Archive for May, 2015

MAPF Performance: May 2015

Sunday, May 31st, 2015

The fund slightly outperformed the TXPR index in May (the BMO-CM “50” index returns are not yet available), a month marked by a good upswing in the first half and steady losses in the second half.

ZPR, is an ETF comprised of FixedResets and Floating Rate issues and a very high proportion of junk issues, returned +%, +% and +% over the past one-, three- and twelve-month periods, respectively (according to the fund’s data), versus returns for the TXPL index of -0.20%, -1.52% and -7.38% respectively. The fund has been able to attract assets of about $1,099-million $1,111-million since inception in November 2012; AUM declined by $12-million in May; given an index return of -0.20% a decrease of about $2-million was expected, so in May 2015 the fund had a relatively rare cash outflow. I feel that the flows into and out of this fund are very important in determining the performance of its constituents.

TXPR had returns over one-, three- and twelve-months of -0.49%, -1.39% and -3.11% respectively with CPD performance within expectations.

Returns for the HIMIPref™ investment grade sub-indices for the month were as follows:

HIMIPref™ Indices
Performance to May 29, 2015
Sub-Index 1-Month 3-month
Ratchet N/A N/A
FixFloat N/A N/A
Floater -0.59% -1.81%
OpRet +0.58% +0.90%
SplitShare +0.78% +1.41%
Interest N/A N/A
PerpetualPremium +0.05% +0.14%
PerpetualDiscount -0.45% -1.35%
FixedReset -0.11% -0.48%
DeemedRetractible -0.42% -0.58%
FloatingReset +0.66% +0.50%

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close May 29, 2015, was $9.8993

Returns to May 29, 2015
Period MAPF BMO-CM “50” Index TXPR
Total Return
CPD – according to Blackrock
One Month -0.37% -0.52% -0.49% N/A
Three Months +0.37% -0.72% -1.31% N/A
One Year -1.69% -3.36% -3.11% -3.36%
Two Years (annualized) +0.41% -1.49% -1.68% N/A
Three Years (annualized) +3.47% +0.66% +0.69% +0.24%
Four Years (annualized) +2.46% +1.47% +1.34% N/A
Five Years (annualized) +6.97% +4.49% +3.81% +3.25%
Six Years (annualized) +9.05% +5.60% +4.56%  
Seven Years (annualized) +11.43% +3.99% +3.06%  
Eight Years (annualized) +10.30% +3.23%    
Nine Years (annualized) +9.72% +2.98%    
Ten Years (annualized) +9.26% +2.99%    
Eleven Years (annualized) +9.35% +3.33%    
Twelve Years (annualized) +10.30% +3.40%    
Thirteen Years (annualized) +10.00% +3.74%    
Fourteen Years (annualized) +10.45% +3.60%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
CPD Returns are for the NAV and are after all fees and expenses.
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 +0.10%, -0.93% and -0.68%, respectively, according to Morningstar after all fees & expenses. Three year performance is +1.84%; five year is +4.65%
Figures for Manulife Preferred Income Class Adv [into which was merged Manulife Preferred Income Fund (formerly AIC Preferred Income Fund)] (which are after all fees and expenses) for 1-, 3- and 12-months are -0.42%, -1.76% & N/A, respectively.
Figures for Horizons AlphaPro Preferred Share ETF (which are after all fees and expenses) for 1-, 3- and 12-months are -0.36%, -1.02% & -2.16%, respectively. Three year performance is +1.49%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are -0.46%, -1.32% and -3.46% for one-, three- and twelve months, respectively.
The figure for BMO S&P/TSX Laddered Preferred Share Index ETF is -0.21%, -1.41% and -7.75% for one-, three- and twelve-months, respectively. Two year performance is -4.95%.
Figures for NexGen Canadian Preferred Share Tax Managed Fund (Dividend Tax Credit Class, the best performing) are +%, +% and +% for one-, three- and twelve-months, respectively.
Figures for BMO Preferred Share Fund are -1.64% and -3.03% for the past three- and twelve-months, respectively.
Figures for PowerShares Canadian Preferred Share Index Class, Series Fare -0.36%, -2.46% and -4.49% for the past one, three and twelve months, respectively. The three- and five-year figures are -1.03% and +2.18%, respectively.
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are -0.22%, -2.27% and -4.93% for the past one, three and twelve months, respectively. The two-, three-, four- and five-year figures are -3.43%, -1.11%, -0.67% and +1.26%, respectively.

MAPF returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not a guarantee of future performance. You can lose money investing in Malachite Aggressive Preferred Fund or any other fund. For more information, see the fund’s main page. The fund is available either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited.

A problem that has bedevilled the market over the past four years has been the OSFI decision not to grandfather Straight Perpetuals as Tier 1 bank capital, and their continued foot-dragging regarding a decision on insurer Straight Perpetuals has segmented the market to the point where trading has become much more difficult. Until the market became so grossly segmented, there were many comparables for any given issue – but now banks are not available to swap into (because they are so expensive) and non-regulated companies are likewise deprecated (because they are not DeemedRetractibles; they should not participate in the increase in value that will follow the OSFI decision I anticipate and, in addition, are analyzed as perpetuals). The fund’s portfolio was, in effect ‘locked in’ to the low coupon DeemedRetractibles due to projected long-term gains from a future OSFI decision to the detriment of trading gains, particularly in May, 2013, when the three lowest-coupon SLF DeemedRetractibles (SLF.PR.C, SLF.PR.D and SLF.PR.E) were the worst performing DeemedRetractibles in the sub-index, and in June, 2013, when the insurance-issued DeemedRetractibles behaved like PerpetualDiscounts in a sharply negative market. Nowadays, the fund is ‘locked-in’ to the low-spread FixedResets from these companies: GWO.PR.N, MFC.PR.F, and SLF.PR.G.

In May, insurance DeemedRetractibles performed worse than bank DeemedRetractibles:

DR_1MoPerf_150529
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… and a little worse than Unregulated Straight Perpetuals.

insPerp_1MoPerf_150529
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Correlations were very poor for banks (5%; not shown), not much good for insurance (9%; not shown) but quite reasonable for unregulated issues (52%).

A lingering effect of the downdraft of 2013 has been the return of measurable Implied Volatility but given my recent updates in recent daily market reports, I will not discuss them further in this post.

Sometimes everything works … sometimes it’s 50-50 … sometimes nothing works. The fund seeks to earn incremental return by selling liquidity (that is, taking the other side of trades that other market participants are strongly motivated to execute), which can also be referred to as ‘trading noise’ – although for quite some time, noise trading has taken a distant second place to the sectoral play on insurance DeemedRetractibles; something that dismays me, particularly given that the market does not yet agree with me regarding the insurance issues! There were a lot of strongly motivated market participants during the Panic of 2007, generating a lot of noise! Unfortunately, the conditions of the Panic may never be repeated in my lifetime … but the fund will simply attempt to make trades when swaps seem profitable, without worrying about the level of monthly turnover.

There’s plenty of room for new money left in the fund. I have shown in PrefLetter that market pricing for FixedResets is very often irrational and I have lots of confidence – backed up by my bond portfolio management experience in the markets for Canadas and Treasuries, and equity trading on the NYSE & TSX – that there is enough demand for liquidity in any market to make the effort of providing it worthwhile (although the definition of “worthwhile” in terms of basis points of outperformance changes considerably from market to market!) I will continue to exert utmost efforts to outperform but it should be borne in mind that there will almost inevitably be periods of underperformance in the future.

The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

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
May, 2015 9.8993 5.25% 0.989 5.308% 1.0000 $0.5255
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 (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 2025-1-31 (insurers and insurance holding companies), in addition to the call schedule explicitly defined. See OSFI Does Not Grandfather Extant Tier 1 Capital, CM.PR.D, CM.PR.E, CM.PR.G: Seeking NVCC Status and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis.

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

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.
Calculations of resettable instruments are performed assuming constant contemporary GOC-5 and 3-Month Bill rates. For May, 2015, yields of 1.05% and 0.61%, respectively, were assumed.

Significant positions were held in DeemedRetractible, SplitShare and NVCC non-compliant regulated FixedReset issues on May 29; all of these currently have their yields calculated with the presumption that they will be called by the issuers at par prior to 2022-1-31 (banks) or 2025-1-31 (insurers and insurance holding companies) or on a different date (SplitShares) This presents another complication in the calculation of sustainable yield, which also assumes that redemption proceeds will be reinvested at the same rate.

I will also note that the sustainable yield calculated above is not directly comparable with any yield calculation currently reported by any other preferred share fund as far as I am aware. The Sustainable Yield depends on:
i) Calculating Yield-to-Worst for each instrument and using this yield for reporting purposes;
ii) Using the contemporary value of Five-Year Canadas (set at 1.40% for the December 31 calculation and 0.88% for the March 31 calculation) to estimate dividends after reset for FixedResets. The assumption regarding the five-year Canada rate has become more important as the proportion of low-spread FixedResets in the portfolio has increased.
iii) Making the assumption that deeply discounted NVCC non-compliant issues from both banks and insurers, both Straight and FixedResets will be redeemed at par on their DeemedMaturity date as discussed above.

I no longer show calculations that assume the conversion of the entire portfolio into PerpetualDiscounts, as the fund has only a small position in these issues.

