The Canadian Investment Funds Standards Committee
was formed in January 1998 by Canada’s major mutual fund database and research firms with a self-imposed mandate to standardize the classifications of Canadian-domiciled mutual funds.
They have now released a new classification scheme of funds’ underlying investments and provided schematics of how funds may be categorized.
Preferreds and Convertible Preferreds are both considered to be equities. It is not clear to me whether a preferred that converts into common at a variable rate based on the market price is considered a convertible preferred, or whether this status is reserved for preferreds that convert into a fixed number of common and can therefore ‘trade off the stock’.
At any rate, I find the classification of preferred shares as equities by default to be more than just a little bit puzzling, and have sent them a query:
I note that preferred shares are considered to be equities by default, although you note that you may treat them as fixed income on an exception basis.
How did you arrive at the conclusion that this was the correct classification? Did you, for instance, perform a correlation analysis between historical returns preferred shares, equities and bonds?
On what basis will exceptions be considered?
We shall see!
Hat tip to Financial Webring for publicizing this development.