MAPF Performance: October, 2008

The fund handsomely outperfomed its benchmark in October, but was dragged down by an unprecedented decline in preferred share prices. The immense volatility of the market is leading to most unusual trading opportunities.

The fund’s price at October 31 was $7.7247, after expenses, but before fees (which are billed individually to each client).

Returns to October 31, 2008
Period MAPF Index CPD
according to
One Month -5.67% -8.16% -7.21%
Three Months -3.27% -7.96% -7.68%
One Year -5.67% -12.19% -13.12%
Two Years (annualized) -4.37% -8.64%  
Three Years (annualized) -0.94% -4.28%  
Four Years (annualized) +0.86% -2.27%  
Five Years (annualized) +3.62% -0.74%  
Six Years (annualized) +7.11% +0.56%  
Seven Years (annualized) +5.89% +0.98%  
The Index is the BMO-CM “50”
CPD Returns are for the NAV and are after all fees and expenses.

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 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
June, 2007 9.3114 5.16% 1.03 5.01% 0.4665
September 9.1489 5.35% 0.98 5.46% 0.4995
December, 2007 9.0070 5.53% 0.942 5.87% 0.5288
March, 2008 8.8512 6.17% 1.047 5.89% 0.5216
June 8.3419 6.034% 0.952 6.338% $0.5287
September 8.1886 7.108% 0.969 7.335% $0.6006
October, 2008 7.7247 8.553% 0.961 8.900% $0.6875
NAVPU is shown after quarterly distributions.
“Portfolio YTW” includes cash (or margin borrowing), with an assumed interest rate of 0.00%
“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.
“Sustainable Income” is the best available estimate of the fund’s dividend income per unit, before fees and expenses.

The fund has positions in two “Split Share” preferreds – terribly out of fashion at this time and trading at yields higher than the perpetuals – which, as explained in August results in the calculation being rendered somewhat suspect. If these positions were sold – at the closing bid on 10/31 – and all cash reinvested in rest of the portfolio, the resultant portfolio would yield 7.19% and the estimated sustainable dividend per unit (before fees and expenses) would be $0.5554; significantly less than the figure calculated above, but still an increase from last month’s adjusted figure and continuing the long-term upward trend.

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

At some point – and I won’t guess when that time will be! – the market will cease its decline and, probably, return to its normal levels of between 100bp and 150bp above long term corporates, which in turn will return to more normal levels against long term Canadas. At the moment, however, people are scared, the market is sloppy and trading opportunities abound.

As has been noted, the fund maintains a credit quality superior to the index; outperformance is due to constant exploitation of trading anomalies.

2 Responses to “MAPF Performance: October, 2008”

  1. pugwash says:

    Now the ratio is below 1.5:1 and payments to the capital units are suspended, the monthly retraction option for the Class A WFS appears compelling.

    (I could not copy the relevant para from the prospectus since it is a PDF and failed to find the fund on Sedar to copy here – sorry still a newb)

    If the Class A retaraction is executed in large numbers it appears that it would suck a lot of the value out of the fund.

    Does this explain why WFS.PR.A price does not appear to be supported by the pref retraction feature?

    If there is a rush to the exits who gets trampled?

  2. jiHymas says:

    If there is a rush to the exits who gets trampled?

    Not the investors! Monthly retraction terms are such that the NAV of the units remaining after a retraction will increase, since the company will only pay out 96% of NAV per unit retracted. It is only on the annual concurrent retraction that they pay out full value.

    Does this explain why WFS.PR.A price does not appear to be supported by the pref retraction feature?

    I don’t think so. If the Class A shares are retracted, the company must either recirculate them (sell into the market at a price higher than their NAV) or go into the market to buy prefs.

    On June 30, according to the semi-annual financials, there were 12,810,906 units outstanding; the TSX reports that there are currently 12.753-million units outstanding. The difference is less than 58,000 units – presumed retracted using monthly retraction – so perhaps the reason why the prefs aren’t being supported is simply that not enough people are doing it!

    Oddly, the capital units are trading at a very small discount to their value … small enough that the arbitrage game isn’t really worth playing. It is only the prefs that are trading at a significant discount.

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