November 10, 2017

November 10th, 2017
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.3330 % 2,431.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.3330 % 4,461.8
Floater 3.72 % 3.95 % 96,428 17.49 3 0.3330 % 2,571.3
OpRet 0.00 % 0.00 % 0 0.00 0 0.1904 % 3,092.0
SplitShare 4.72 % 4.68 % 53,206 4.31 6 0.1904 % 3,692.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.1904 % 2,881.1
Perpetual-Premium 5.35 % 1.68 % 46,350 0.14 20 -0.0726 % 2,837.1
Perpetual-Discount 5.23 % 5.24 % 73,797 15.06 15 -0.0596 % 3,001.6
FixedReset 4.23 % 4.22 % 146,441 4.33 99 0.0311 % 2,491.1
Deemed-Retractible 5.03 % 5.36 % 93,328 5.94 30 0.0794 % 2,935.8
FloatingReset 2.80 % 2.92 % 44,511 3.98 8 -0.0925 % 2,671.0
Performance Highlights
Issue Index Change Notes
SLF.PR.G FixedReset -1.55 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.41
Bid-YTW : 7.65 %
CU.PR.F Perpetual-Discount -1.18 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-10
Maturity Price : 21.48
Evaluated at bid price : 21.76
Bid-YTW : 5.17 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.J FixedReset 156,600 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.87
Bid-YTW : 3.58 %
BMO.PR.S FixedReset 114,933 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-10
Maturity Price : 23.52
Evaluated at bid price : 23.93
Bid-YTW : 4.16 %
TRP.PR.K FixedReset 103,437 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.45
Bid-YTW : 3.75 %
CM.PR.R FixedReset 88,072 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.50
Bid-YTW : 3.99 %
BMO.PR.T FixedReset 79,225 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-10
Maturity Price : 22.73
Evaluated at bid price : 23.10
Bid-YTW : 4.22 %
NA.PR.C FixedReset 72,930 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-11-15
Maturity Price : 25.00
Evaluated at bid price : 25.63
Bid-YTW : 3.90 %
There were 18 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
MFC.PR.H FixedReset Quote: 25.30 – 25.60
Spot Rate : 0.3000
Average : 0.1769

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-19
Maturity Price : 25.00
Evaluated at bid price : 25.30
Bid-YTW : 4.69 %

TD.PF.E FixedReset Quote: 24.61 – 24.87
Spot Rate : 0.2600
Average : 0.1752

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-10-31
Maturity Price : 25.00
Evaluated at bid price : 24.61
Bid-YTW : 4.32 %

W.PR.H Perpetual-Premium Quote: 25.07 – 25.33
Spot Rate : 0.2600
Average : 0.1833

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-10
Maturity Price : 24.84
Evaluated at bid price : 25.07
Bid-YTW : 5.54 %

IFC.PR.F Deemed-Retractible Quote: 25.00 – 25.21
Spot Rate : 0.2100
Average : 0.1335

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.00
Bid-YTW : 5.55 %

PVS.PR.B SplitShare Quote: 25.27 – 25.55
Spot Rate : 0.2800
Average : 0.2060

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 25.27
Bid-YTW : 4.10 %

CU.PR.F Perpetual-Discount Quote: 21.76 – 22.12
Spot Rate : 0.3600
Average : 0.2881

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-10
Maturity Price : 21.48
Evaluated at bid price : 21.76
Bid-YTW : 5.17 %

November 9, 2017

November 9th, 2017
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.1773 % 2,423.5
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1773 % 4,446.9
Floater 3.73 % 3.97 % 95,770 17.46 3 -0.1773 % 2,562.8
OpRet 0.00 % 0.00 % 0 0.00 0 0.0197 % 3,086.2
SplitShare 4.73 % 4.73 % 54,070 4.31 6 0.0197 % 3,685.5
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0197 % 2,875.6
Perpetual-Premium 5.35 % 0.34 % 46,982 0.09 20 0.0020 % 2,839.2
Perpetual-Discount 5.23 % 5.24 % 74,331 15.07 15 -0.1531 % 3,003.4
FixedReset 4.23 % 4.16 % 145,208 4.33 99 0.0093 % 2,490.3
Deemed-Retractible 5.03 % 5.33 % 96,997 5.95 30 0.0027 % 2,933.5
FloatingReset 2.75 % 2.81 % 45,633 3.99 8 -0.0054 % 2,673.5
Performance Highlights
Issue Index Change Notes
PWF.PR.T FixedReset -1.82 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-09
Maturity Price : 23.25
Evaluated at bid price : 23.74
Bid-YTW : 4.22 %
CU.PR.G Perpetual-Discount -1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-09
Maturity Price : 21.55
Evaluated at bid price : 21.87
Bid-YTW : 5.14 %
HSE.PR.A FixedReset -1.11 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-09
Maturity Price : 17.80
Evaluated at bid price : 17.80
Bid-YTW : 4.51 %
SLF.PR.G FixedReset 1.63 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.70
Bid-YTW : 7.36 %
TRP.PR.G FixedReset 1.68 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-09
Maturity Price : 23.06
Evaluated at bid price : 24.20
Bid-YTW : 4.61 %
Volume Highlights
Issue Index Shares
Traded
Notes
PWF.PR.T FixedReset 435,250 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-09
Maturity Price : 23.25
Evaluated at bid price : 23.74
Bid-YTW : 4.22 %
HSB.PR.D Deemed-Retractible 320,500 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-09
Maturity Price : 25.00
Evaluated at bid price : 25.24
Bid-YTW : -0.02 %
RY.PR.J FixedReset 266,300 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-05-24
Maturity Price : 25.00
Evaluated at bid price : 24.63
Bid-YTW : 4.18 %
NA.PR.Q FixedReset 200,100 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-15
Maturity Price : 25.00
Evaluated at bid price : 24.99
Bid-YTW : 3.60 %
MFC.PR.R FixedReset 71,509 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.35
Bid-YTW : 3.69 %
GWO.PR.T Deemed-Retractible 69,500 YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.92
Bid-YTW : 5.33 %
There were 25 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BAM.PF.J FixedReset Quote: 25.67 – 26.67
Spot Rate : 1.0000
Average : 0.5563