Most funds report Current Yield. For instance, ZPR reports a “Dividend Yield” of 4.5% as of August 29, 2014, but this is the Current Yield, a meaningless number. The Current Yield of MAPF was 4.89% as of August 29, but I will neither report that with any degree of prominence nor take any great pleasure in the fact that it’s a little higher than the ZPR number. It’s meaningless; to discuss it in the context of portfolio reporting is misleading.

However, BMO has taken a significant step forward in that they are no longer reporting the “Portfolio Yield” directly on their website; the information is taken from the “Enhanced Fund Profile” which is available only as a PDF link. CPD doesn’t report this metric on the CPD fact sheet or on their website. I may have one less thing to mock the fundcos about!

It should be noted that the concept of this Sustainable Income calculation was developed when the fund’s holdings were overwhelmingly PerpetualDiscounts – see, for instance, the bottom of the market in November 2008. It is easy to understand that for a PerpetualDiscount, the technique of multiplying yield by price will indeed result in the coupon – a PerpetualDiscount paying $1 annually will show a Sustainable Income of $1, regardless of whether the price is $24 or $17.

Things are not quite so neat when maturity dates and maturity prices that are different from the current price are thrown into the mix. If we take a notional Straight Perpetual paying $5 annually, the price is $100 when the yield is 5% (all this ignores option effects). As the yield increases to 6%, the price declines to 83.33; and 83.33 x 6% is the same $5. Good enough.

But a ten year bond, priced at 100 when the yield is equal to its coupon of 5%, will decline in price to 92.56; and 92.56 x 6% is 5.55; thus, the calculated Sustainable Income has increased as the price has declined as shown in the graph:


Click for Big

The difference is because the bond’s yield calculation includes the amortization of the discount; therefore, so does the Sustainable Income estimate.

Different assumptions lead to different results from the calculation, but the overall positive trend is apparent. I’m very pleased with the long-term results! It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

  • the very good performance against the index
  • the long term increases in sustainable income per unit

As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance has generally been due to exploitation of trading anomalies.

Again, there are no predictions for the future! The fund will continue to trade between issues in an attempt to exploit market gaps in liquidity, in an effort to outperform the index and keep the sustainable income per unit – however calculated! – growing.

Low Spread FixedResets: May 2015

Sunday, May 31st, 2015

As noted in MAPF Portfolio Composition: May 2015, the fund now has a large allocation to FixedResets, mostly of relatively low spread.

Many of these were largely purchased with proceeds of sales of DeemedRetractibles from the same issuer; it is interesting to look at the price trend of some of the Straight/FixedReset pairs. We’ll start with GWO.PR.N / GWO.PR.I; the fund sold the latter to buy the former at a takeout of about $1.00 in mid-June, 2014; relative prices over the past year are plotted as:

GWOPRN_GWOPRI_bidDiff_150529
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Given that the May month-end take-out was $6.46, this is clearly a trade that has not worked out very well.

In July, 2014, I reported sales of SLF.PR.D to purchase SLF.PR.G at a take-out of about $0.15:

SLFPRG_SLFPRD_bidDiff_150529
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There were similar trades in August, 2014 (from SLF.PR.C) at a take-out of $0.35. The April month-end take-out (bid price SLF.PR.D less bid price SLF.PR.G) was $5.61, so that hasn’t worked very well either.

November saw the third insurer-based sector swap, as the fund sold MFC.PR.C to buy the FixedReset MFC.PR.F at a post-dividend-adjusted take-out of about $0.85 … given a May month-end take-out of about $4.88, that’s another regrettable trade, although another piece executed in December at a take-out of $1.57 has less badly.

MFCPRF_MFCPRC_bidDiff_150529
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This trend is not restricted to the insurance sector, which I expect will become subject to NVCC rules in the relatively near future and are thus subject to the same redemption assumptions I make for DeemedRetractibles. Other pairs of interest are BAM.PR.X / BAM.PR.N:

BAMPRX_BAMPRN_bidDiff_150529
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… and FTS.PR.H / FTS.PR.J:

FTSPRH_FTSPRJ_bidDiff_150529
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… and PWF.PR.P / PWF.PR.S:

PWFPRP_PWFPRS_bidDiff_150529
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I will agree that the fund’s trades highlighted in this post may be decried as cases of monumental bad timing, but I should point out that in May, 2014, the fund was 63.9% Straight / 9.5% FixedReset while in May 2015 the fund was 11% Straight / 82% FixedReset, FloatingReset and FixedFloater (The latter figures include allocations from those usually grouped as ‘Scraps’). Given that the indices are roughly 30% Straight / 60% FixedReset & FloatingReset, it is apparent that the fund was extremely overweighted in Straights / underweighted in FixedResets in May 2014 but this situation has now reversed. HIMIPref™ analytics have been heavily favouring low-spread issues and the fund’s holdings are overwhelmingly of this type.

Summarizing the charts above in tabular form, we see:

FixedReset Straight Take-out
December 2013
Take-out
MAPF Trade
Take-out
December 2014
Take-out
April 2015
May 2015
GWO.PR.N
3.65%+130
GWO.PR.I
4.5%
($0.04) $1.00 $2.95 $5.69 6.46
SLF.PR.G
4.35%+141
SLF.PR.D
4.45%
($1.29) $0.25 $2.16 $6.25 5.61
MFC.PR.F
4.20%+141
MFC.PR.C
4.50%
($1.29) $0.86 $1.20 $5.35 4.98
BAM.PR.X
4.60%+180
BAM.PR.N
4.75%
($2.06)   $0.17 $4.18 3.62
FTS.PR.H
4.25%+145
FTS.PR.J
4.75%
$0.60   $5.68 $8.07 8.02
PWF.PR.P
4.40%+160
PWF.PR.S
4.80%
($0.67)   $3.00 $6.50 6.71
The ‘Take-Out’ is the bid price of the Straight less the bid price of the FixedReset; approximate execution prices are used for the “MAPF Trade” column. Bracketted figures in the ‘Take-Out’ columns indicate a ‘Pay-Up’

There was not much change from April month-end to May month-end.

In January, a slow decline due to fears of deflation got worse with Canada yields plummeting after the Bank of Canada rate cut with speculation rife about future cuts although this slowly died away.

And in late March / early April it got worse again, with one commenter attributing at least some of the blame to the John Heinzl piece in which I pointed out the expected reduction in dividend payouts! In May, a rise in the markets in the first half of the month was promptly followed by a slow decline in the latter half; perhaps due to increased fears that a lousy Canadian economy will delay a Canadian tightening.

All in all, I take the view that we’ve seen this show before: during the Credit Crunch, Floaters got hit extremely badly (to the point at which their fifteen year total return was negative) because (as far as I can make out) their dividend rate was dropping (as it was linked to Prime) while the yields on other perpetual preferred instruments were skyrocketing (due to credit concerns). Thus, at least some investors insisted on getting long term corporate yields from rates based (indirectly and with a lag, in the case of FixedResets) on short-term government policy rates. And it’s happening again!

Here’s the May performance for FixedResets that had a YTW Scenario of ‘To Perptuity’ at mid-month.:

FR_1MoPerf_150529
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The market continues to be rather disorderly; correlations between Issue Reset Spread and monthly performance for May are basically zero. Interestingly, the correlation for the Pfd-2 Group issues against term to reset was a little better, although still lousy at 12%.

FR_1MoPerf_Term_150529
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MAPF Portfolio Composition: May, 2015

Sunday, May 31st, 2015

Turnover declined precipitously in May, to about 7%.

There is extreme segmentation in the marketplace, with OSFI’s NVCC rule changes in February 2011 having had the effect of splitting the formerly relatively homogeneous Straight Perpetual class of preferreds into three parts:

  • Unaffected Straight Perpetuals
  • DeemedRetractibles explicitly subject to the rules (banks)
  • DeemedRetractibles considered by me, but not (yet!) by the market, to be likely to be explicitly subject to the rules in the future (insurers and insurance holding companies)

This segmentation, and the extreme valuation differences between the segments, has cut down markedly on the opportunities for trading. Another trend that hasn’t helped was the migration of PerpetualDiscounts into PerpetualPremiums (due to price increases) in early 2013 – many of the PerpetualPremiums had negative Yields-to-Worst and those that don’t aren’t particularly thrilling; speaking very generally, PerpetualPremiums are to be avoided, not traded! While market weakness since the peak of the PerpetualDiscount subindex in May, 2013, has mitigated the situation somewhat, the population of PerpetualDiscounts is still exceeded by that of PerpetualPremiums – many of which are trading at a negative Yield-to-Worst.

To make this more clear, it used to be that there were 70-odd Straight Perpetuals and I was more or less indifferent as to which ones I owned (subject, of course, to issuer concentration concerns and other risk management factors). Thus, if any one of these 70 were to go down in price by – say – $0.25, I would quite often have something in inventory that I’d be willing to swap for it. The segmentation means that I am no longer indifferent; in addition to checking the valuation of a potential buy to other Straights, I also have to check its peer group. This cuts down on the potential for trading.

There is no real hope that this situation will be corrected in the near-term. OSFI has indicated that the long-promised “Draft Definition of Capital” for insurers will not be issued “for public consultation in late 2012 or early 2013”, as they fear that it might encourage speculation in the marketplace. It is not clear why OSFI is so afraid of informed speculation, since the constant speculation in the marketplace is currently less informed than it would be with a little bit of regulatory clarity.

