5851
March, 2012 10.3944 5.13%
Note
0.996 5.109% 1.0000 $0.5310
June 10.2151 5.32%
Note
1.012 5.384% 1.0000 $0.5500
September 10.6703 4.61%
Note
0.997 4.624% 1.0000 $0.4934
December, 2012 10.8307 4.24% 0.989 4.287% 1.0000 $0.4643
March, 2013 10.9033 3.87% 0.996 3.886% 1.0000 $0.4237
June 10.3261 4.81% 0.998 4.80% 1.0000 $0.4957
September 10.0296 5.62% 0.996 5.643% 1.0000 $0.5660
December, 2013 9.8717 6.02% 1.008 5.972% 1.0000 $0.5895
March, 2014 10.2233 5.55% 0.998 5.561% 1.0000 $0.5685
June 10.5877 5.09% 0.998 5.100% 1.0000 $0.5395
September 10.4601 5.28% 0.997 5.296% 1.0000 $0.5540
December, 2014 10.5701 4.83% 1.009 4.787% 1.0000 $0.5060
March, 2015 9.9573 4.99% 1.001 4.985% 1.0000 $0.4964
June, 2015 9.4181 5.55% 1.002 5.539% 1.0000 $0.5217
September 7.8140 6.98% 0.999 6.987% 1.0000 $0.5460
December, 2015 8.1379 6.85% 0.997 6.871% 1.0000 $0.5592
March, 2016 7.4416 7.79% 0.998 7.805% 1.0000 $0.5808
June 7.6704 7.67% 1.011 7.587% 1.0000 $0.5819
September 8.0590 7.35% 0.993 7.402% 1.0000 $0.5965
December, 2016 8.5844 7.24% 0.990 7.313% 1.0000 $0.6278
March, 2017 9.3984 6.26% 0.994 6.298% 1.0000 $0.5919
June 9.5313 6.41% 0.998 6.423% 1.0000 $0.6122
September 9.7129 6.56% 0.998 6.573% 1.0000 $0.6384
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
June 30, 2023 8.0197 9.19% 1.003 9.163% 1.0000 $0.7348
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains.
Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00%
The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99
Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested.
Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks.

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012.

These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:

Canada Yields Assumed in Calculations
Month-end GOC-5 3-Month Bill
September, 2015 0.78% 0.40%
December, 2015 0.71% 0.46%
March, 2016 0.70% 0.44%
June 0.57% 0.47%
September 0.58% 0.53%
December, 2016 1.16% 0.47%
March, 2017 1.08% 0.55%
June 1.35% 0.69%
September 1.79% 0.97%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March, 2023 2.93% 4.44%
June, 2023 3.74% 5.00%

MAPF Portfolio Composition: June, 2023

Saturday, July 8th, 2023

Turnover snapped up to 14% in June, aided by a big push into FTS.PR.M.

The distribution of terms-to-reset for the FixedReset portion of the portfolio showed an increasing preference for nearer-term resets, which makes sense given the continued increase in the GOC-5 yield.

Sectoral distribution of the MAPF portfolio on June 30, 2023, were:

MAPF Sectoral Analysis 2023-6-30
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 0% N/A N/A
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 0% N/A N/A
Fixed-Reset Discount 78.1% 9.11% 10.72
Insurance – Straight 0% N/A N/A
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 3.4% 9.14% 11.24
Scraps – Ratchet 1.5% 9.65% 10.45
Scraps – FixedFloater 0% N/A N/A
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 2.2% 9.84% 1.73
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 6.0% 6.91% 12.69
Scraps – FR Discount 6.5% 11.60% 9.14
Scraps – Insurance Straight 0% N/A N/A
Scraps – FloatingReset 0% N/A N/A
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 2.6% 9.02% 11.41
Cash -0.3% 0.00% 0.00
Total 100% 9.19% 10.60
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
DeemedRetractibles were comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.

Note that the estimate for the time this will become effective for insurers and insurance holding companies was extended by three years in April 2013, due to the delays in OSFI’s providing clarity on the issue and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others.