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-12-31
Maturity Price : 25.00
Evaluated at bid price : 25.67
Bid-YTW : 4.35 %

TRP.PR.G FixedReset Quote: 24.20 – 24.98
Spot Rate : 0.7800
Average : 0.5485

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-09
Maturity Price : 23.06
Evaluated at bid price : 24.20
Bid-YTW : 4.61 %

MFC.PR.J FixedReset Quote: 24.62 – 24.94
Spot Rate : 0.3200
Average : 0.1956

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 24.62
Bid-YTW : 4.60 %

CU.PR.G Perpetual-Discount Quote: 21.87 – 22.19
Spot Rate : 0.3200
Average : 0.2304

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-09
Maturity Price : 21.55
Evaluated at bid price : 21.87
Bid-YTW : 5.14 %

PWF.PR.E Perpetual-Premium Quote: 25.35 – 25.60
Spot Rate : 0.2500
Average : 0.1631

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-09
Maturity Price : 25.00
Evaluated at bid price : 25.35
Bid-YTW : -9.56 %

CU.PR.D Perpetual-Discount Quote: 24.33 – 24.60
Spot Rate : 0.2700
Average : 0.1839

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-09
Maturity Price : 23.86
Evaluated at bid price : 24.33
Bid-YTW : 5.02 %

November 8, 2017

November 8th, 2017

PerpetualDiscounts now yield 5.24%, equivalent to 6.81% interest at the standard equivalency factor of 1.3x. Long corporates now yield a little over 3.75%, so the pre-tax interest-equivalent spread is now about 305bp, a slight (and perhaps spurious) widening from the 300bp reported November 1.

HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.2444 % 2,427.8
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.2444 % 4,454.8
Floater 3.72 % 3.96 % 96,873 17.47 3 0.2444 % 2,567.3
OpRet 0.00 % 0.00 % 0 0.00 0 0.0723 % 3,085.5
SplitShare 4.73 % 4.76 % 54,613 4.31 6 0.0723 % 3,684.8
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0723 % 2,875.0
Perpetual-Premium 5.35 % 0.16 % 47,420 0.09 20 0.1135 % 2,839.1
Perpetual-Discount 5.22 % 5.24 % 74,829 15.06 15 0.2138 % 3,008.0
FixedReset 4.23 % 4.17 % 143,192 4.33 99 0.0237 % 2,490.1
Deemed-Retractible 5.03 % 5.34 % 98,221 5.95 30 0.1261 % 2,933.4
FloatingReset 2.75 % 2.78 % 47,309 4.00 8 0.0654 % 2,673.7
Performance Highlights
Issue Index Change Notes
MFC.PR.B Deemed-Retractible 1.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.10
Bid-YTW : 6.11 %
GWO.PR.R Deemed-Retractible 1.11 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.76
Bid-YTW : 5.77 %
MFC.PR.C Deemed-Retractible 1.14 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.25
Bid-YTW : 6.58 %
CU.PR.G Perpetual-Discount 1.27 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-08
Maturity Price : 21.86
Evaluated at bid price : 22.15
Bid-YTW : 5.07 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.E FixedReset 195,976 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-08
Maturity Price : 22.67
Evaluated at bid price : 23.00
Bid-YTW : 4.36 %
BMO.PR.W FixedReset 108,550 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-08
Maturity Price : 22.84
Evaluated at bid price : 23.17
Bid-YTW : 4.13 %
RY.PR.H FixedReset 90,940 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-08
Maturity Price : 23.24
Evaluated at bid price : 23.61
Bid-YTW : 4.10 %
NA.PR.C FixedReset 77,557 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-11-15
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : 3.97 %
BMO.PR.C FixedReset 74,729 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-25
Maturity Price : 25.00
Evaluated at bid price : 25.55
Bid-YTW : 3.94 %
BMO.PR.S FixedReset 70,796 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-08
Maturity Price : 23.54
Evaluated at bid price : 23.95
Bid-YTW : 4.12 %
There were 26 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BNS.PR.Y FixedReset Quote: 23.15 – 23.49
Spot Rate : 0.3400
Average : 0.1930

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.15
Bid-YTW : 4.08 %

PWF.PR.A Floater Quote: 16.60 – 17.00
Spot Rate : 0.4000
Average : 0.2874

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-08
Maturity Price : 16.60
Evaluated at bid price : 16.60
Bid-YTW : 3.37 %

TRP.PR.E FixedReset Quote: 23.00 – 23.32
Spot Rate : 0.3200
Average : 0.2237

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-08
Maturity Price : 22.67
Evaluated at bid price : 23.00
Bid-YTW : 4.36 %

CM.PR.Q FixedReset Quote: 24.48 – 24.73
Spot Rate : 0.2500
Average : 0.1810

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-08
Maturity Price : 23.23
Evaluated at bid price : 24.48
Bid-YTW : 4.33 %

PVS.PR.B SplitShare Quote: 25.26 – 25.52
Spot Rate : 0.2600
Average : 0.1961

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : 4.11 %

BNS.PR.R FixedReset Quote: 25.10 – 25.30
Spot Rate : 0.2000
Average : 0.1453

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 25.10
Bid-YTW : 3.53 %

FTN.PR.A To Get Bigger – Again!