As a result of this delay, I have extended the Deemed Maturity date for insurers and insurance holding companies by three years (to 2025-1-31), in the expectation that when OSFI finally does provide clarity, they will allow the same degree of lead-in time for these companies as they did for banks. This had a major effect on the durations of preferred shares subject to the change but, fortunately, not much on their calculated yields as most of these issues were either trading near par when the change was made or were trading at sufficient premium that a par call was expected on economic grounds. However, with the declines in the market over the past nine months, the expected capital gain on redemption of the insurance-issued DeemedRetractibles has become an important component of the calculated yield.

Due to further footdragging by OSFI, I will be extending the DeemedMaturity date for insurance issues by another two years in the near future.

Sectoral distribution of the MAPF portfolio on May 29 was as follows:

MAPF Sectoral Analysis 2015-5-29
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 3.9% (+0.4) 4.72% 5.50
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 1.0% (0) 5.46% 14.63
Fixed-Reset 66.2% (-2.1) 5.43% 11.20
Deemed-Retractible 9.7% (-0.3) 5.51% 7.74
FloatingReset 7.1% (0) 3.32% 18.99
Scraps (Various) 11.0% (+0.9) 5.90% 14.63
Cash 1.1% (+1.1) 0.00% 0.00
Total 100% 5.25% 11.32
Totals and changes will not add precisely due to rounding. Bracketted figures represent change from April month-end. Cash is included in totals with duration and yield both equal to zero.
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. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or 2025-1-3 (insurers and insurance holding companies), in addition to the call schedule explicitly defined. See OSFI Does Not Grandfather Extant Tier 1 Capital, CM.PR.D, CM.PR.E, CM.PR.G: NVCC Status Confirmed and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis. (all recent editions have a short summary of the argument included in the “DeemedRetractible” section)

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.

Calculations of resettable instruments are performed assuming a constant GOC-5 rate of 1.05% and a constant 3-Month Bill rate of 0.61%

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 2015-5-29
DBRS Rating Weighting
Pfd-1 0 (0)
Pfd-1(low) 18.3% (-0.6)
Pfd-2(high) 29.3% (-6.2)
Pfd-2 0%
Pfd-2(low) 40.2% (+4.7)
Pfd-3(high) 1.8% (0)
Pfd-3 4.4% (0)
Pfd-3(low) 4.3% (+1.0)
Pfd-4(high) 0% (-0.7)
Pfd-4 0%
Pfd-4(low) 0% (0)
Pfd-5(high) 0% (0)
Pfd-5 0.5% (0)
Cash 1.1% (+1.1)
Totals will not add precisely due to rounding. Bracketted figures represent change from April month-end.
The fund holds a position in AZP.PR.C, which is rated P-5 by S&P and is unrated by DBRS
A position held in NPI.PR.A is not rated by DBRS, but has been included as “Pfd-3(high)” in the above table on the basis of its S&P rating of P-3(high).
A position held in INE.PR.A is not rated by DBRS, but has been included as “Pfd-3” in the above table on the basis of its S&P rating of P-3.

There was some shifting from Pfd-2(high) to Pfd-2(low); this was due largely to sales of BNS.PR.Z throughout the month at prices ranging from 23.20 to 23.78 and purchases HSE.PR.A at prices ranging from 17.20 to 17.89; BAM.PR.X at 18.01 to 18.74; and BAM.PR.R at 21.05 to 21.39.

Liquidity Distribution is:

MAPF Liquidity Analysis 2015-5-29
Average Daily Trading Weighting
<$50,000 2.6% (0)
$50,000 – $100,000 2.2% (0)
$100,000 – $200,000 40.4% (+7.9)
$200,000 – $300,000 38.0% (-3.7)
>$300,000 15.6% (-4.3)
Cash 1.1% (+1.1)
Totals will not add precisely due to rounding. Bracketted figures represent change from April month-end.

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 either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited. A “unit trust” is like a regular mutual fund, but is sold by offering memorandum rather than 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.

A similar portfolio composition analysis has been performed on the Claymore Preferred Share ETF (symbol CPD) (and other funds) as of August 31, 2012, and published in the October (mainly methodology), November (most funds), and December (ZPR) 2012, PrefLetter. While direct comparisons are difficult due to the introduction of the DeemedRetractible class of preferred share (see above) it is fair to say:

  • MAPF credit quality is better
  • MAPF liquidity is a bit lower
  • MAPF Yield is higher
  • Weightings
    • MAPF is less exposed to Straight Perpetuals (including DeemedRetractibles)
    • MAPF is less exposed to Operating Retractibles
    • MAPF is more exposed to SplitShares
    • MAPF is less exposed to FixFloat / Floater / Ratchet
    • MAPF is overweighted in FixedResets

May 29, 2015

Friday, May 29th, 2015

There was some unpleasant Canadian economic news:

Canada’s economy shrank between January and March, the first contraction in four years and the largest since the 2009 recession as collapsing energy prices prompted a plunge in business investment.

Gross domestic product fell at a 0.6 percent annualized pace in the first quarter, Statistics Canada said Friday in Ottawa. The drop exceeded all 22 economist forecasts in a Bloomberg News survey, in which the median call was for an expansion of 0.3 percent. The agency revised its fourth-quarter growth estimate to 2.2 percent, from 2.4 percent previously.

Canada’s dollar weakened 0.7 percent to C$1.2521 per U.S. dollar at 9:20 a.m. Toronto time. Government bond yields fell, with debt due in two years down 4 basis points to 0.58 percent.

In the U.S., gross domestic product shrank at a 0.7 percent annualized rate, revised from a previously reported 0.2 percent gain, according to Commerce Department figures issued Friday in Washington.

Business gross fixed capital formation — or business investment — fell at a 9.7 percent annualized pace in the first quarter, the most since the first three months of 2009. Support activities for mining and oil and gas extraction fell by 30 percent.

Consumer spending growth slowed to an annualized 0.4 percent rate, the slowest since the start of 2009, from 2.1 percent in the fourth quarter. Transportation fell for the first time in 10 quarters, as vehicle purchases declined.

Exports fell 1.1 percent, the second straight quarterly decline. Imports dropped 1.5 percent.

Crude oil is Canada’s top export, and lower prices triggered a deterioration in housing markets in Alberta, site of major oil sands deposits.

On a monthly basis, Canada’s gross domestic product fell 0.2 percent in March, the third straight decline. The contraction was led by a 2.6 percent fall in mining, quarrying, and oil and gas extraction. Economists forecast a monthly GDP expansion of 0.2 percent.

Returning to yesterday‘s scandalmongering, there are rumours that Hastert was blackmailed due to a little old-fashioned pederasty in the ’80’s (some might say, “old school”). But what really gets my goat is the smarmy propaganda from the IRS:

The USA PATRIOT Act of 2001 increased the scope of these laws to help trace funds used for terrorism.

Ha! There’s even more bullshit from the FBI, although they now admit the Patriot Act hasn’t accomplished much vis a vis terror. However, that hasn’t stopped the sleazebags in Canada from cranking up the old fearometer, although it doesn’t work as well as it used to.

The month closed with another poor day for the Canadian preferred share market, with PerpetualDiscounts down 12bp, FixedResets losing 27bp and DeemedRetractibles off 9bp. A lengthy Performance Highlights table is notable for the number of FixedReset losers. Volume was slightly below average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150529
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.70 to be $1.05 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.70 cheap at its bid price of 24.82.

impVol_MFC_150529
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 24.26 to be $0.49 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.05 to be $0.66 cheap.

impVol_BAM_150529
Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.90 to be $0.48 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.90 and appears to be $0.51 rich.

impVol_FTS_150529
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.38, looks $0.65 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.80 and is $0.38 rich.

pairs_FR_150529
Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.45%, and the TRP.PR.A / TRP.PR.F pair is no longer an abnormal outlier. On the junk side, four pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -1.09%; AIM.PR.A / AIM.PR.B at -0.71%; BRF.PR.A / BRF.PR.B at -0.60%; and FFH.PR.C / FFH.PR.D at +1.12%.

