Recommends CPD

Skot Kortje of has published a piece in the Globe and Mail touting CPD that, sadly, shows more of the perils of slipshod research and technical analysis (“technical analysis” is its own pejoritive) than anything else:

Although smart investors will scour for premium preferred shares with a fine-toothed comb, looking for the most secure issues with the best yield, trading the general strength of this broad group of secured securities is more easily facilitated by exchange traded funds that allow for a diversified position. In Canada, the Claymore S&P/TSX Canadian Preferred Share ETF has been trading on the Toronto Stock Exchange since the spring of 2007

As has been mentioned here before, CPD no longer reflects the broad preferred share market; it is heavily overweight in FixedResets and lower-quality retractibles. An investor might prefer this asset mix, to be sure, but the implicit claim that CPD reflects the broad group of preferred shares is simply false.

As of the close last night, CPD had a weighting of 25% in OperatingRetractibles, which doesn’t reflect any broad group of preferred shares I’ve heard of lately. Its 19% weighting in issues rate Pfd-3(high) or lower doesn’t ring any bells either.

Currently yielding 4.9 per cent, CPD …

Technically true, if we care about Current Yield – which we shouldn’t. With over 50% of the portfolio in instruments – OperatingRetractibles and FixedResets – which have a Current Yield well in excess of their Yield-to-Worst, it should be clear that today’s Current Yield is not sustainable.

Nevertheless, as the banks go, so goes CPD.

Nonsense. The correlation of preferred shares with financial common equity is pretty low – about 0.2. It rises in times of financial stress – like August 1998 and November 2009 – but the correlations of a great many asset classes rises in times of financial stress. A much more defensible statement would be ‘As the corporate bond markets go, so goes CPD’.

None of this should be taken as implying that CPD is a bad investment. It can be very useful for many investors and presents its own selection of attributes with varying degrees of desirability … none of which are discussed in the article at issue.

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