The fund was able to post superb performance in January, greatly in excess of its benchmark. In fact, all I need to do to have a great year is to break even for the next eleven months!
For clients, I must say that I am relieved that absolute return has finally joined relative return in the black.
| Returns to January 30, 2009 | |||
| Period | MAPF | Index | CPD according to Claymore |
| One Month | +10.45% | +3.98% | N/A% |
| Three Months | +17.34% | -1.22% | N/A% |
| One Year | +4.86% | -13.84% | N/A |
| Two Years (annualized) | +2.71% | -9.68% | |
| Three Years (annualized) | +3.66% | -5.26% | |
| Four Years (annualized) | +4.18% | -3.15% | |
| Five Years (annualized) | +5.63% | -1.65% | |
| Six Years (annualized) | +8.95% | 0.00% | |
| Seven Years (annualized) | +8.05% | +0.40% | |
| 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.
All I can say is … don’t expect this every month, folks! Extreme inefficiency in the preferred share market made trading highly profitable and returns were also enhanced by receipt of retraction proceeds from the split-shares WFS.PR.A and FFN.PR.A
When it works, it really, really works!
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 |
Sustainable Income |
| 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 |
| December, 2008 | 8.0464 | 9.24% | 0.992 | 9.166% | $0.7375 |
| January 2009 | 8.8875 | 8.17% | 1.008 | 8.105% | $0.7203 |
| 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. |
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As discussed in the post MAPF Portfolio Composition: January 2009, the fund has positions in splitShares, which complicate the calculation greatly. Since the yield is, by and large, higher than that of the perpetuals despite the fact that the term is limited, the sustainability of the calculated “sustainable yield” is suspect, as discussed in August.
Additionally, the calculated yield for the fixed-floater in the portfolio, BCE.PR.I, depends on the presumed value of Canada Prime (3.00%) and the percentage of Canada Prime paid on par value (100%); both of these figures may change. Prime did, in fact, change this month and the presumed future dividend payments for BCE.PR.I changed from $25 * 0.035 = 0.875 to $25 * 0.03 = 0.75. This effect accounted for the bulk of the decline in estimated sustainable income … but frankly, I’m happy that trading in the fund was effective in offsetting the negative effects on the calculation of reducing the holdings of high-yielding short-term instruments, the split shares.
However, if the entire portfolio except for the PerpetualDiscounts were to be sold and reinvested in these issues, the yield of the portfolio would be the 7.28% shown in the January 30 Portfolio Composition analysis (which is in excess of the 6.85% index yield on January 30). Given such reinvestment, the sustainable yield would be 8.8875 * 0.0728 = $0.6470, an increase from the $0.6027 derived by a similar calculation last month.
Different assumptions lead to different calculations, but the overall positive trend is apparent. I’m very pleased with the 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 is due to constant exploitation of trading anomalies.
The fixed-floater postion discussed last month remains – but is much more profitable than it was
| Post-Mortem on BCE.PR.I Purchase | ||||
| Date | BCE.PR.I | SLF.PR.E | BMO.PR.K | NA.PR.L |
| Nov. 28 | 17.00 | 13.60 | 16.75 | 15.00 |
| Dec. 22 | Bought 13.00 |
Sold 12.50 |
||
| Dec 23 | Bought 13.03 |
Sold 15.50 |
Sold 14.36 |
|
| Closing Bid Dec 31 |
13.50 | 15.18 | 18.51 | 15.58 |
| Closing Bid Jan. 30 |
15.80 | 15.48 | 19.58 | 17.66 |
| Dividend Effects December |
Earned $0.29 |
None | None | None |
| Dividend Effects January |
None | None | None | Missed $0.30 |
So, 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.
Very impressive and consistent out-performance against the index. Having incurred heavy losses on CPD, I just suscribed to your PrefLetter. MAPF looks tempting. However it has very high turnover. What is the estimated net sustainable income after deducting fees, expenses and commissions? What is the approximate percentage of pure eligible dividends out of its income distribution? Thank you.
Very impressive and consistent out-performance against the index.
Thank you!
What is the estimated net sustainable income after deducting fees, expenses and commissions?
Subject to my cautions about the estimation of this number, the estimated sustainable yield is 8.105%. Expenses are currently 0.50% and the highest fee rate is 1.00%, so the net sustainable yield is 6.605%, or $0.5870 per unit.
After commissions … well, that’s a tricky question! Commissions in 2008 totalled a little over 5% of the fund’s value, so sustainabile yield after commissions isn’t very much at all!
On the other hand, if we forbid the incurrance of any commissions at all, we are condemning the fund to index returns before fees and expenses. Successful fixed income investment over the long term is high turnover. Full Stop.
I will point out that investors are paying me 1% to exercise my judgement regarding trading. And the results show that over the life of the fund, my decisions regarding when and when not to incur trading expenses have worked out pretty well.
There are no guarantees for the future, of course. All I can say is that I’ll try! And I’ll also say that all commissions paid are to large brokerage firms at arm’s length. I receive no direct benefit from commissions, although I may own common or preferred shares in these TSX listed companies, directly or indirectly.
What is the approximate percentage of pure eligible dividends out of its income distribution?
There have never been any distributions of non-eligible dividends by the fund.
MAPF’s track record confirms your value added from trading. However as a retiree investor, I will need annual dividend income, though quarterly distributions is not necessary. If its net sustainable yield of 6.605% is reduced by 5% commission, CPD with 5.8% dividend maybe more suitable for retiree, (even though the fund’s return out-perform CPD over the last 7 years) ? Can I assume its one year return of 4.86% is net of transaction commissions?
The dividend yield of the fund will not be affected by commissions – commissions are applied to capital gains and losses.
You are correct about the returns. The one year return to January 31 of 4.86% is after transaction commissions and other fund expenses (almost entirely audit costs). It is, however, before fees.
You should be aware that the market can behave strangely around the time each issue goes ex-Dividend. Sometimes, the price rises strongly, as if the dividend was a huge amount. Sometimes the price does not rise at all, or even falls, as if the dividend were of no consequence.
The fund will react to these circumstances in an effort to maximize total return; it does not explicitly seek to strike any kind of balance between dividend income and capital gains. Thus, the quarterly dividend distribution can vary greatly – see the quarterly performance report which also reports the amount of each quarter’s distribution.
If a client requires a constant pay-out, I will discus the matter with him at the time of subscription. An estimate will be made of the sustainable yield and a quarterly payout chosen to reflect that yield. If the actual distribution is higher, the excess will be reinvested. If the actual distribution is lower than the required payout, units will be redeemed to make up the balance. The amount of the sustainable yield will be reviewed with the client at least annually.
I hope this helps. Please feel free to eMail me directly or call me at 416-604-4204 with any questions.