pairs_FF_150529
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.2097 % 2,261.0
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.2097 % 3,953.4
Floater 3.21 % 3.37 % 54,815 18.76 4 0.2097 % 2,403.6
OpRet 4.44 % -12.58 % 31,193 0.09 2 0.0593 % 2,781.8
SplitShare 4.58 % 4.46 % 69,276 3.33 3 -0.0801 % 3,257.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0593 % 2,543.7
Perpetual-Premium 5.46 % 4.71 % 61,897 0.58 18 0.0524 % 2,519.6
Perpetual-Discount 5.09 % 5.07 % 116,873 15.37 15 -0.1207 % 2,765.1
FixedReset 4.46 % 3.80 % 266,309 16.46 86 -0.2661 % 2,391.3
Deemed-Retractible 4.98 % 3.47 % 108,299 0.58 34 -0.0860 % 2,636.0
FloatingReset 2.55 % 2.93 % 59,748 6.14 7 -0.0304 % 2,338.3
Performance Highlights
Issue Index Change Notes
GWO.PR.N FixedReset -2.99 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.04
Bid-YTW : 7.03 %
TRP.PR.C FixedReset -2.62 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 16.75
Evaluated at bid price : 16.75
Bid-YTW : 3.98 %
SLF.PR.H FixedReset -2.34 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 21.73
Bid-YTW : 5.02 %
MFC.PR.B Deemed-Retractible -2.03 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.22
Bid-YTW : 5.61 %
BAM.PF.C Perpetual-Discount -1.85 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 21.96
Evaluated at bid price : 22.28
Bid-YTW : 5.52 %
MFC.PR.K FixedReset -1.69 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.20
Bid-YTW : 4.38 %
BMO.PR.T FixedReset -1.36 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.78
Evaluated at bid price : 23.89
Bid-YTW : 3.50 %
RY.PR.Z FixedReset -1.35 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.90
Evaluated at bid price : 24.10
Bid-YTW : 3.45 %
TRP.PR.D FixedReset -1.34 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.29
Evaluated at bid price : 22.90
Bid-YTW : 3.85 %
SLF.PR.G FixedReset -1.22 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 16.99
Bid-YTW : 7.09 %
IFC.PR.C FixedReset -1.18 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.26
Bid-YTW : 4.26 %
TRP.PR.B FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 15.24
Evaluated at bid price : 15.24
Bid-YTW : 3.83 %
ENB.PR.H FixedReset -1.10 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 17.95
Evaluated at bid price : 17.95
Bid-YTW : 4.64 %
TD.PF.B FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.72
Evaluated at bid price : 23.74
Bid-YTW : 3.55 %
MFC.PR.C Deemed-Retractible -1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.83
Bid-YTW : 5.67 %
CM.PR.O FixedReset -1.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.75
Evaluated at bid price : 23.81
Bid-YTW : 3.61 %
NA.PR.W FixedReset -1.02 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.86
Evaluated at bid price : 24.15
Bid-YTW : 3.47 %
BMO.PR.W FixedReset -1.01 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.58
Evaluated at bid price : 23.51
Bid-YTW : 3.54 %
BIP.PR.A FixedReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 23.05
Evaluated at bid price : 24.71
Bid-YTW : 4.62 %
TRP.PR.F FloatingReset 1.06 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 3.32 %
ENB.PR.F FixedReset 1.20 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 19.33
Evaluated at bid price : 19.33
Bid-YTW : 4.72 %
BAM.PR.B Floater 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 14.93
Evaluated at bid price : 14.93
Bid-YTW : 3.37 %
CIU.PR.C FixedReset 1.22 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 16.56
Evaluated at bid price : 16.56
Bid-YTW : 3.75 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSE.PR.C FixedReset 105,036 TD crossed 88,500 at 24.99.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 23.16
Evaluated at bid price : 24.92
Bid-YTW : 4.21 %
HSE.PR.A FixedReset 96,175 TD crossed 88,500 at 17.15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 16.95
Evaluated at bid price : 16.95
Bid-YTW : 4.28 %
BNS.PR.Z FixedReset 54,670 RBC bought 15,000 from Nesbitt at 23.69, then crossed 14,700 at 23.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.52
Bid-YTW : 3.60 %
CU.PR.E Perpetual-Discount 50,350 Desjardins crossed 48,200 at 24.90.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 24.32
Evaluated at bid price : 24.78
Bid-YTW : 4.94 %
RY.PR.D Deemed-Retractible 38,847 Nesbitt crossed 28,000 at 25.32.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-28
Maturity Price : 25.25
Evaluated at bid price : 25.32
Bid-YTW : 1.82 %
BMO.PR.M FixedReset 37,165 Scotia crossed 35,700 at 25.10.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 2.99 %
There were 28 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.N FixedReset Quote: 23.91 – 24.65
Spot Rate : 0.7400
Average : 0.5463

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.91
Bid-YTW : 4.13 %

POW.PR.G Perpetual-Premium Quote: 26.10 – 26.59
Spot Rate : 0.4900
Average : 0.3372

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-04-15
Maturity Price : 25.00
Evaluated at bid price : 26.10
Bid-YTW : 4.89 %

BAM.PF.C Perpetual-Discount Quote: 22.28 – 22.74
Spot Rate : 0.4600
Average : 0.3288

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 21.96
Evaluated at bid price : 22.28
Bid-YTW : 5.52 %

BMO.PR.T FixedReset Quote: 23.89 – 24.20
Spot Rate : 0.3100
Average : 0.1935

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-29
Maturity Price : 22.78
Evaluated at bid price : 23.89
Bid-YTW : 3.50 %

HSB.PR.C Deemed-Retractible Quote: 25.40 – 25.80
Spot Rate : 0.4000
Average : 0.2839

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-28
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : -4.41 %

IFC.PR.C FixedReset Quote: 24.26 – 24.64
Spot Rate : 0.3800
Average : 0.2672

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.26
Bid-YTW : 4.26 %

May 28, 2015

Thursday, May 28th, 2015

There’s more handwringing about liquidity problems:

Matt King, Citigroup’s global head of credit strategy, believes Hotel Californias – credit investments where underlying liquidity will dry up quickly in the event of a sell-off – are everywhere in the current market. “… [A]lmost every institutional investor, in almost every market, seems worried about liquidity. Even if it’s here today, they fear it will be gone tomorrow. The growing frequency of ‘flash crashes’ and [similar but less severe] ‘air pockets’ – often without obvious cause – adds weight to their fears.”

Mr. King describes a number of reasons for these liquidity-driven bouts of volatility. These include the low trading volume for the underlying holdings of high-yield bond ETFs, regulations that limit market-making activities for major global banks and the huge global growth in open-ended mutual-fund investments. (Open-ended funds guarantee daily liquidity even if the fund holdings are illiquid and hard to sell.)

Above all, however, Mr. King singles out a familiar target.

“Central bank distortions have forced investors into positions they would not have held otherwise, and forced them to be the ‘same way round’ [similarly positioned in the market with overweights and underweights] to a much greater extent than previously …. Every so often, when they start to doubt their convictions, they find that the clearing price for risk as they try to reverse positions is nowhere near where they’d expected.”

There’s a scandal brewing:

Former Speaker of the U.S. House of Representatives Dennis Hastert was indicted by a federal grand jury on charges that he evaded currency-reporting requirements and lied to the FBI as part of a hush-money scheme.

Hastert, 73, withdrew $952,000 in small increments to avoid a requirement that banks report cash transactions exceeding $10,000, the U.S. Justice Department said Thursday. The withdrawals were part of a plan to give an individual who wasn’t named $3.5 million as a payoff to conceal “prior misconduct,” Chicago U.S. Attorney Zachary Fardon said in a statement.

Hastert, a Republican from Plano, Illinois, served in the House from 1987 to 2007. He became the chamber’s speaker — second in line of succession to the U.S. presidency — in 1999.

Starting in July 2012, Hastert began structuring withdrawals in increments of less than $10,000 to evade currency transaction reports, prosecutors said. Later, when questioned by agents of the Federal Bureau of Investigation, he told them he was keeping the cash, they said.

So it looks like ridiculously intrusive banking laws (and an FBI investigation of something that does not appear to be a crime!) seems to have caught another stupid person. Perhaps he can talk to Elliot Spitzer about his problems; but if he permitted himself to be blackmailed, there’s something really pathetic going on. But look at the indictment! Police snoopery run amok:

In approximately 2013, the Federal Bureau of Investigation and Internal Revenue Service, agencies within the executive branch of the Government of the United States, began investigating defendant JOHN DENNIS HASTERT’s cash withdrawals as possible structuring of currency transactions to evade the reporting requirements described above.

As of December 8, 2014, the following matters, among others, were material to the Federal Bureau of Investigation and Internal Revenue Service regarding possible structuring by defendant JOHN DENNIS HASTERT:

  • i. Whether defendant JOHN DENNIS HASTERT was withdrawing less than $10,000 in cash at a time in order to evade currency transaction reporting requirements;
  • ii. Whether defendant JOHN DENNIS HASTERT was using the cash he was withdrawing to cover up past misconduct;
  • iii. Whether defendant JOHN DENNIS HASTERT was using the cash he was withdrawing for a criminal purpose;
  • iv. Whether defendant JOHN DENNIS HASTERT was the victim of a criminal extortion related to, among other matters, his prior positions in government and was giving the cash to another individual as payment; and
  • v. Whether defendant JOHN DENNIS HASTERT was using the cash for some other purpose, not related to a crime or past misconduct.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts gaining 6bp, FixedResets off 8bp and DeemedRetractibles up 29bp. Sun Life and Manulife DeemedRetractibles were notable winners in the Performance Highlights table. Volume was below average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150528
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.90 to be $1.07 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.66 cheap at its bid price of 24.95.

impVol_MFC_150528
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.M, resetting at +236 on 2019-12-19, bid at 24.41 to be $0.52 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.05 to be $0.79 cheap.

impVol_BAM_150528
Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 21.00 to be $0.51 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.71 and appears to be $0.43 rich.

impVol_FTS_150528
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.31, looks $0.74 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.61 and is $0.30 rich.

pairs_FR_150528
Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.50%, including the TRP.PR.A / TRP.PR.F at -0.09%. On the junk side, four pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -0.99%; AIM.PR.A / AIM.PR.B at -0.79%; BRF.PR.A / BRF.PR.B at -1.51%; and FFH.PR.C / FFH.PR.D at +1.00%.