The name of this subindex has been changed to “Insurance Straight” as of November, 2020

Calculations of resettable instruments are performed assuming a constant GOC-5 rate of 3.74%, a constant 3-Month Bill rate of 5.00% and a constant Canada Prime Rate of 6.95%

The “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.

Credit distribution is:

MAPF Credit Analysis 2023-6-30
DBRS Rating MAPF Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 40.8%
Pfd-2 21.2%
Pfd-2(low) 28.0%
Pfd-3(high) 3.7%
Pfd-3 2.5%
Pfd-3(low) 3.8%
Pfd-4(high) 0.3%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0%
Pfd-5 0%
Cash -0.3%
Totals will not add precisely due to rounding.
A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous.

Liquidity Distribution is:

MAPF Liquidity Analysis 2023-6-30
Average Daily Trading MAPF Weighting
<$50,000 22.6%
$50,000 – $100,000 25.2%
$100,000 – $200,000 46.7%
$200,000 – $300,000 4.8%
>$300,000 1.0%
Cash -0.3%
Totals will not add precisely due to rounding.

The distribution of Issue Reset Spreads is:

Range MAPF Weight
<100bp 0%
100-149bp 6.0%
150-199bp 11.8%
200-249bp 66.7%
250-299bp 2.4%
300-349bp 2.6%
350-399bp 1.1%
400-449bp 0%
450-499bp 0%
500-549bp 0%
550-599bp 0%
>= 600bp 0%
Undefined 9.4%

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

Range MAPF Weight
Currently Floating 1.5%
0-1 Year 27.0%
1-2 Years 35.8%
2-3 Years 16.7%
3-4 Years 10.0%
4-5 Years 1.1%
5-6 Years 0%
>6 Years 0%
Not Floating Rate 7.9%

MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available the fund’s web page. The fund may be purchased directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a prospectus This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission). Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

MAPF Performance: May, 2023

Sunday, June 4th, 2023

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close May 31, 2023, was $7.7956.

Performance was affected by BN.PR.R underperforming at -6.32% [repeating the last two month’s underperformance, but worse]; as did TRP.PR.D (-6.05%). This was partially mitigated by good performance from MIC.PR.A (+1.93%) and SLF.PR.G (-0.76%) [small holdings are not considered for mention here].

There is still a pronounced ‘risk-off’ sentiment in the market, but I feel it is only a matter of time before investors start paying attention to the fundamental risk of these instruments compared to their eye-popping interest-equivalent yields. In addition, the market appears to be giving considerable weight to Current Yield as a measure of valuation, ignoring or strongly deprecating the potential for large dividend increases on the next few years of resets.

FixedResets continue to yield more, in general, than PerpetualDiscounts; on April 28, I reported median YTWs of 8.64% and 6.59%, respectively, for these two indices; compare with mean Current Yields of 6.05% and 6.43%, respectively. RY.PR.J, to take a representative example, is calculated by HIMIPref™ as having a yield-to-worst of 8.55% at monthend (Current Yield of 4.60%); priced at 17.40, resetting 2025-5-24 at a spread of 274bp over GOC-5 (assumed to be constant at 3.61%) and currently paying 0.80 p.a. (3.20% annually). The next pay-date is 2023-8-24; it is trading cum-dividend.

If we plug the above data into the yield calculator for resets (which is discussed here), we arrive at a quarterly annualized yield of 8.38% for RY.PR.J (this is quarterly compounded yield, not semi-annually as in HIMIPref™ there are also implementation differences). To take this down to 17bp below the PerpetualDiscount median index yield of 6.59% (to account for the calculation methodological differences), which is to say 6.42%, requires the assumption that GOC-5 will be 1.93% forever, as opposed the ‘constant rate’ assumption of 3.61%. Well … pays yer money and take yer chances, gents! Assiduous Readers with long memories will liken this to all the calculations of Break-even Rate Shock when the puzzle represented the same problem with a different sign! Note that even if the unfavourable scenario of GOC-5 = 1.93% is realized, this has only reduced the yield of RY.PR.J to that of the median PerpetualDiscount yield, which isn’t the worst outcome one might fear from one’s investments!