November 7th, 2017

Quadravest has announced:

Financial 15 Split Corp. (the “Company”) is pleased to announce it will undertake an offering of Preferred Shares and Class A Shares of the Company. The offering will be co-led by National Bank Financial Inc., CIBC Capital Markets, Scotia Capital Inc., and RBC Capital Markets and will also include BMO Capital Markets, GMP Securities L.P., Canaccord Genuity Corp., Industrial Alliance Securities Inc., Raymond James, Echelon Wealth Partners, Mackie Research Capital Corporation, Desjardins Securities Inc., and Manulife Securities Incorporated.

The Preferred Shares will be offered at a price of $9.90 per Preferred Share to yield 5.30% and the Class A Shares will be offered at a price of $10.50 per Class A Share to yield 14.40%.

The closing price on the TSX of each of the Preferred Shares and the Class A Shares on November 6, 2017 was $10.08 and $10.70, respectively.

Since inception of the Company, the aggregate dividends declared on the Preferred Shares have been $7.33 per share and the aggregate dividends paid on the Class A Shares have been $17.14 per share, for a combined total of $24.47. All distributions to date have been made in tax advantage eligible Canadian dividends or capital gains dividends.

The net proceeds of the offering will be used by the Company to invest in an actively managed, high quality portfolio consisting of 15 financial services companies made up of Canadian and U.S. issuers as follows:

Bank of Montreal National Bank of Canada Bank of America Corp.
The Bank of Nova Scotia Manulife Financial Corporation Citigroup Inc.
Canadian Imperial Bank of Commerce Sun Life Financial Services of Canada Inc. Goldman Sachs Group Inc.
Royal Bank of Canada Great-West Lifeco Inc. JP Morgan Chase & Co.
The Toronto-Dominion Bank CI Financial Corp. Wells Fargo & Co.

The Company’s investment objectives are:
Preferred Shares:
i. to provide holders of the Preferred Shares with fixed, cumulative preferential monthly cash dividends currently in the amount of 5.25% annually, to be set by the Board of Directors annually subject to a minimum of 5.25% until 2020; and
ii. on or about the termination date, currently December 1, 2020 (subject to further 5 year extensions thereafter), to pay the holders of the Preferred Shares $10.00 per Preferred Share.

Class A Shares:
i. to provide holders of the Class A Shares with regular monthly cash dividends in an amount to be determined by the Board of the Directors; and
ii. to permit holders to participate in all growth in the net asset value of the Company above $10 per Unit, by paying holders on or about the termination date of December 1, 2020 (subject to further 5 year extensions thereafter) such amounts as remain in the Company after paying $10 per Preferred Share.

The sales period of this overnight offering will end at 9:00 a.m. EST on November 8, 2017. The offering is expected to close on or about November 15, 2017 and is subject to certain closing conditions including approval by the TSX.

So the Whole Units are being flogged for $20.40, not bad when you consider that the Whole Unit NAVPU was 17.95 as of October 31. It’s a lovely business when it works!

This offering comes hard on the heels of their September, 2017, offering which raised 79.1-million

I am a little surprised that the summary of investment objectives given in press release did not mention the one year dividend boost to 5.50% for the preferreds that was recently announced.

There’s a thread on Financial Webring Forum which has attracted the attention of one big fan who is putting money into these things, although not directly. I admit, I cannot think of a reason for buying the capital units at such a large premium over intrinsic value other than a belief that the distributions will go on forever … in which case an investor would be much better off buying the underlying issues on margin.

Update, 2017-11-8: The offering was quite successful:

Financial 15 Split Corp. (the “Company”) is pleased to announce it has completed the overnight marketing of up to 5,361,000 Preferred Shares and up to 5,361,000 Class A Shares of the Company. The total proceeds of the offering are expected to be approximately $109.4 million.

November 7, 2017

November 7th, 2017
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.1331 % 2,421.9
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1331 % 4,444.0
Floater 3.73 % 3.96 % 93,301 17.47 3 -0.1331 % 2,561.1
OpRet 0.00 % 0.00 % 0 0.00 0 0.0592 % 3,083.3
SplitShare 4.73 % 4.73 % 56,866 4.31 6 0.0592 % 3,682.1
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0592 % 2,873.0
Perpetual-Premium 5.35 % 0.15 % 47,866 0.15 20 0.0609 % 2,835.9
Perpetual-Discount 5.21 % 5.23 % 74,121 15.06 15 0.0907 % 3,001.6
FixedReset 4.23 % 4.15 % 145,022 4.45 99 0.0859 % 2,489.5
Deemed-Retractible 5.04 % 5.37 % 94,905 5.95 30 0.0082 % 2,929.7
FloatingReset 2.75 % 2.92 % 47,836 4.00 8 -0.0218 % 2,671.9
Performance Highlights
Issue Index Change Notes
SLF.PR.G FixedReset 1.04 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.45
Bid-YTW : 7.57 %
PWF.PR.P FixedReset 1.26 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-07
Maturity Price : 17.65
Evaluated at bid price : 17.65
Bid-YTW : 4.38 %
HSE.PR.A FixedReset 2.86 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-07
Maturity Price : 18.00
Evaluated at bid price : 18.00
Bid-YTW : 4.46 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSB.PR.C Deemed-Retractible 221,540 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-07
Maturity Price : 25.00
Evaluated at bid price : 25.26
Bid-YTW : -1.09 %
TD.PF.E FixedReset 132,700 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2020-10-31
Maturity Price : 25.00
Evaluated at bid price : 24.75
Bid-YTW : 4.10 %
TRP.PR.K FixedReset 113,400 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.46
Bid-YTW : 3.74 %
BAM.PF.I FixedReset 112,110 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 26.25
Bid-YTW : 3.71 %
TRP.PR.J FixedReset 102,700 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.80
Bid-YTW : 3.66 %
TD.PF.A FixedReset 85,100 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-07
Maturity Price : 23.26
Evaluated at bid price : 23.60
Bid-YTW : 4.10 %
There were 22 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
PVS.PR.F SplitShare Quote: 25.29 – 26.00
Spot Rate : 0.7100
Average : 0.4028