pairs_FF_150528
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.9901 % 2,256.3
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.9901 % 3,945.1
Floater 3.22 % 3.41 % 52,188 18.66 4 -0.9901 % 2,398.6
OpRet 4.45 % -11.04 % 29,269 0.10 2 -0.0198 % 2,780.2
SplitShare 4.57 % 4.48 % 65,909 3.34 3 0.1605 % 3,259.7
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0198 % 2,542.2
Perpetual-Premium 5.46 % 3.27 % 61,233 0.42 18 -0.0371 % 2,518.3
Perpetual-Discount 5.08 % 5.07 % 118,162 15.38 15 0.0618 % 2,768.4
FixedReset 4.44 % 3.79 % 269,590 16.43 86 -0.0802 % 2,397.7
Deemed-Retractible 4.96 % 3.54 % 107,199 0.73 34 0.2866 % 2,638.3
FloatingReset 2.55 % 2.88 % 60,227 6.15 7 -0.0767 % 2,339.0
Performance Highlights
Issue Index Change Notes
BAM.PR.C Floater -2.41 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 14.55
Evaluated at bid price : 14.55
Bid-YTW : 3.46 %
BAM.PR.B Floater -2.19 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 14.75
Evaluated at bid price : 14.75
Bid-YTW : 3.41 %
ENB.PR.F FixedReset -2.05 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 19.10
Evaluated at bid price : 19.10
Bid-YTW : 4.78 %
FTS.PR.H FixedReset -2.04 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 16.31
Evaluated at bid price : 16.31
Bid-YTW : 3.86 %
BAM.PR.K Floater -1.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 14.65
Evaluated at bid price : 14.65
Bid-YTW : 3.44 %
ENB.PR.D FixedReset -1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 18.68
Evaluated at bid price : 18.68
Bid-YTW : 4.72 %
MFC.PR.F FixedReset -1.53 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.00
Bid-YTW : 6.61 %
MFC.PR.L FixedReset -1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.35
Bid-YTW : 4.35 %
TRP.PR.F FloatingReset -1.23 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 3.35 %
BAM.PR.R FixedReset -1.13 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 21.00
Evaluated at bid price : 21.00
Bid-YTW : 4.19 %
BNS.PR.Z FixedReset -1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.45
Bid-YTW : 3.65 %
SLF.PR.B Deemed-Retractible 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.10
Bid-YTW : 5.25 %
SLF.PR.A Deemed-Retractible 1.10 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.96
Bid-YTW : 5.28 %
SLF.PR.E Deemed-Retractible 1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.80
Bid-YTW : 5.67 %
SLF.PR.C Deemed-Retractible 1.16 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.67
Bid-YTW : 5.69 %
MFC.PR.C Deemed-Retractible 1.27 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.07
Bid-YTW : 5.53 %
MFC.PR.B Deemed-Retractible 1.33 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.70
Bid-YTW : 5.34 %
ENB.PR.J FixedReset 1.37 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 20.72
Evaluated at bid price : 20.72
Bid-YTW : 4.58 %
MFC.PR.N FixedReset 1.56 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.02
Bid-YTW : 4.07 %
PWF.PR.A Floater 1.98 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 18.05
Evaluated at bid price : 18.05
Bid-YTW : 2.78 %
SLF.PR.H FixedReset 2.72 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.25
Bid-YTW : 4.72 %
GWO.PR.N FixedReset 3.01 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.80
Bid-YTW : 6.65 %
Volume Highlights
Issue Index Shares
Traded
Notes
RY.PR.M FixedReset 87,369 Desjardins crossed 81,600 at 24.70.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 23.00
Evaluated at bid price : 24.62
Bid-YTW : 3.64 %
ENB.PR.Y FixedReset 83,504 Scotia crossed 75,400 at 18.85.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 18.83
Evaluated at bid price : 18.83
Bid-YTW : 4.75 %
HSE.PR.A FixedReset 49,730 TD crossed 40,000 at 17.15.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 17.12
Evaluated at bid price : 17.12
Bid-YTW : 4.23 %
HSE.PR.C FixedReset 47,415 TD crossed 37,500 at 24.75.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 23.12
Evaluated at bid price : 24.80
Bid-YTW : 4.24 %
BNS.PR.R FixedReset 35,700 Nesbitt crossed 20,000 at 25.50.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : 3.21 %
BNS.PR.Z FixedReset 26,500 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.45
Bid-YTW : 3.65 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TD.PF.B FixedReset Quote: 24.00 – 24.45
Spot Rate : 0.4500
Average : 0.3081

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 22.84
Evaluated at bid price : 24.00
Bid-YTW : 3.50 %

BNS.PR.Z FixedReset Quote: 23.45 – 23.83
Spot Rate : 0.3800
Average : 0.2391

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.45
Bid-YTW : 3.65 %

TRP.PR.F FloatingReset Quote: 18.80 – 19.28
Spot Rate : 0.4800
Average : 0.3469

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 18.80
Evaluated at bid price : 18.80
Bid-YTW : 3.35 %

FTS.PR.H FixedReset Quote: 16.31 – 16.65
Spot Rate : 0.3400
Average : 0.2256

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 16.31
Evaluated at bid price : 16.31
Bid-YTW : 3.86 %

BAM.PF.A FixedReset Quote: 24.51 – 24.79
Spot Rate : 0.2800
Average : 0.1730

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-28
Maturity Price : 23.15
Evaluated at bid price : 24.51
Bid-YTW : 4.09 %

BNS.PR.Y FixedReset Quote: 23.21 – 23.50
Spot Rate : 0.2900
Average : 0.1875

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.21
Bid-YTW : 3.10 %

FFN.PR.A To Get Bigger

Thursday, May 28th, 2015

Quadravest has announced:

North American Financial 15 Split Corp. (the “Company”) is pleased to announce it has filed a preliminary short form prospectus in each of the provinces of Canada with respect to an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC, RBC Capital Markets, Scotia Capital Inc., and will also include BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Dundee Securities, Raymond James, Desjardins Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

The Preferred Shares will be offered at a price of $10.00 per Preferred Share to yield 5.25% on the issue price and the Class A Shares will be offered at a price of $8.65 per Class A Share to yield 13.87% on the issue price. The closing price on the TSX of each of the Preferred Shares and Class A Shares on May 27, 2015 was $10.08 and $9.19, respectively.

Since inception of the Company, the aggregate dividends paid on the Preferred Shares have been $5.58 per share and the aggregate dividends paid on the Class A Shares have been $8.85 per share (including one special distribution of $0.25 per share), for a combined total of $14.43. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

The net proceeds of the secondary offering will be used by the Company to invest in a high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows:

Bank of Montreal National Bank of Canada Bank of America Corp.
The Bank of Nova Scotia Manulife Financial Corporation Citigroup Inc.
Canadian Imperial Bank of Commerce Sun Life Financial Services of Canada Inc. Goldman Sachs Group Inc.
Royal Bank of Canada Great-West Lifeco Inc. JP Morgan Chase & Co.
The Toronto-Dominion Bank CI Financial Corp. Wells Fargo & Co.

The Company’s investment objectives are:
Preferred Shares:
i. to provide holders of Preferred Shares with cumulative preferential monthly cash dividends, currently in the amount of 5.25% annually, to be set by the Board of Directors annually subject to a minimum of 5.25% until 2019; and
ii. on or about the termination date of December 1, 2019 (subject to further 5 year extensions thereafter), to pay the holders of the Preferred Shares $10 per Preferred Share.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash distributions in an amount to be determined by the Board of Directors; and
ii. to permit holders to participate in all growth in the net asset value of the Company above $10 per Unit, by paying holders on or about the termination date of December 1, 2019 (subject to further 5 year extensions thereafter) such amounts as remain in the Company after paying $10 per Preferred Share.

The sales period of this overnight offering will end at 9:00 a.m. (Toronto time) on May 29, 2015.

The NAVPU of the fund is 16.97 as of May 27 and the new Whole Units are being flogged at 18.65. When the Split Share structure is working as intended, it’s a thing of beauty! As well as being a counter-example to the Modigliani-Miller hypothesis, last mocked on PrefBlog on March 15, 2013.

FFN.PR.A was last mentioned on PrefBlog when they changed their name to North American Financial 15 Split Corp.; it will also be noted that they got bigger in August, 2014.

FFN.PR.A is tracked by HIMIPref™ but is relegated to the Scraps index on credit concerns.

Update, 2015-5-29: It did all right!

North American Financial 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 1,380,000 Preferred Shares and up to 1,380,000 Class A Shares. Total proceeds of the offering are expected to be approximately $25.7 million.

The offering will be co-led by National Bank Financial Inc., CIBC, RBC Capital Markets, Scotia Capital Inc., and will also include BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Dundee Securities, Raymond James, Desjardins Securities Inc., Mackie Research Capital Corporation and Manulife Securities Incorporated.

The sales period of the overnight offering has now ended.

New Issue: RY 4.90% Straight, NVCC-Compliant

Thursday, May 28th, 2015

Royal Bank of Canada has announced:

a domestic public offering of Non-Cumulative, Preferred Shares Series BH.

Royal Bank of Canada will issue 6 million Preferred Shares Series BH priced at $25 per share to raise gross proceeds of $150 million.

