MAPF Portfolio Composition : October 31, 2007

There was heavy trading in October.

MAPF Sectoral Analysis 2007-10-31
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 19% (+6) 5.51% 4.53 
Interest Rearing 0% N/A N/A
PerpetualPremium 0% (-42) N/A N/A 
PerpetualDiscount 81% (+36) 5.75% 14.33 
Scraps 0% N/A N/A
Cash 0% 0.00% 0.00
Total 100% 5.71% 12.46
Totals will not add precisely due to rounding.
Bracketted figures represent change from September month-end.

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.), which doesn’t make much of a difference this month. 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.

The shift from PerpetualPremium issues into PerpetualDiscounts was very dramatic, but I must stress that this was not done – and is never done – as a market call on the overall direction of the market. During the month it appeared that there were dramatic undervaluations in specific issues in the PerpetualDiscount sector; in order to buy them, something had to get sold!

It’s always useful to do a post-mortem on trades. The following tables are as accurate as I can make them, but I will stress that the trades are rarely precisely cash neutral. If, for instance, I have bought half the number I want of a particular issue at 21.00 during the day, I will not lift an offer at 21.50 just to complete the buying programme! Maybe there is something else that’s attractive on offer; maybe I’ll just keep the cash exposure overnight and put in another bid the next day. It’s important to avoid being too mechanical when trading in a relatively thin market such as preferred shares.

Anyway, here are the basic trades involving the sale of issues that were “PerpetualPremiums” as of 9/28, as well as I can disentangle them!

Issue 9/28 Trade 10/31
 PWF.PR.I  25.73 25.73+0.375  25.46 
 PIC.PR.A  15.75 15.66  15.25+0.21 
Issue 9/28 Trade 10/31
 NA.PR.K 25.30  24.98+0.37  25.03 
 NA.PR.L 22.78  21.44  21.00 
Issue 9/28 Trade 10/31
 NA.PR.K 25.30  24.84+0.37  25.03 
 RY.PR.G 21.84  21.15  20.51+0.28125 
Issue 9/28 Trade 10/31
POW.PR.C  25.15  24.95  24.93 
 RY.PR.F 21.81  21.09  20.31+0.278125 
Issue 9/28 Trade 10/31
 POW.PR.C 25.15  24.54  24.93 
 RY.PR.D 22.20  20.65  20.51 
The upper issue was sold, the lower issue bought. The number added to the trade price of the issue sold is the dividend earned between 9/28 and trade date; the number added to the 10/31 price of the issue bought is the dividend earned between the trade date and 10/31

It should be noted that I am reporting only the trades out of securities held in the  PerpetualPremium sector as of last month end; and at that, there are a few scrappy pieces missing. Full disclosure of all trades is made regularly; the full reports are published on the fund’s main page together with the annual and semi-annual reports.

The above tables make the trend of the portfolio during the month fairly clear:

  • PerpetualDiscounts dived
  • PerpetualPremiums as a group were cushioned from the blow (as readers of Perpetual Hockey Sticks will have expected)
  • The PerpetualPremiums in the portfolio actually outperformed their benchmark during the holding period
  • When the PerpetualDiscounts had reached a large discount relative to the premiums, the trades were made
  • The PerpetualDiscounts kept falling anyway.

A sad story, but one familiar to most value investors: there is usually a lot more “noise” in the marketplace than “signal”, but occasionally some presumed noise can actually represent a trend. And such was the case this time. 

Credit distribution is:

MAPF Credit Analysis 2007-10-31
DBRS Rating Weighting
Pfd-1 39% (+20)
Pfd-1(low) 17% (-19)
Pfd-2(high) 15% (-3)
Pfd-2 13% (+1)
Pfd-2(low) 16% (+1)
Cash 0%
Totals will not add precisely due to rounding
Bracketted figures represent change from September month-end

The fund does not set any targets for overall credit quality; trades are executed one by one. Variances in overall credit will be constant as opportunistic trades are executed.
Liquidity Distribution is:

MAPF Liquidity Analysis 2007-10-31
Average Daily Trading Weighting
<$50,000 1% (0)
$50,000 – $100,000 0% (-28)
$100,000 – $200,000 50% (+12)
$200,000 – $300,000 26% (+20)
>$300,000 23% (-4)
Cash 0%
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 on the fund’s web page. 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.

I’m very happy with the portfolio as it now stands. Credit quality is very high, as is liquidity, but yields are well in excess of benchmarks anyway. The positions should do very well as the situation normalizes.

A discussion of October’s performance will be posted prior to November 5.

2 Responses to “MAPF Portfolio Composition : October 31, 2007”

  1. […] The October returns are disappointing. As has been stated in the post regarding portfolio composition, the fund made a major move into the PerpetualDiscount sector during the course of the month. The sector looked thoroughly undervalued at the time of the trades … but it just kept on going down. The ghastly performance of the PerpetualDiscount sector has been discussed elsewhere. […]

  2. […] That’s a difference of nearly 2.2-million units; at $21 each, that means that there was selling pressure in excess of $40-million hitting the market in the last half of October … readers may know that the PerpetualDiscount index fell about 2.5% in the latter half of October … and the fund made an unfortunately early shift into this sector at that time. […]

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