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2024-09-30
Maturity Price : 25.00
Evaluated at bid price : 25.29
Bid-YTW : 4.73 %

GWO.PR.N FixedReset Quote: 18.41 – 18.82
Spot Rate : 0.4100
Average : 0.2886

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 18.41
Bid-YTW : 7.38 %

MFC.PR.O FixedReset Quote: 27.01 – 27.30
Spot Rate : 0.2900
Average : 0.1960

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-06-19
Maturity Price : 25.00
Evaluated at bid price : 27.01
Bid-YTW : 3.47 %

BAM.PF.D Perpetual-Discount Quote: 22.68 – 23.00
Spot Rate : 0.3200
Average : 0.2266

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-07
Maturity Price : 22.37
Evaluated at bid price : 22.68
Bid-YTW : 5.46 %

MFC.PR.G FixedReset Quote: 24.60 – 24.99
Spot Rate : 0.3900
Average : 0.2988

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-12-19
Maturity Price : 25.00
Evaluated at bid price : 24.60
Bid-YTW : 4.48 %

CCS.PR.C Deemed-Retractible Quote: 23.80 – 24.31
Spot Rate : 0.5100
Average : 0.4370

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.80
Bid-YTW : 5.95 %

HSB.PR.C & HSB.PR.D To Be Redeemed

November 6th, 2017

HSBC Bank Canada has announced (2017-11-6):

its intention to redeem all of its issued and outstanding Non-Cumulative Redeemable Class 1 Preferred Shares Series C (“Series C Preferred Shares”) and Non-Cumulative Class 1 Preferred Shares Series D (“Series D Preferred Shares”) in accordance with their terms, on 31 December 2017, for a cash redemption price of $25.00 per share.

There are 7,000,000 Series C Preferred Shares and 7,000,000 Series D Preferred Shares outstanding, representing $350,000,000 of capital. The redemption will be financed out of the general corporate funds of HSBC Bank Canada.

Separately from the redemption price, the final quarterly dividend of $0.31875 and $0.3125 for each of the Series C Preferred Shares and Series D Preferred Shares will be paid in accordance with their terms in the usual manner on 31 December 2017 or the first business day thereafter to shareholders of record on 15 December 2017.

All the issued and outstanding Series C Preferred Shares and Series D Preferred Shares will be cancelled following their redemption.

Both of these issues have been around for a while – HSB.PR.C since 2005-4-19 and HSB.PR.D since 2005-11-9. Both were Straight Perpetuals and have been treated as DeemedRetractibles since OSFI brought in the NVCC rules. HSB.PR.C paid 1.275, or 5.10%; HSB.PR.D paid 1.25, or 5.00%.

November 6, 2017

November 6th, 2017
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 0.5354 % 2,425.1
FixedFloater 0.00 % 0.00 % 0 0.00 0 0.5354 % 4,449.9
Floater 3.73 % 3.95 % 92,226 17.51 3 0.5354 % 2,564.5
OpRet 0.00 % 0.00 % 0 0.00 0 -0.0263 % 3,081.5
SplitShare 4.73 % 4.78 % 58,923 4.31 6 -0.0263 % 3,680.0
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 -0.0263 % 2,871.3
Perpetual-Premium 5.36 % -0.03 % 48,631 0.15 20 0.0609 % 2,834.2
Perpetual-Discount 5.22 % 5.24 % 73,439 15.07 15 -0.0340 % 2,998.9
FixedReset 4.23 % 4.15 % 144,859 4.49 99 0.0480 % 2,487.4
Deemed-Retractible 5.04 % 5.41 % 95,736 5.95 30 0.0947 % 2,929.4
FloatingReset 2.75 % 2.79 % 47,497 4.00 8 -0.0381 % 2,672.5
Performance Highlights
Issue Index Change Notes
HSE.PR.A FixedReset -2.56 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-06
Maturity Price : 17.50
Evaluated at bid price : 17.50
Bid-YTW : 4.58 %
BAM.PR.X FixedReset -1.12 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-06
Maturity Price : 17.70
Evaluated at bid price : 17.70
Bid-YTW : 4.65 %
BMO.PR.Q FixedReset 2.05 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.45
Bid-YTW : 4.57 %
Volume Highlights
Issue Index Shares
Traded
Notes
HSB.PR.C Deemed-Retractible 245,258 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-06
Maturity Price : 25.00
Evaluated at bid price : 25.25
Bid-YTW : -0.78 %
TRP.PR.E FixedReset 176,575 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-06
Maturity Price : 22.79
Evaluated at bid price : 23.13
Bid-YTW : 4.33 %
CM.PR.P FixedReset 154,865 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-06
Maturity Price : 23.20
Evaluated at bid price : 23.50
Bid-YTW : 4.10 %
RY.PR.J FixedReset 135,760 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-06
Maturity Price : 23.27
Evaluated at bid price : 24.50
Bid-YTW : 4.28 %
TRP.PR.K FixedReset 80,947 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.40
Bid-YTW : 3.50 %
TRP.PR.J FixedReset 78,300 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2021-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.81
Bid-YTW : 3.24 %
There were 16 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
TRP.PR.G FixedReset Quote: 24.13 – 24.78
Spot Rate : 0.6500
Average : 0.4277