It is of interest to note that the Solactive Laddered Canadian Preferred Share Index (used as the basis for the BMO Laddered Preferred Share Index ETF (ZPR)) is now showing a negative total return for the ten years ending May 31, 2023. Now that’s what I call a bear market! It should come as no surprise that retail, egged on by boneheaded advisors, has decided that this proves it will produce negative returns forever!

Returns to May 31, 2023
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month -3.90% -3.57% N/A
Three Months -7.65% -6.93% N/A
One Year -18.32% -14.86% -15.24%
Two Years (annualized) -8.95% -8.13% N/A
Three Years (annualized) +12.70% +6.30% +5.73%
Four Years (annualized) +4.30% +1.96% N/A
Five Years (annualized) -0.53% -0.53% -1.09%
Six Years (annualized) +2.06% +0.83% N/A
Seven Years (annualized) +4.73% +2.84% N/A
Eight Years (annualized) +1.94% +0.87% N/A
Nine Years (annualized) +1.53% +0.42% N/A
Ten Years (annualized) +1.63% +0.35% -0.12%
Eleven Years (annualized) +2.36% +0.82%  
Twelve Years (annualized) +2.11% +1.02%  
Thirteen Years (annualized) +3.85% +1.99%  
Fourteen Years (annualized) +4.93% +2.43%  
Fifteen Years (annualized) +6.27% +1.89%  
Sixteen Years (annualized) +6.04%    
Seventeen Years (annualized) +5.99%    
Eighteen Years (annualized) +5.95%    
Nineteen Years (annualized) +6.17%    
Twenty Years (annualized) +6.88%    
Twenty-One Years (annualized) +6.86%    
Twenty-Two Years (annualized) +7.28%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
Figures for National Bank Preferred Equity Income Fund (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are -4.16%, -7.33% and -16.14%, respectively, according to Globe & Mail / Fundata after all fees & expenses. Three year performance is +7.48%; five year is +0.30%; ten year is +1.22%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are -3.78%, -6.80% & -15.48%, respectively. Three year performance is +8.47%, five-year is -0.69%, ten year is +1.06%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are -3.85%, -6.92% and -15.69% for one-, three- and twelve months, respectively. Three year performance is +8.40%; five-year is -0.60%; ten-year is +0.85%

Acccording to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical.

The last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is -15.97% for the past twelve months. Two year performance is -8.20%, three year is +8.50%, five year is -0.63%, ten year is -0.59%
Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to BMO are -3.90%, -7.09% and -16.54% for the past one-, three- and twelve-months, respectively. Two year performance is -10.12%; three year is +4.92%; five-year is -2.97%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are -2.5%, -5.9% and -14.2% for the past one, three and twelve months, respectively. Three year performance is +9.5%, five-year is -1.1%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are -3.54%, -6.64% and -14.92% for the past one, three and twelve months, respectively. Two year performance is -8.84%, three-year is +5.38%, five-year is -1.92%
Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as -3.92%, -8.75% and -17.42% for the past one, three and twelve months, respectively. Three-year performance is +7.86%, five-year is -1.41%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are -3.7%, -6.4% and -11.8% for the past one, three and twelve months, respectively. Three-year performance is +11.1%; five-year is +1.0%
Figures for the Purpose Canadian Preferred Share Fund (Class F) are -3.68%, -8.55% and -18.51% for the past one, three and twelve months, respectively. Three-year performance is +10.96%; five-year is -1.17%; seven-year is +2.45%; ten-year is +4.12%.

The five-year Canada yield increased, with the five-year Canada yield (“GOC-5”) rising from 3.12% at April month-end to 3.61% at May month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 345bp as of 2023-5-31 (chart end-date 2023-5-12) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly from its 2021-11-10 low of 344bp to its current level of 779bp (as of 2023-5-31) … (chart end-date 2023-5-12):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -267bp (as of 2023-5-31) from its 2021-7-28 level of +170bp (chart end-date 2023-5-12):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues, which is normal because there is a lot of noise in this inefficient market.