The Preferred Shares Series BH will yield 4.90 per cent annually, payable quarterly, as and when declared by the Board of Directors of Royal Bank of Canada.

Subject to regulatory approval, on or after November 24, 2020, the bank may redeem the Preferred Shares Series BH in whole or in part at a declining premium.

The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is June 5, 2015.

We routinely undertake funding transactions to maintain strong capital ratios and a cost effective capital structure. Net proceeds from this transaction will be used for general business purposes.

Well! It’s been a long time since we last saw a Straight Perpetual being issued … not since GWO.PR.S, paying 5.25%, announced 2014-5-13 and listed 2014-5-22.

I’m not sure what we can make of this … does this mean that RY’s treasury department thinks FixedResets are cheap? Their recently issued RY.PR.M, FixedReset, 3.60%+262, was hammered on the opening and they might be unwilling to risk a reprise. Or they may simply want to test the waters of the Straight Perpetual market with a small new issue. Or they might feel that they’ve got quite enough capital tied to five-year Canadas, thank you very much, and be willing to pay up a little for diversification of funding.

One way or another, it’s good to see. I’ve been saying for the past six years that I think Straights will always be the ‘little black dress’ of the preferred share market and it’s nice to see a bit of support for that idea.

Update, 2015-5-29: It’s also noteworthy that this issue has a great big fat first dividend, payable in November, that will go ex in late October. There might be some opportunities for dividend capture come October!

May 27, 2015

Thursday, May 28th, 2015

The Bank of Canada didn’t move today:

The Bank of Canada today announced that it is maintaining its target for the overnight rate at 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.

Inflation in Canada continues to track the path outlined in the Bank’s April Monetary Policy Report (MPR). Total CPI inflation is near the bottom of the Bank’s 1 to 3 per cent inflation control range, largely due to the transitory effects of sharply lower energy prices. Core inflation remains above 2 per cent, boosted by the pass-through effects of past depreciation of the Canadian dollar, as well as certain sector-specific factors. Seeing through the various temporary factors, the Bank estimates that the underlying trend of inflation is 1.6 to 1.8 per cent, consistent with persistent slack in the economy.

The outlook for the Canadian economy also remains largely in line with the April MPR. While a weak first quarter in the United States has raised questions about that economy’s underlying strength, the Bank expects a return to solid growth in the second quarter. This will help advance the rotation of demand in Canada toward more exports and business investment. Recent indicators suggest consumption in Canada is holding up relatively well, given the impact of lower oil prices on gross domestic income.

Despite the recent back-up in global bond yields, financial conditions for Canadian households and firms remain highly stimulative. The Canadian dollar has strengthened in recent weeks in the context of higher oil prices and a softer U.S. dollar. If these developments are sustained, their net effect will need to be assessed as more data become available in the months ahead.

Although a number of complex adjustments are under way, the Bank’s assessment of risks to the inflation profile has not materially changed. Risks to financial stability remain elevated, but appear to be evolving as expected. Weighing all of these risks, the Bank judges that the current degree of monetary policy stimulus remains appropriate and therefore the target for the overnight rate remains at 3/4 per cent.

John Heinzl had an interview with Nicolas Normandeau, the manager of the $430-million Horizons Active Preferred Share ETF (HPR):

He was on the other end of the trades scooping up shares at fire-sale prices.

“During the selloff I was buying everything,” said the manager of the $430-million Horizons Active Preferred Share ETF (HPR). “I was buying about $4-million to $5-million a day. That’s a big number.”

Faced with falling shares prices and reduced dividend income, many preferred shareholders panicked – particularly retail investors, Mr. Normandeau said. “They were just selling every issue they have,” he said. That’s when he started aggressively investing the cash he had been accumulating.

His timing worked out well. Preferred share prices have rebounded in recent weeks and, although he’s not buying as aggressively as he was in late 2014 and early 2015, he still thinks many rate-reset preferreds offer attractive potential returns – and acceptable interest rate risks – at current levels.

Market timing, feh. Live by the sword, die by the sword. He’s doing pretty well on a three-year basis … but with market timing you’ve got to be right all the time.

Yesterday I expressed my approbation of the plan to allow voluntary contributions to the Canada Pension Plan. It would seem I’m not the only one:

“We think it’s a good proposal,” said Graham Smith, senior policy adviser at the Investment Funds Institute of Canada, which advocates on behalf of the investment industry.

Ian Russell, president and chief executive of the Investment Industry Association of Canada, also sounded upbeat.

“It provides Canadians with another option,” he said.

Don Drummond, a professor at Queen’s University and former chief economist at Toronto-Dominion Bank, pointed out that mutual fund fees are particularly hard for investors to stomach in a low-return environment.

The industry would likely have to respond to competition for savers’ assets by cutting fees, or creating new genres of investment vehicles that stand apart from what the CPP Fund offers.

Mr. Drummond said people will love the option of contributing extra funds to the CPP, which could override any concerns voiced from the investment industry during the upcoming consultations on the issue.

In any case, he noted, the investment industry tends to chase people who have savings of more than $600,000 – a relatively small slice of the population that might not be significantly swayed by the potential for a bigger CPP contribution.

Mr. Drummond is an optimist. It would be far more logical to raise mutual fund fees so salesmen can be paid a bigger trailer.

As far as industry reaction is concerned, I’m looking forward to competition from deferred annuities, with a little head-to-head competition between the CPPIB and the insurance companies.

However, opinion is not unanimous, or at least it wasn’t five years ago:

The Conservative government rejected a voluntary expansion of the Canada Pension Plan five years ago as overly expensive and misguided, a history that is raising questions as to why it is now proposing that very idea.

The call for consultations is in spite of the fact that Finance Canada held detailed talks and contracted policy experts throughout 2009 and 2010 to weigh in on the state of retirement saving in Canada.

After the study, then-finance minister Jim Flaherty said it was clear that “some sort of voluntary new CPP method” wouldn’t work.

“This was rejected unanimously by our partners in the federation when we met and discussed the issue because it would not work and because the CPP would be unable to administer it,” he told the House of Commons in September 2010.

Ted Menzies, who was then the Conservative minister responsible for the pensions file, went further.

“The verdict was unanimous. This was not a good idea,” Mr. Menzies told the House in November 2010. “The consensus of governments and public-interest groups from across the political spectrum has been that this would be costly, ineffective and, ultimately, a misguided solution.”

It’s good to see some bio-octane being produced:

Global Bioenergies (Alternext Paris: ALGBE) and Audi announce that the first batch of renewable gasoline has been produced. It will be presented to Audi by Global Bioenergies during a press conference to be held in Pomacle on the 21st of May.

The first isobutene batch produced from renewable resources (here: corn-derived glucose) at Global Bioenergies’ industrial pilot in Pomacle-Bazancourt, near Reims in France, had been delivered to the chemical company Arkema early May 2015. Subsequent isobutene batches have been converted into isooctane by the Fraunhofer Institute at the Leuna refinery near Leipzig where Global Bioenergies is now building its demo plant.

Reiner Mangold, Head of sustainable product development at Audi declares: “The confirmation that Global Bioenergies’ renewable isobutene is compatible with a commonly used fossil isobutene to isooctane conversion technology represents a key step on our way to Audi ‘ebenzin’. We are now looking forward to working together with Global Bioenergies on a technology allowing the production of renewable isooctane not derived from biomass sources, following Audi’s ‘e-fuels’ strategy.”

It’s a pity that they didn’t put more meat in the press release. What’s the efficiency of this process vs. gasohol production? And where do they stand in the project not to use biomass?

Canadian General Investments, Limited, proud issuer of CGI.PR.C and CGI.PR.D, was confirmed at Pfd-1(low) by DBRS:

DBRS Limited (DBRS) has today confirmed the ratings of the 3.90% Cumulative Redeemable Class A Preference Shares, Series 3 (the Series 3 Preference Shares) and the 3.75% Cumulative Redeemable Class A Preference Shares, Series 4 (the Series 4 Preference Shares; collectively, with the Series 3 Preference Shares, the Preference Shares) issued by Canadian General Investments, Limited (the Company) at Pfd-1 (low). The Series 3 Preference Shares and Series 4 Preference Shares rank pari passu and will be retractable at the option of their holders on or after June 15, 2016, and June 15, 2023, respectively.

The Company holds a well-diversified portfolio consisting primarily of common shares of Canadian companies (the Portfolio). Since the last rating confirmation in May 2014, the performance of the portfolio has been stable. The current downside protection available to the portfolio is approximately 79.8%. Holders of the Series 3 Preference Shares are entitled to receive fixed cumulative preferential cash dividends of $0.975 per annum, yielding 3.90% on the initial issue price, while holders of the Series 4 Preference Shares are entitled to cash dividends of $0.9375 per annum, yielding 3.75% per annum on the initial issue price. Income received on the Portfolio will be able to cover approximately 65% of distributions to all series of Preference Shares, based on the Portfolio holdings as of May 15, 2015. Despite the grind caused by the drop in the distribution coverage ratio and the regular distributions to holders of the common shares of the Company, downside protection remains commensurate with the current ratings of the Preference Shares.

It was a positive day for the Canadian preferred share market, with PerpetualDiscounts up 10bp, FixedResets gaining 6bp and DeemedRetractibles winning 28bp. The Performance Highlights table is very lengthy, with ENB issues prominent winners. Volume was below average.