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-06
Maturity Price : 23.02
Evaluated at bid price : 24.13
Bid-YTW : 4.56 %

HSE.PR.C FixedReset Quote: 24.48 – 25.00
Spot Rate : 0.5200
Average : 0.3279

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-06
Maturity Price : 23.34
Evaluated at bid price : 24.48
Bid-YTW : 4.81 %

CCS.PR.C Deemed-Retractible Quote: 23.83 – 24.34
Spot Rate : 0.5100
Average : 0.3569

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2025-01-31
Maturity Price : 25.00
Evaluated at bid price : 23.83
Bid-YTW : 5.93 %

TRP.PR.F FloatingReset Quote: 19.54 – 19.99
Spot Rate : 0.4500
Average : 0.3379

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-06
Maturity Price : 19.54
Evaluated at bid price : 19.54
Bid-YTW : 3.64 %

PVS.PR.B SplitShare Quote: 25.20 – 25.51
Spot Rate : 0.3100
Average : 0.2095

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.30 %

MFC.PR.R FixedReset Quote: 26.17 – 26.45
Spot Rate : 0.2800
Average : 0.1896

YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-19
Maturity Price : 25.00
Evaluated at bid price : 26.17
Bid-YTW : 3.86 %

MAPF Performance: October, 2017

November 3rd, 2017

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close October 31, 2017, was $10.0488.

Returns to October 31, 2017
Period MAPF BMO-CM “50” Preferred Share Index TXPR*
Total Return
CPD – according to Blackrock
One Month +3.46% +2.67% +1.97% N/A
Three Months +4.23% +3.30% +2.59% N/A
One Year +27.82% +20.07% +16.06% +15.79%
Two Years (annualized) +16.85% +12.73% +10.40% N/A
Three Years (annualized) +3.41% +2.47% +1.01% +0.66%
Four Years (annualized) +4.90% +2.97% +2.25% N/A
Five Years (annualized) +3.65% +2.43% +1.54% +1.16%
Six Years (annualized) +4.87% +3.06% +2.26% N/A
Seven Years (annualized) +4.51% +3.53% +2.57% N/A
Eight Years (annualized) +6.46% +4.82% +3.71% N/A
Nine Years (annualized) +11.98% +6.18% +5.02% N/A
Ten Years (annualized) +10.07% +4.18% +3.08% +2.56%
Eleven Years (annualized) +8.81% +3.32%    
Twelve Years (annualized) +8.60% +3.46%    
Thirteen Years (annualized) +8.43% +3.51%    
Fourteen Years (annualized) +8.92% +3.65%    
Fifteen Years (annualized) +10.01% +3.90%    
Sixteen Years (annualized) +9.27% +3.87%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The full name of the BMO-CM “50” index is the BMO Capital Markets “50” Preferred Share Index. It is calculated without accounting for fees.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees.
CPD Returns are for the NAV and are after all fees and expenses.
Figures for National Bank Preferred Equity Income Fund (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are +1.61%, +2.09% and +14.26%, respectively, according to Morningstar after all fees & expenses. Three year performance is +1.99%; five year is +2.37%
Figures for Manulife Preferred Income Class Adv [into which was merged Manulife Preferred Income Fund (formerly AIC Preferred Income Fund)] (which are after all fees and expenses) for 1-, 3- and 12-months are +1.97%, +2.77% & +18.96%, respectively. Three year performance is +1.81%.

It will be noted that AIC Preferred Income Fund was in existence prior to August, 2009, but long term performance figures have been suppressed.

Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are +2.00%, +2.81% & +18.24%, respectively. Three year performance is +3.06%, five-year is +3.04%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are +1.83%, +2.57% and +17.72% for one-, three- and twelve months, respectively. Three year performance is +2.02%; five-year is +1.62%

According to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical.

The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is +19.67% for the past twelve months. Two year performance is +10.86%, three year is -1.17%.
Figures for Natixis Canadian Preferred Share Class (formerly NexGen Canadian Preferred Share Tax Managed Fund) are -%, +% and -% for one-, three- and twelve-months, respectively.
Figures for BMO Preferred Share Fund are +2.06% and +12.14% for the past three- and twelve-months, respectively. Three year performance is +0.05%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F are +20.70% for the past twelve months. The three-year figure is +2.74%; five years is +1.81%
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR)

MAPF 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 fund is available either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited.

Obviously, the last twelve months have been superb for both preferred shares in general and the fund in particular, but I think that there is still room for outsized gains. The Seniority Spread (the interest-equivalent yield on reasonably liquid, investment-grade PerpetualDiscounts less the yield on long term corporate bonds) is still quite elevated (chart end-date 2017-10-13):

pl_171013_body_chart_1
Click for Big

… and the relationship between five-year Canada yields and yields on investment-grade FixedResets is also well within what I consider ‘decoupled panic’ territory (chart end-date 2017-10-13):

pl_171013_body_chart_5
Click for Big

In addition, I feel that the yield on five-year Canadas is unsustainably low (it should be the inflation rate plus an increment of … 1%? 1.5%? 2.0%?),and a return to sustainable levels is likely over the medium term.

