Trading eased off a little in March, with portfolio turnover of about 80%, in a market notable for its volatility – PerpetualDiscounts were down 5.28% at the nadir on March 10, but recovered to post a return of +1.05% for the month. There was continued huge issuance of Fixed-Resets during the month, with over $1.2-billion hitting the streets.
Trades were, as ever, triggered by a desire to exploit transient mispricing in the preferred share market (which may the thought of as “selling liquidity”), rather than any particular view being taken on market direction, sectoral performance or credit anticipation.
| MAPF Sectoral Analysis 2009-3-31 | |||
| 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 | 9.7% (-0.6) | 15.86% | 6.56 |
| Interest Rearing | 0% | N/A | N/A |
| PerpetualPremium | 0.0% | N/A | N/A |
| PerpetualDiscount | 73.8% (+1.0) | 7.60% | 12.03 |
| Fixed-Reset | 10.0% (+0.7) | 6.39% | 13.28 |
| Scraps (FixFloat) | 1.6% (-2.6) | 6.53% | 14.74 |
| Scraps (OpRet) | 3.7% (-0.4) | 17.67% | 5.69 |
| Scraps (SplitShare) | 0.5% (+0.2) | 6.40% | 4.35 |
| Cash | +0.5% (+1.5) | 0.00% | 0.00 |
| Total | 100% | 8.60% | 11.23 |
| Totals and changes will not add precisely due to rounding. Bracketted figures represent change from February 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.
Credit distribution is:
| MAPF Credit Analysis 2009-3-31 | |
| DBRS Rating | Weighting |
| Pfd-1 | 49.9% (+17.2) |
| Pfd-1(low) | 16.5% (-14.8) |
| Pfd-2(high) | 8.9% (-0.4) |
| Pfd-2 | 0% (0) |
| Pfd-2(low) | 18.7% (-0.4) |
| Pfd-3(high) | 5.3% (-3.0) |
| Pfd-3(low) | 0.0% (-0.3) |
| Cash | +0.5% (+1.5) |
| Totals will not add precisely due to rounding. Bracketted figures represent change from February 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. The overall credit quality of the portfolio is now superior to the credit quality of CPD at August month-end (when adjusted for the downgrade of BCE).
Claymore provides the following ratings breakdown:
| Ratings Breakdown as of 12/31/08 |
|
| Pfd-1 | 61.15% |
| Pfd-2 | 23.26% |
| Pfd-3 | 15.60% |
Two events have occurred since the Dec. 31 calculation date of CPD’s credit quality:
- Rebalancing of TXPR index with only a slight change in quality
- Downgrade of BCE: CPD holds about 4.3% of its portfolio in BCE issues
As was the case with the February Composition Report, the changes in MAPF’s credit quality defy simple explanation; there were simply too many trades to allow for one or two trades to be highlighted as the source of the change. In sum however, the major changes were:
- In the FixedReset Sector, IAG.PR.C (Pfd-2(high)) was sold and BMO.PR.O (Pfd-1) was purchased,
- In the PerpetualDiscounts sector, several SLF issues (Pfd-1(low)) were sold and CU.PR.B (Pfd-2(high)) was purchased.
A plot of the Yields-to-Worst of SLF.PR.A (the most liquid SLF issue) and CU.PR.B is instructive. The peak in SunLife yields was enormous – and sadly, the fund got in too early to realize the full benefit of the return to more normal levels, having topped up its position in the week of February 13-17. However, the need to act quickly is well illustrated by CU.PR.B, for which it appears that a large sale order was executed in pieces over a two week period, driving the pre-tax bid-YTW to an elevated plateau. The fund was able to take advantage of the market impact of this trade, supplying liquidity to the seller at what appears – so far! – to have been a very nice price.
Trade details will be published with the semi-annual report to unitholders, due in July.
Liquidity Distribution is:
| MAPF Liquidity Analysis 2009-3-31 | |
| Average Daily Trading | Weighting |
| <$50,000 | 0.5% (0) |
| $50,000 – $100,000 | 37.6% (+18.2) |
| $100,000 – $200,000 | 14.8% (-1.9) |
| $200,000 – $300,000 | 23.8% (-7.4) |
| >$300,000 | 22.6% (-10.6) |
| Cash | +0.5% (+1.5) |
| Totals will not add precisely due to rounding. Bracketted figures represent change from February 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. 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 29. When comparing CPD and MAPF:
- MAPF credit quality is better
- MAPF liquidity is similar
- MAPF Yield is higher
- Weightings in
- MAPF weighting in PerpetualDiscounts is higher
- MAPF is much less exposed to Operating Retractibles
- MAPF is more exposed to SplitShares
- FixFloat / Floater / Ratchet is similar
- MAPF is slightly less exposed to Fixed-Resets
[…] be sold and reinvested in these issues, the yield of the portfolio would be the 7.60% shown in the March 31 Portfolio Composition analysis (which is in excess of the 7.29% index yield on March 31). Given such reinvestment, the sustainable […]