However, the normally moderate correlations between Issue Reset Spread and three-month performance have disappeared again in this month’s check:

There were no significant correlations for either the Pfd-2 Group or the Pfd-3 Group for 1-Month performance against term-to-reset, although there seems to be some mitigating effect of a less than one-year term to reset against the overall poor performance:

… and for three-month performance against term-to-reset, there were again no correlations for either the Pfd-2 Group or the Pfd-3 Group:

It should be noted that to some extent such a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August PrefLetter.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2023-05-12).

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW
Leverage
Divisor
Securities
Average
YTW
Capital
Gains
Multiplier
Sustainable
Income
per
current
Unit
June, 2007 9.3114 5.16% 1.03 5.01% 1.3240 0.3524
September 9.1489 5.35% 0.98 5.46% 1.3240 0.3773
December, 2007 9.0070 5.53% 0.942 5.87% 1.3240 0.3993
March, 2008 8.8512 6.17% 1.047 5.89% 1.3240 0.3938
June 8.3419 6.034% 0.952 6.338% 1.3240 $0.3993
September 8.1886 7.108% 0.969 7.335% 1.3240 $0.4537
December, 2008 8.0464 9.24% 1.008 9.166% 1.3240 $0.5571
March 2009 $8.8317 8.60% 0.995 8.802% 1.3240 $0.5872
June 10.9846 7.05% 0.999 7.057% 1.3240 $0.5855
September 12.3462 6.03% 0.998 6.042% 1.3240 $0.5634
December 2009 10.5662 5.74% 0.981 5.851% 1.1141 $0.5549
March 2010 10.2497 6.03% 0.992 6.079% 1.1141 $0.5593
June 10.5770 5.96% 0.996 5.984% 1.1141 $0.5681
September 11.3901 5.43% 0.980 5.540% 1.1141 $0.5664
December 2010 10.7659 5.37% 0.993 5.408% 1.0298 $0.5654
March, 2011 11.0560 6.00% 0.994 5.964% 1.0298 $0.6403
June 11.1194 5.87% 1.018 5.976% 1.0298 $0.6453
September 10.2709 6.10%
Note
1.001 6.106% 1.0298 $0.6090
December, 2011 10.0793 5.63%
Note
1.031 5.805% 1.0000 $0.5851
March, 2012 10.3944 5.13%
Note
0.996 5.109% 1.0000 $0.5310
June 10.2151 5.32%
Note
1.012 5.384% 1.0000 $0.5500
September 10.6703 4.61%
Note
0.997 4.624% 1.0000 $0.4934
December, 2012 10.8307 4.24% 0.989 4.287% 1.0000 $0.4643
March, 2013 10.9033 3.87% 0.996 3.886% 1.0000 $0.4237
June 10.3261 4.81% 0.998 4.80% 1.0000 $0.4957
September 10.0296 5.62% 0.996 5.643% 1.0000 $0.5660
December, 2013 9.8717 6.02% 1.008 5.972% 1.0000 $0.5895
March, 2014 10.2233 5.55% 0.998 5.561% 1.0000 $0.5685
June 10.5877 5.09% 0.998 5.100% 1.0000 $0.5395
September 10.4601 5.28% 0.997 5.296% 1.0000 $0.5540
December, 2014 10.5701 4.83% 1.009 4.787% 1.0000 $0.5060
March, 2015 9.9573 4.99% 1.001 4.985% 1.0000 $0.4964
June, 2015 9.4181 5.55% 1.002 5.539% 1.0000 $0.5217
September 7.8140 6.98% 0.999 6.987% 1.0000 $0.5460
December, 2015 8.1379 6.85% 0.997 6.871% 1.0000 $0.5592
March, 2016 7.4416 7.79% 0.998 7.805% 1.0000 $0.5808
June 7.6704 7.67% 1.011 7.587% 1.0000 $0.5819
September 8.0590 7.35% 0.993 7.402% 1.0000 $0.5965
December, 2016 8.5844 7.24% 0.990 7.313% 1.0000 $0.6278
March, 2017 9.3984 6.26% 0.994 6.298% 1.0000 $0.5919
June 9.5313 6.41% 0.998 6.423% 1.0000 $0.6122
September 9.7129 6.56% 0.998 6.573% 1.0000 $0.6384
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
May, 2023 7.7956 9.24% 0.994 9.296% 1.0000 $0.7247
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains.
Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00%
The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99
Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested.
Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks.