FixedReset performance on the month was +2.24% vs. PerpetualDiscounts of +2.99% in October; these two classes have performed roughly equally over the past three months:

himi_indexperf_171031
Click for Big

Of course, it’s one thing to say that ‘spreads are unsustainable and so are government yields’ and it’s quite another to forecast just how and when a more economically sustainable environment will take effect. It could be years. There could be a reversal, particularly if Trump’s international trade policies cause a severe recession or even a depression. And, of course, I could be just plain wrong about the sustainability of the current environment.

The Bank of Canada’s stood pat on policy in October and subsequent chatter indicated a dovish interpretation of the Bank’s remarks. This has deflated government yields somewhat and hence FixedReset expected yields and current returns. The insipid start to the third quarter’s measured economic growth followed up by weak August numbers has further discouraged the prophets of high interest rates!

I think that a broad, sustainable rally in FixedResets will require higher five-year Canada yields (or a widespread expectation of them) … and although I’m sure this will happen eventually, it would be foolish to speculate on just when it will happen!

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW
Leverage
Divisor
Securities
Average
YTW
Capital
Gains
Multiplier
Sustainable
Income
per
current
Unit
June, 2007 9.3114 5.16% 1.03 5.01% 1.3240 0.3524
September 9.1489 5.35% 0.98 5.46% 1.3240 0.3773
December, 2007 9.0070 5.53% 0.942 5.87% 1.3240 0.3993
March, 2008 8.8512 6.17% 1.047 5.89% 1.3240 0.3938
June 8.3419 6.034% 0.952 6.338% 1.3240 $0.3993
September 8.1886 7.108% 0.969 7.335% 1.3240 $0.4537
December, 2008 8.0464 9.24% 1.008 9.166% 1.3240 $0.5571
March 2009 $8.8317 8.60% 0.995 8.802% 1.3240 $0.5872
June 10.9846 7.05% 0.999 7.057% 1.3240 $0.5855
September 12.3462 6.03% 0.998 6.042% 1.3240 $0.5634
December 2009 10.5662 5.74% 0.981 5.851% 1.1141 $0.5549
March 2010 10.2497 6.03% 0.992 6.079% 1.1141 $0.5593
June 10.5770 5.96% 0.996 5.984% 1.1141 $0.5681
September 11.3901 5.43% 0.980 5.540% 1.1141 $0.5664
December 2010 10.7659 5.37% 0.993 5.408% 1.0298 $0.5654
March, 2011 11.0560 6.00% 0.994 5.964% 1.0298 $0.6403
June 11.1194 5.87% 1.018 5.976% 1.0298 $0.6453
September 10.2709 6.10%
Note
1.001 6.106% 1.0298 $0.6090
December, 2011 10.0793 5.63%
Note
1.031 5.805% 1.0000 $0.5851
March, 2012 10.3944 5.13%
Note
0.996 5.109% 1.0000 $0.5310
June 10.2151 5.32%
Note
1.012 5.384% 1.0000 $0.5500
September 10.6703 4.61%
Note
0.997 4.624% 1.0000 $0.4934
December, 2012 10.8307 4.24% 0.989 4.287% 1.0000 $0.4643
March, 2013 10.9033 3.87% 0.996 3.886% 1.0000 $0.4237
June 10.3261 4.81% 0.998 4.80% 1.0000 $0.4957
September 10.0296 5.62% 0.996 5.643% 1.0000 $0.5660
December, 2013 9.8717 6.02% 1.008 5.972% 1.0000 $0.5895
March, 2014 10.2233 5.55% 0.998 5.561% 1.0000 $0.5685
June 10.5877 5.09% 0.998 5.100% 1.0000 $0.5395
September 10.4601 5.28% 0.997 5.296% 1.0000 $0.5540
December, 2014 10.5701 4.83% 1.009 4.787% 1.0000 $0.5060
March, 2015 9.9573 4.99% 1.001 4.985% 1.0000 $0.4964
June, 2015 9.4181 5.55% 1.002 5.539% 1.0000 $0.5217
September, 2015 7.8140 6.98% 0.999 6.987% 1.0000 $0.5460
December, 2015 8.1379 6.85% 0.997 6.871% 1.0000 $0.5592
March, 2016 7.4416 7.79% 0.998 7.805% 1.0000 $0.5808
June 7.6704 7.67% 1.011 7.587% 1.0000 $0.5819
September 8.0590 7.35% 0.993 7.402% 1.0000 $0.5965
December, 2016 8.5844 7.24% 0.990 7.313% 1.0000 $0.6278
March, 2017 9.3984 6.26% 0.994 6.298% 1.0000 $0.5919
June 9.5313 6.41% 0.998 6.423% 1.0000 $0.6122
September 9.7129 6.56% 0.998 6.573% 1.0000 $0.6384
October, 2017 10.0488 6.04% 0.998 6.052% 1.0000 $0.6081
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains.
Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00%
The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99
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.
The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested.
Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or 2025-1-31 (insurers and insurance holding companies), in addition to the call schedule explicitly defined. See OSFI Does Not Grandfather Extant Tier 1 Capital, CM.PR.D, CM.PR.E, CM.PR.G: Seeking NVCC Status and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis.

The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks.

Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012.

These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:

Canada Yields Assumed in Calculations
Month-end GOC-5 3-Month Bill
September, 2015 0.78% 0.40%
December, 2015 0.71% 0.46%
March, 2016 0.70% 0.44%
June 0.57% 0.47%
September 0.58% 0.53%
December, 2016 1.16% 0.47%
March, 2017 1.08% 0.55%
June 1.35% 0.69%
September 1.79% 0.97%
October, 2017 1.63% 0.89%

Significant positions were held in NVCC non-compliant regulated FixedReset issues on August 31, 2017; all of these currently have their yields calculated with the presumption that they will be called by the issuers at par prior to 2022-1-31 (banks) or 2025-1-31 (insurers and insurance holding companies) or on a different date (SplitShares) This presents another complication in the calculation of sustainable yield, which also assumes that redemption proceeds will be reinvested at the same rate. It will also be noted that my analysis of likely insurance industry regulation as recently updated is not given much weight by the market.