PerpetualDiscounts now yield 5.07%, equivalent to 6.59% interest at the standard equivalency factor of 1.3x. Long corporates now yield about 3.95%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 265bp, unchanged from the May 20 report.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

impVol_TRP_150527
Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 24.10 to be $1.07 rich, while TRP.PR.G, resetting 2020-11-30 at +296, is $0.75 cheap at its bid price of 25.00.

impVol_MFC_150527
Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.L, resetting at +216 on 2019-6-19, bid at 23.65 to be $0.69 rich, while MFC.PR.G, resetting at +290bp on 2016-12-19, is bid at 25.05 to be $0.63 cheap.

impVol_BAM_150527
Click for Big

The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.76 to be $0.57 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.81 and appears to be $0.53 rich.

impVol_FTS_150527
Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.65, looks $0.49 cheap and resets 2015-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.75 and is $0.32 rich.

pairs_FR_150527
Click for Big

Investment-grade pairs predict an average over the next five-odd years of about 0.45%, including the TRP.PR.A / TRP.PR.F at 0.01%. On the junk side, four pairs are showing negative breakeven rates and are not shown: FFH.PR.E / FFH.PR.F at -1.15%; DC.PR.B / DC.PR.D at -1.39%; AIM.PR.A / AIM.PR.B at -1.01% and BRF.PR.A / BRF.PR.B at -0.63%.

pairs_FF_150527
Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 1.2941 % 2,278.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 1.2941 % 3,984.5
Floater 3.19 % 3.34 % 51,933 18.84 4 1.2941 % 2,422.6
OpRet 4.45 % -11.12 % 29,708 0.10 2 0.0198 % 2,780.8
SplitShare 4.58 % 4.47 % 65,105 3.34 3 0.4164 % 3,254.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0198 % 2,542.7
Perpetual-Premium 5.46 % 3.09 % 61,776 0.42 18 0.1202 % 2,519.3
Perpetual-Discount 5.09 % 5.07 % 119,276 15.36 15 0.0956 % 2,766.7
FixedReset 4.44 % 3.78 % 269,552 16.08 86 0.0619 % 2,399.6
Deemed-Retractible 4.97 % 3.45 % 103,825 0.73 34 0.2787 % 2,630.7
FloatingReset 2.55 % 2.91 % 57,617 6.15 7 0.0364 % 2,340.8
Performance Highlights
Issue Index Change Notes
GWO.PR.N FixedReset -4.42 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.28
Bid-YTW : 7.02 %
PWF.PR.A Floater -1.72 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 17.70
Evaluated at bid price : 17.70
Bid-YTW : 2.83 %
SLF.PR.G FixedReset -1.71 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.25
Bid-YTW : 6.90 %
PWF.PR.P FixedReset -1.67 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 18.21
Evaluated at bid price : 18.21
Bid-YTW : 3.77 %
TD.PF.C FixedReset -1.51 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 22.56
Evaluated at bid price : 23.50
Bid-YTW : 3.58 %
TRP.PR.A FixedReset -1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 20.51
Evaluated at bid price : 20.51
Bid-YTW : 3.76 %
MFC.PR.F FixedReset -1.08 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.28
Bid-YTW : 6.42 %
TRP.PR.B FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 15.55
Evaluated at bid price : 15.55
Bid-YTW : 3.80 %
RY.PR.M FixedReset 1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 22.95
Evaluated at bid price : 24.50
Bid-YTW : 3.67 %
ENB.PR.T FixedReset 1.09 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 19.47
Evaluated at bid price : 19.47
Bid-YTW : 4.71 %
SLF.PR.B Deemed-Retractible 1.15 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.85
Bid-YTW : 5.39 %
ENB.PR.H FixedReset 1.16 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 18.31
Evaluated at bid price : 18.31
Bid-YTW : 4.55 %
ENB.PR.F FixedReset 1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 19.50
Evaluated at bid price : 19.50
Bid-YTW : 4.68 %
ENB.PR.N FixedReset 1.25 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 20.21
Evaluated at bid price : 20.21
Bid-YTW : 4.67 %
BAM.PR.R FixedReset 1.38 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 21.24
Evaluated at bid price : 21.24
Bid-YTW : 4.14 %
SLF.PR.A Deemed-Retractible 1.46 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.70
Bid-YTW : 5.42 %
FTS.PR.H FixedReset 1.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 16.65
Evaluated at bid price : 16.65
Bid-YTW : 3.78 %
ENB.PR.P FixedReset 1.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 19.51
Evaluated at bid price : 19.51
Bid-YTW : 4.69 %
BAM.PR.X FixedReset 1.59 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 18.50
Evaluated at bid price : 18.50
Bid-YTW : 4.18 %
HSE.PR.A FixedReset 1.66 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 17.15
Evaluated at bid price : 17.15
Bid-YTW : 4.22 %
BAM.PR.C Floater 1.77 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 14.91
Evaluated at bid price : 14.91
Bid-YTW : 3.38 %
ENB.PR.D FixedReset 1.88 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 19.00
Evaluated at bid price : 19.00
Bid-YTW : 4.64 %
ENB.PR.B FixedReset 1.97 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 19.14
Evaluated at bid price : 19.14
Bid-YTW : 4.60 %
MFC.PR.B Deemed-Retractible 2.32 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.39
Bid-YTW : 5.51 %
MFC.PR.L FixedReset 2.38 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.65
Bid-YTW : 4.19 %
BAM.PR.B Floater 2.52 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 15.08
Evaluated at bid price : 15.08
Bid-YTW : 3.34 %
BAM.PR.K Floater 3.32 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 14.93
Evaluated at bid price : 14.93
Bid-YTW : 3.37 %
Volume Highlights
Issue Index Shares
Traded
Notes
BMO.PR.S FixedReset 226,190 Scotia crossed 200,000 at 24.50. Nice ticket!
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 23.06
Evaluated at bid price : 24.48
Bid-YTW : 3.48 %
RY.PR.G Deemed-Retractible 75,750 TD crossed 75,000 at 25.35.
YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 25.25
Evaluated at bid price : 25.32
Bid-YTW : 1.53 %
BMO.PR.Q FixedReset 47,150 Nesbitt crossed 32,700 at 23.58.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.55
Bid-YTW : 3.51 %
BNS.PR.Z FixedReset 37,700 TD crossed two blocks of 16,000 each, both at 23.75.
YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.71
Bid-YTW : 3.46 %
TRP.PR.A FixedReset 35,430 TD crossed 30,000 at 20.80.
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 20.51
Evaluated at bid price : 20.51
Bid-YTW : 3.76 %
TRP.PR.F FloatingReset 32,700 TD crossed 30,000 at 19.35. Perhaps related to the above?
YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 19.21
Evaluated at bid price : 19.21
Bid-YTW : 3.32 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
GWO.PR.N FixedReset Quote: 17.28 – 17.90
Spot Rate : 0.6200
Average : 0.4160

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 17.28
Bid-YTW : 7.02 %

GWO.PR.S Deemed-Retractible Quote: 26.26 – 26.75
Spot Rate : 0.4900
Average : 0.3126

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 26.26
Bid-YTW : 4.73 %

PWF.PR.A Floater Quote: 17.70 – 18.35
Spot Rate : 0.6500
Average : 0.4894

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 17.70
Evaluated at bid price : 17.70
Bid-YTW : 2.83 %

HSB.PR.C Deemed-Retractible Quote: 25.40 – 25.80
Spot Rate : 0.4000
Average : 0.2515

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2015-06-26
Maturity Price : 25.00
Evaluated at bid price : 25.40
Bid-YTW : -4.74 %

CIU.PR.C FixedReset Quote: 16.35 – 17.00
Spot Rate : 0.6500
Average : 0.5149

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2045-05-27
Maturity Price : 16.35
Evaluated at bid price : 16.35
Bid-YTW : 3.80 %

GWO.PR.R Deemed-Retractible Quote: 24.81 – 25.19
Spot Rate : 0.3800
Average : 0.2491

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.81
Bid-YTW : 5.03 %

New Issue: BMO FixedReset, 3.80%+271, NVCC-Compliant

Wednesday, May 27th, 2015

Bank of Montreal has announced:

a domestic public offering of $200 million of Non-Cumulative 5-Year Rate Reset Class B Preferred Shares Series 33 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 33”). The offering will be underwritten on a bought-deal basis by a syndicate of underwriters led by BMO Capital Markets. The Bank has granted to the underwriters an option to purchase up to an additional $50 million of the Preferred Shares Series 33 exercisable at any time up to 48 hours before closing.

The Preferred Shares Series 33 will be issued to the public at a price of $25.00 per share. Holders will be entitled to receive non-cumulative preferential fixed quarterly dividends for the initial period ending August 25, 2020, as and when declared by the Board of Directors of the Bank, payable in the amount of $0.2375 per share, to yield 3.80 per cent annually.

