MAPF Portfolio Composition: October 2010

Turnover picked up slightly in October to 28%

Trades were, as ever, triggered by a desire to exploit transient mispricing in the preferred share market (which may be thought of as “selling liquidity”), rather than any particular view being taken on market direction, sectoral performance or credit anticipation.

MAPF Sectoral Analysis 2010-10-29
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 1.4% (+0.8) 6.00% 6.70
Interest Rearing 0% N/A N/A
PerpetualPremium 8.6% (+3.2) 5.83% 10.40
PerpetualDiscount 74.6% (-5.2) 5.54% 14.60
Fixed-Reset 10.2% (+2.0) 2.91% 3.14
Scraps (FixedReset) 3.6% (-0.4) 6.53% 12.87
Cash 1.6% (-0.4) 0.00% 0.00
Total 100% 5.25% 12.66
Totals and changes will not add precisely due to rounding. Bracketted figures represent change from September month-end. Cash is included in totals with duration and yield both equal to zero.

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.

Prices of PerpetualDiscounts increased during the month, as did implied volatility. The fund increased its position in near-par PerpetualDiscounts over the month.

Following last month’s performance report, analysis of the data using the Straight Perpetual Implied Volatility Calculator produces the following table:

Fits to Implied Volatility
Issuer 2010-10-29 2010-09-30
Yield Volatility Yield Volatility
PWF 4.40% 25% 5.35% 14%
CM 4.80% 17% 5.10% 16%
GWO 0.99% 35% 5.50% 12%

As discussed in the October edition of PrefLetter, the implied volatility calculated for GWO is ludicrously high and implies a ridiculous assessment of the probability distribution of future yields; now it appears that PWF issues are headed that way as well.

Graphs from the Straight Perpetual Volatility Calculator for October 29 are:

Click for Big

Click for Big

Click for Big

The yield pick-up for holding high-coupon Straights is such one should no longer automatically buy the deepest-discount issue in a series!

Credit distribution is:

MAPF Credit Analysis 2010-10-29
DBRS Rating Weighting
Pfd-1 0 (0)
Pfd-1(low) 64.6% (+5.3)
Pfd-2(high) 13.2% (-9.0)
Pfd-2 0 (0)
Pfd-2(low) 17.0% (+4.4)
Pfd-3(high) 3.6% (-0.4)
Cash 1.6% (-0.4)
Totals will not add precisely due to rounding. Bracketted figures represent change from September month-end.

The decline in holdings of issues rated Pfd-2(high) was due mainly to swaps out of MFC.PR.D:

MAPF October Swaps out of MFD.PR.D
27.49 27.76 28.16 27.81
10/6 Sold
10/7 Sold
27.84 27.60 27.95 27.62
Dividends   10/22
This table attempts to present fairly a simplified summary of a sequence of trades. Full disclosure of actual trades, prices and commissions will be made at the time of publication of the 2010 Financial Statements.

Liquidity Distribution is:

MAPF Liquidity Analysis 2010-10-29
Average Daily Trading Weighting
<$50,000 0.0% (0)
$50,000 – $100,000 12.9 (+3.9)
$100,000 – $200,000 24.2% (+4.0)
$200,000 – $300,000 20.0% (-3.6)
>$300,000 41.2% (-3.9)
Cash 1.6% (-0.4)
Totals will not add precisely due to rounding. Bracketted figures represent change from September 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) and those who subscribe for $150,000+. 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) as of August 31, 2010, and published in the September, 2010, PrefLetter. When comparing CPD and MAPF:

  • MAPF credit quality is better
  • MAPF liquidity is a higher
  • MAPF Yield is higher
  • Weightings in
    • MAPF is much more exposed to PerpetualDiscounts
    • MAPF is much less exposed to Operating Retractibles
    • MAPF is slightly more exposed to SplitShares
    • MAPF is less exposed to FixFloat / Floater / Ratchet
    • MAPF weighting in FixedResets is much lower

One Response to “MAPF Portfolio Composition: October 2010”

  1. […] PrefBlog Canadian Preferred Shares – Data and Discussion « MAPF Portfolio Composition: October 2010 […]

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