I will also note that the sustainable yield calculated above is not directly comparable with any yield calculation currently reported by any other preferred share fund as far as I am aware. The Sustainable Yield depends on:
i) Calculating Yield-to-Worst for each instrument and using this yield for reporting purposes;
ii) Using the contemporary value of Five-Year Canadas to estimate dividends after reset for FixedResets. The assumption regarding the five-year Canada rate has become more important as the proportion of low-spread FixedResets in the portfolio has increased.
iii) Making the assumption that deeply discounted NVCC non-compliant issues from both banks and insurers, both Straight and FixedResets will be redeemed at par on their DeemedMaturity date as discussed above.

November 3, 2017

November 3rd, 2017
HIMIPref™ Preferred Indices
These values reflect the December 2008 revision of the HIMIPref™ Indices

Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)
Median
YTW
Median
Average
Trading
Value
Median
Mod Dur
(YTW)
Issues Day’s Perf. Index Value
Ratchet 0.00 % 0.00 % 0 0.00 0 -0.1781 % 2,412.2
FixedFloater 0.00 % 0.00 % 0 0.00 0 -0.1781 % 4,426.2
Floater 3.75 % 3.96 % 95,353 17.49 3 -0.1781 % 2,550.8
OpRet 0.00 % 0.00 % 0 0.00 0 0.0723 % 3,082.3
SplitShare 4.73 % 4.77 % 57,832 4.32 6 0.0723 % 3,680.9
Interest-Bearing 0.00 % 0.00 % 0 0.00 0 0.0723 % 2,872.0
Perpetual-Premium 5.36 % 1.84 % 49,263 0.16 20 0.0020 % 2,832.5
Perpetual-Discount 5.22 % 5.23 % 73,679 15.08 15 0.0624 % 2,999.9
FixedReset 4.23 % 4.18 % 145,847 4.50 99 -0.0585 % 2,486.2
Deemed-Retractible 5.04 % 5.43 % 97,025 5.96 30 -0.0672 % 2,926.7
FloatingReset 2.74 % 2.78 % 46,967 4.01 8 -0.0762 % 2,673.5
Performance Highlights
Issue Index Change Notes
BMO.PR.Q FixedReset -2.48 % YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 5.07 %
TRP.PR.A FixedReset -1.08 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-03
Maturity Price : 20.10
Evaluated at bid price : 20.10
Bid-YTW : 4.42 %
BMO.PR.T FixedReset -1.03 % YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-03
Maturity Price : 22.68
Evaluated at bid price : 23.04
Bid-YTW : 4.18 %
Volume Highlights
Issue Index Shares
Traded
Notes
TRP.PR.D FixedReset 180,050 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-03
Maturity Price : 22.51
Evaluated at bid price : 22.92
Bid-YTW : 4.37 %
TRP.PR.K FixedReset 134,332 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-05-31
Maturity Price : 25.00
Evaluated at bid price : 26.40
Bid-YTW : 3.78 %
CM.PR.R FixedReset 116,283 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-07-31
Maturity Price : 25.00
Evaluated at bid price : 25.41
Bid-YTW : 4.06 %
W.PR.J Perpetual-Premium 80,400 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2017-12-03
Maturity Price : 25.00
Evaluated at bid price : 25.15
Bid-YTW : 1.84 %
W.PR.H Perpetual-Premium 66,500 YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-03
Maturity Price : 24.83
Evaluated at bid price : 25.05
Bid-YTW : 5.53 %
BIP.PR.D FixedReset 64,650 YTW SCENARIO
Maturity Type : Call
Maturity Date : 2022-03-31
Maturity Price : 25.00
Evaluated at bid price : 25.29
Bid-YTW : 4.86 %
There were 19 other index-included issues trading in excess of 10,000 shares.
Wide Spread Highlights
Issue Index Quote Data and Yield Notes
BMO.PR.Q FixedReset Quote: 22.00 – 22.60
Spot Rate : 0.6000
Average : 0.3453

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2022-01-31
Maturity Price : 25.00
Evaluated at bid price : 22.00
Bid-YTW : 5.07 %

HSE.PR.A FixedReset Quote: 17.96 – 18.48
Spot Rate : 0.5200
Average : 0.3299

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-03
Maturity Price : 17.96
Evaluated at bid price : 17.96
Bid-YTW : 4.47 %

BAM.PR.R FixedReset Quote: 20.29 – 20.68
Spot Rate : 0.3900
Average : 0.2544

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-03
Maturity Price : 20.29
Evaluated at bid price : 20.29
Bid-YTW : 4.67 %

BMO.PR.T FixedReset Quote: 23.04 – 23.34
Spot Rate : 0.3000
Average : 0.1934

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-03
Maturity Price : 22.68
Evaluated at bid price : 23.04
Bid-YTW : 4.18 %

TRP.PR.C FixedReset Quote: 16.89 – 17.20
Spot Rate : 0.3100
Average : 0.2217

YTW SCENARIO
Maturity Type : Limit Maturity
Maturity Date : 2047-11-03
Maturity Price : 16.89
Evaluated at bid price : 16.89
Bid-YTW : 4.49 %

PVS.PR.D SplitShare Quote: 25.20 – 25.48
Spot Rate : 0.2800
Average : 0.2108

YTW SCENARIO
Maturity Type : Hard Maturity
Maturity Date : 2021-10-08
Maturity Price : 25.00
Evaluated at bid price : 25.20
Bid-YTW : 4.50 %

MAPF Portfolio Composition: October, 2017

November 2nd, 2017

Turnover declined slightly to about 9% in October.