Subject to regulatory approval, on or after August 25, 2020, the Bank may redeem the Preferred Shares Series 33 in whole or in part at par. On August 25, 2020, the dividend rate will reset and will reset thereafter every five years to be equal to the 5-Year Government of Canada Bond Yield plus 2.71 per cent. Subject to certain conditions, holders may elect to convert any or all of their Preferred Shares Series 33 into an equal number of Non-Cumulative Floating Rate Class B Preferred Shares Series 34 (Non-Viability Contingent Capital (NVCC)) (“Preferred Shares Series 34”) on August 25, 2020, and on August 25 of every fifth year thereafter. Holders of the Preferred Shares Series 34 will be entitled to receive non-cumulative preferential floating rate quarterly dividends, as and when declared by the Board of Directors of the Bank, equal to the then 3-month Government of Canada Treasury Bill Yield plus 2.71 per cent. Subject to certain conditions, holders may elect to convert any or all of their Preferred Shares Series 34 into an equal number of Preferred Shares Series 33 on August 25, 2025, and on August 25 of every fifth year thereafter.

The anticipated closing date is June 5, 2015. The net proceeds from the offering will be used by the Bank for general corporate purposes.

This issue comes with a great big fat first dividend, payable November 25, 2015, which should go ex sometime around the end of October. October might bring a few opportunities for dividend capture!

This issue actually looks reasonably good according to Implied Volatility theory:

impVol_BMO_150527
Click for Big

Note that the very high level of Implied Volatility is also calculated when only the NVCC-compliant issues are considered – for these issues alone, I get a spread of 93bp and Implied Volatility of 40%. This level of Implied Volatility is silly and will generally arise when the issues concerned are trading with an expectation of directionality in prices; I suggest that there are a lot of investors who figure that anything with the BMO brand name on it will trade somewhere near par forever.

This has the effect of making the lower spread issues vulnerable to a decline in credit quality and/or an increase in spreads; in other words, the higher-spread issues (such as this new issue) are getting a boatload of downside protection for free (when compared to other BMO issues ONLY!).

Jov Leon Frazer Preferred Equity Fund? What’s up?

Tuesday, May 26th, 2015

As most of you know, I report the returns of my competitors when I report the returns of Malachite Aggressive Preferred Fund; one of these competitors is Jov Leon Frazer Preferred Equity Fund.

I had problems in April, however – the Morningstar reporting page wasn’t updated and, in fact, the last price they had was dated 2015-4-17.

Similarly, the Globe & Mail reporting page has the last price dated 2015-4-17, although due to a hole in the space-time continuum, they report “Returns as at April 30, 2015”. Mind you, though, the index returns they report to this end-date look nothing like anything else I’ve seen to April 30, so I’ll deem it unreliable.

When in doubt, go to the horse’s mouth! The Jov Financial Solutions reporting page provides numbers to April 30, but they seem a little … suspicious. Like, for instance, the one-year return for the Class A units is reported as -11.00%, but the one-year return for the Class F units is reported as +1.96%. Now, we’re all familiar with high MERs and how they can be avoided by use of Class F units, but a difference of almost 13% over a one year period seems a little … extreme. Even for the Canadian Market.

It’s not just their web-server gone momentarily berserk. Here’s the PDF, which reports the same enormous difference. I’m considering having it framed.

Oddly, this PDF reports the same one year TXPR return to 2015-4-30 as the Globe does: -7.70%. Well, according to me and according to Blackrock, the one year return for TXPR to April 30 was -3.19%. I’m not showing their -7.70% one-year return anywhere in my records. The closest I get is -7.73% for the year ended 2010-12-31.

So I send an email to info@jovfunds.com asking them what’s going on:

Can you explain the performance reporting of the captioned fund?

The Morningstar page at http://cart.morningstar.ca/QuickTakes/fund/Performance/f_Perf.aspx?t=F000005I49&region=CAN&culture=en-CA appears to be no longer updated.

The Jov Financial Solutions page at http://jovian.transmissionmedia.ca/fundprofile_jov.aspx?f=JOV110 contains figures for returns which are so wildly different for different classes of fund units that I have great difficulty believing any of the numbers.

The Globe & Mail page at http://www.theglobeandmail.com/globe-investor/funds-and-etfs/funds/summary/?id=59829 reports figures which appear to have ceased being updated on April 17.

Where may I find performance reporting for the fund? If it is the Jov Financial Solutions page, please help me to understand how the reported figures for the different classes are so wildly different (e.g., 1-Year for Series A is reported as -11.00%, 1-Year for Series F is reported as +1.96%).

Sincerely,

Well, I got an answer surprisingly fast:

MailEnable: Message could not be delivered to some recipients.
The following recipient(s) could not be reached:

Recipient: [SMTP:info@jovfunds.com]
Reason: Remote SMTP Server Returned: 554 5.1.2 Recipient address rejected: User unknown

Huh! So, I go to SEDAR and look for documents from Jov Leon Frazer Preferred Equity Fund. The last filing was “Amended and restated final fund facts – English”, dated March 11, 2015. No luck there!

So let’s check the Leon Frazer website. Success! I found a mention that might go a long way towards explaining the mess!

The JOV Leon Frazer Dividend Fund, the JOV Leon Frazer Bond Fund and the JOV Leon Frazer Preferred Equity Fund are all available through JovFinancial Solutions Inc., an affiliate of Leon Frazer. Industrial Alliance has indicated that it intends to merge JovFinancial Solutions Inc. with IA Clarington Investments Inc. in early 2014.

So now let’s go to the IA Clarington Website and browse funds by Asset Class …. nothing! The word “preferred” is not found on this page.

So I’m confused. I’ve been in the business for nearly thirty years and I’m confused. God knows what Mom and Pop must think. If anybody can tell me a story about this fund, please let me know.

Update: Roger in the comments found the answer! The public parts of the fund were closed and folded into an IA Clarington Money-Market Fund. The private parts (!) continue as some kind of pooled fund for Leon Frazer clients.

JovFinancial Solutions Inc. (“JovFinancial”) and T.E. Investment Counsel Inc. (“TEIC” and together with JovFinancial, the “Managers”) are announcing a proposal to terminate certain series of Jov Leon Frazer Bond Fund, Jov Leon Frazer Dividend Fund and Jov Leon Frazer Preferred Equity Fund (the “Jov Leon Frazer Funds”) and Jov Prosperity Canadian Fixed Income Fund, Jov Prosperity Canadian Equity Fund, Jov Prosperity U.S. Equity Fund and Jov Prosperity International Equity Fund (the “Jov Prosperity Funds”) and, subject to regulatory approval, merge such terminating series with IA Clarington Money Market Fund. Managed accounts of Leon Frazer & Associates Inc. clients hold Series I units of the Jov Leon Frazer Funds, which will not be merged, and managed accounts of TEIC clients hold Series B and O units of the Jov Prosperity Funds, which will not be merged, and as a result such managed accounts will be unaffected by this merger.

Effective immediately, any Series A, F, O and T of the Jov Leon Frazer Funds are closed to new purchases. Series A, F and I of the Jov Prosperity Funds were closed to new purchases on January 6, 2012.

Subject to regulatory approval, the Managers propose that on or about January 23, 2015:
(a) Series A, F and O of the Jov Leon Frazer Funds will be merged with IA Clarington Money Market Fund, and securityholders thereof will receive units of Series A, F and O, respectively, of IA Clarington Money Market Fund on a dollar for dollar basis. Securityholders of Series T of Jov Leon Frazer Preferred Equity Fund will receive units of Series A of the IA Clarington Money Market Fund; and
(b) Series A, F and I of the Jov Prosperity Funds will be merged with IA Clarington Money Market Fund, and securityholders thereof will receive units of Series A, DF and I, respectively, of IA Clarington Money Market Fund on a dollar for dollar basis.

If regulatory approval for the mergers is not obtained, the affected series will be terminated.

It’s very surprising that this information is so obscure. Just a simple note and somewhat more explicit link on the fund’s web-page (which is linked from the JovFunds Products Page) would have saved a lot of aggravation. I will cheerfully admit that a draft of the press release quoted above is also linked on the products page … but not too obviously and Holy Smokes! If I find the fund name and click the word “Profile” right beside it, shouldn’t that be enough? And were they really so cheap that they had to shut down the “info@jovfunds.com” account, instead of putting in an auto-responder with a brief explanation?

Update, 2015-5-31: Actually, it appears that holders were cashed out:

JovFinancial Solutions Inc. and T.E. Investment Counsel Inc. Wednesday provided an update on their previously announced proposal to terminate certain series of several Jov Funds.

The affected funds are: Jov Leon Frazer Bond Fund; Jov Leon Frazer Dividend Fund; and Jov Leon Frazer Preferred Equity Fund (the Jov Leon Frazer Funds); and Jov Prosperity Canadian Fixed Income Fund; Jov Prosperity Canadian Equity Fund; Jov Prosperity U.S. Equity Fund; and Jov Prosperity International Equity Fund (the Jov Prosperity Funds).

Series A, F, O and T of the Jov Leon Frazer Funds were closed to new purchases on Oct. 23, 2014 and Series A, F and I of the Jov Prosperity Funds were closed to new purchases on Jan. 6, 2012.

On Oct. 23, 2014, the companies announced a proposal to merge the affected series with IA Clarington Money Market Fund on Jan. 23, 2015. However, the regulatory exemptions necessary to permit the issuance of units of the IA Clarington Money Market Fund have not been granted.

As a result, unitholders will receive cash proceeds on the termination of the affected series. In order to provide unitholders sufficient time to respond to this change, the companies have elected to defer the terminations until April 17.