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012.

These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:

Canada Yields Assumed in Calculations
Month-end GOC-5 3-Month Bill
September, 2015 0.78% 0.40%
December, 2015 0.71% 0.46%
March, 2016 0.70% 0.44%
June 0.57% 0.47%
September 0.58% 0.53%
December, 2016 1.16% 0.47%
March, 2017 1.08% 0.55%
June 1.35% 0.69%
September 1.79% 0.97%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March 2.93% 4.44%
May, 2023 3.61% 4.73%

MAPF Portfolio Composition: May, 2023

Saturday, June 3rd, 2023

Turnover declined to under 1% in May. With volatility and nervousness due to worries about financial stability, spreads were wide; in addition, high trading volumes in the early part of the year have left the portfolio in a highly optimized condition.

There was a sharp increase in the proportion of the portfolio due to be reset within one year; this was due to the simple passage of time, not to current-month trading. The fund holds significant positions in TRP.PR.D, NA.PR.S, RY.PR.Z and BMO.PR.S.

Sectoral distribution of the MAPF portfolio on May 31, 2023, were:

MAPF Sectoral Analysis 2023-5-31
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 0% N/A N/A
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 6.5% 6.69% 12.86
Fixed-Reset Discount 73.6% 9.29% 10.63
Insurance – Straight 0% N/A N/A
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 1.7% 9.12% 11.51
Scraps – Ratchet 1.5% 9.78% 10.38
Scraps – FixedFloater 0% N/A N/A
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 2.3% 10.45% 1.34
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 0% N/A N/A
Scraps – FR Discount 5.4% 11.92% 8.97
Scraps – Insurance Straight 0% N/A N/A
Scraps – FloatingReset 0% N/A N/A
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 8.3% 9.27% 11.10
Cash +0.6% 0.00% 0.00
Total 100% 9.24% 10.46
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
DeemedRetractibles were comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.

Note that the estimate for the time this will become effective for insurers and insurance holding companies was extended by three years in April 2013, due to the delays in OSFI’s providing clarity on the issue and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others.

The name of this subindex has been changed to “Insurance Straight” as of November, 2020

Calculations of resettable instruments are performed assuming a constant GOC-5 rate of 3.61%, a constant 3-Month Bill rate of 4.73% and a constant Canada Prime Rate of 6.70%

The “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.

Credit distribution is:

MAPF Credit Analysis 2023-5-31
DBRS Rating MAPF Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 45.8%
Pfd-2 20.8%
Pfd-2(low) 23.6%
Pfd-3(high) 3.2%
Pfd-3 3.8%
Pfd-3(low) 1.5%
Pfd-4(high) 0.6%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0%
Pfd-5 0%
Cash +0.6%
Totals will not add precisely due to rounding.
A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous.

Liquidity Distribution is:

MAPF Liquidity Analysis 2023-5-31
Average Daily Trading MAPF Weighting
<$50,000 33.1%
$50,000 – $100,000 15.1%
$100,000 – $200,000 45.8%
$200,000 – $300,000 4.3%
>$300,000 1.0%
Cash +0.6%
Totals will not add precisely due to rounding.

The distribution of Issue Reset Spreads is:

Range MAPF Weight
<100bp 0%
100-149bp 10.0%
150-199bp 15.7%
200-249bp 58.7%
250-299bp 2.3%
300-349bp 2.2%
350-399bp 0%
400-449bp 0%
450-499bp 0%
500-549bp 0%
550-599bp 0%
>= 600bp 0%
Undefined 10.9%

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

Range MAPF Weight
Currently Floating 1.5%
0-1 Year 23.9%
1-2 Years 34.2%
2-3 Years 19.0%
3-4 Years 12.0%
4-5 Years 0%
5-6 Years 0%
>6 Years 0%
Not Floating Rate 9.4%

MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available the fund’s web page. The fund may be purchased directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a prospectus This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission). Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.