There is extreme segmentation in the marketplace, with OSFI’s NVCC rule changes in February 2011 having had the effect of splitting the formerly relatively homogeneous Straight Perpetual class of preferreds into three parts:

  • Unaffected Straight Perpetuals
  • DeemedRetractibles explicitly subject to the rules (banks)
  • DeemedRetractibles considered by me, but not (yet!) by the market, to be likely to be explicitly subject to the rules in the future (insurers and insurance holding companies)

This segmentation, and the extreme valuation differences between the segments, has cut down markedly on the opportunities for trading.

To make this more clear, it used to be that there were 70-odd Straight Perpetuals and I was more or less indifferent as to which ones I owned (subject, of course, to issuer concentration concerns and other risk management factors). Thus, if any one of these 70 were to go down in price by – say – $0.25, I would quite often have something in inventory that I’d be willing to swap for it. The segmentation means that I am no longer indifferent; in addition to checking the valuation of a potential buy to other Straights, I also have to check its peer group. This cuts down on the potential for trading.

And, of course, the same segmentation has the same effect on trading opportunities between FixedReset issues.

There is no real hope that this situation will be corrected in the near-term. OSFI has indicated that the long-promised “Draft Definition of Capital” for insurers will not be issued “for public consultation in late 2012 or early 2013”, as they fear that it might encourage speculation in the marketplace. It is not clear why OSFI is so afraid of informed speculation, since the constant speculation in the marketplace is currently less informed than it would be with a little bit of regulatory clarity. While the framework has been updated, the modifications focus on the amount of capital required, not the required characteristics of that capital. However, OSFI has recently indicated that it would support a mechanism similar to the NVCC rule for banks, so we may see some developments as the IAIS deliberations regarding insurance capital continue.

As a result of this delay, I have extended the Deemed Maturity date for insurers and insurance holding companies by three years (to 2025-1-31), in the expectation that when OSFI finally does provide clarity, they will allow the same degree of lead-in time for these companies as they did for banks. This had a major effect on the durations of preferred shares subject to the change but, fortunately, not much on their calculated yields as most of these issues were either trading near par when the change was made or were trading at sufficient premium that a par call was expected on economic grounds. However, with the declines in the market over the past nine months, the expected capital gain on redemption of the insurance-issued DeemedRetractibles has become an important component of the calculated yield.

Due to the footdragging by OSFI, I will be extending the DeemedMaturity date for insurance issues by another few years in the near future.

Sectoral distribution of the MAPF portfolio on October 31 was as follows:

MAPF Sectoral Analysis 2017-10-31
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 8.7% 4.74% 5.43
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 14.0% 5.34% 14.86
Fixed-Reset 58.1% 6.21% 6.98
Deemed-Retractible 2.2% 6.02% 5.94
FloatingReset 6.9% 7.70% 6.42
Scraps (Various) 10.0% 6.14% 12.37
Cash +0.2% 0.00% 0.00
Total 100% 6.04% 8.41
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or 2025-1-3 (insurers and insurance holding companies), in addition to the call schedule explicitly defined. See OSFI Does Not Grandfather Extant Tier 1 Capital, CM.PR.D, CM.PR.E, CM.PR.G: NVCC Status Confirmed and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis.

Note that the estimate for the time this will become effective for insurers and insurance holding companies was extended by three years in April 2013, due to the delays in OSFI’s providing clarity on the issue.

Calculations of resettable instruments are performed assuming a constant GOC-5 rate of 1.63% and a constant 3-Month Bill rate of 0.89%

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 2017-10-31
DBRS Rating Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 47.2%
Pfd-2 32.6%
Pfd-2(low) 10.0%
Pfd-3(high) 2.0%
Pfd-3 4.5%
Pfd-3(low) 2.9%
Pfd-4(high) 0%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0.6%
Pfd-5 0.0%
Cash +0.2%
Totals will not add precisely due to rounding.
The fund holds a position in AZP.PR.C, which is rated P-5(high) by S&P and is unrated by DBRS; it is included in the Pfd-5(high) total.
A position held in INE.PR.A is not rated by DBRS, but has been included as “Pfd-3” in the above table on the basis of its S&P rating of P-3.

Liquidity Distribution is:

MAPF Liquidity Analysis 2017-10-31
Average Daily Trading Weighting
<$50,000 13.0%
$50,000 – $100,000 42.8%
$100,000 – $200,000 39.4%
$200,000 – $300,000 1.0%
>$300,000 3.6%
Cash +0.2%
Totals will not add precisely due to rounding.

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. The fund may be purchased either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited. 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). 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) (and other funds) as of July 31, 2017, and published in the August, 2017, PrefLetter. It is fair to say:

  • MAPF credit quality is much better
  • MAPF liquidity is lower
  • MAPF Yield is higher
  • Weightings
    • MAPF has similar exposure to Straight Perpetuals
      • Much more exposed to PerpetualDiscounts
      • Much less exposed to DeemedRetractibles
      • A little less exposed to PerpetualPremiums
    • Neither portfolio is exposed to Operating Retractibles (there aren’t too many of those any more!)
    • MAPF is more exposed to SplitShares
    • MAPF is a little less exposed to FixFloat / Floater / Ratchet
    • MAPF is a little higher weighted in FixedResets, but has a greater emphasis on lower-spread issues