Looks like some people think the LSE’s not a bad partner:
The biggest rally in three months for Nasdaq OMX Group Inc. (NDAQ) may be the clearest sign yet that investors expect the New York-based exchange operator to buy London Stock Exchange Group Plc. (LSE)
Nasdaq OMX gained 4.7 percent to $25.14 yesterday, climbing the most since April 1, after LSE dropped its offer for TMX Group Inc. (X), saying too few shareholders supported the C$3.32 billion ($3.4 billion) merger. The gain in Nasdaq OMX was the largest since the day it announced a plan to buy NYSE Euronext with IntercontinentalExchange Inc. (ICE), and signals speculation the company will expand with LSE, according to Capstone Holdings Group LLC and Aite Group LLC.
Julie Dickson gave a speech to to the Canadian Institute of Actuaries Annual Meeting 2011; there were two snippets of interest:
Regulators are increasingly considering the adequacy of group capital. This brings into question the risks entailed by non-regulated entities, concentration risk, fungibility of capital, liquidity risk, the impact of intra-group support measures, diversification of risk, etc. The list is lengthy. Again, the actuarial profession has the tools and expertise to consider these issues and to help provide solutions.
.. which may reflect a desire to regulate insurance companies at the holding company level. Or it may not.
The other snippet is:
One of the most troubling issues we face as a regulator is the manner of response from industry, as well as your profession, to regulatory requirements. Frequently, the response to our requirements appears to be driven only by the need to comply, rather than by using the exercise as a means of identifying and reporting on important aspects of the way in which organizations manage risks.
This response is troubling because it implies a mechanical response, which may be conducted as cost effectively as possible, but that is not connected to any real business or risk management practices employed by the organization.
Consider Enterprise Risk Management as an example. The need for sound ERM practices has never been more pressing and yet we find that our requests for demonstrations of sound risk management via Dynamic Capital Adequacy testing (DCAT), stress testing, governance practices, etc. are frequently completed as if they were just regulatory compliance exercises rather than important demonstrations of real life ERM.
In our view, this type of response is not in anyone’s best interests.
“We’re from the government and we’re here to help you!”
Preet Bannerjee writes an interesting piece in the Globe titled How is your fund manager performing?. He references a newletter from Research Affiliates:
The selection of active managers, whose philosophy and process are geared to produce market-beating results, is an exhaustive and time-consuming activity. Certainly, some can take a shortcut, relying on historical track records (such as the typical trailing five years of returns) to gauge skill but, as mutual fund advertisements proclaim, “past performance is no guarantee of future results.” Indeed, the goal of manager research is to determine if the manager and its strategy will be successful in the dark and unknowable future. And that requires separating the wheat from the chaff or, in this case, manager skill from pure luck. Unfortunately, this is easier said than done. Statistically speaking, it requires a track record of approximately 35 years to determine whether the average active manager has demonstrated skill.[footnote]
Footnote: Using a very optimistic 2% excess return at the typical 6% tracking error level, for an information ratio of 0.33. An information ratio of 0.50 would take 16 years to confirm statistical significance, while a 0.25 ratio would take 62 years!
Another paper referenced was by Fama & French, Luck Versus Skill in the Cross Section of Mutual Fund Returns:
The aggregate portfolio of U.S. equity mutual funds is close to the market portfolio, but the high costs of active management show up intact as lower returns to investors. Bootstrap simulations suggest that few funds produce benchmark adjusted expected returns sufficient to cover their costs. If we add back the costs in expense ratios, there is evidence of inferior and superior performance (non-zero true alpha) in the extreme tails of the cross section of mutual fund alpha estimates.
What happened to Yellow this week?
| YLO Issues, 2011-6-30 | |||||
| Ticker | Quote 6/24 |
Quote 6/30 |
Bid YTW 6/30 |
YTW Scenario 6/30 |
Performance 6/24 – 6/30 (bid/bid) |
| YLO.PR.A | 23.03-20 | 22.55-69 | 11.59% | Soft Maturity 2012-12-30 |
-2.08% |
| YLO.PR.B | 15.60-00 | 15.14-15 | 15.40% | Soft Maturity 2017-06-29 |
-2.95% |
| YLO.PR.C | 16.05-27 | 15.21-48 | 10.44% | Limit Maturity | -5.23% |
| YLO.PR.D | 16.42-60 | 15.50-77 | 10.49% | Limit Maturity | -5.60% |
The Canadian preferred share market closed the half on a strong note, with PerpetualDiscounts winning 19bp, FixedResets up 16bp and DeemedRetractibles gaining 14bp. Volatility was reasonable, with BAM.PR.O continuing its slide (with a wide spread), but ELF.PR.F and ELF.PR.G reversing theirs. Volume was average-ish.
PerpetualDiscounts now yield 5.48%, equivalent to 7.12% interest at the standard equivalency factor of 1.3x. Long Corporates now yield about 5.4% (well … a little under) so the pre-tax interest-equivalent spread (also called the Seniority Spread) is now about 170bp, a significant narrowing from the 185bp reported June 29.
| 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 | 0.4262 % | 2,445.0 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.4262 % | 3,677.3 |
| Floater | 2.48 % | 2.22 % | 41,438 | 21.71 | 4 | 0.4262 % | 2,640.0 |
| OpRet | 4.88 % | 2.78 % | 65,478 | 0.25 | 9 | -0.1116 % | 2,431.5 |
| SplitShare | 5.24 % | 1.98 % | 57,684 | 0.65 | 6 | 0.1434 % | 2,506.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.1116 % | 2,223.3 |
| Perpetual-Premium | 5.69 % | 5.06 % | 141,307 | 0.82 | 12 | 0.1174 % | 2,079.7 |
| Perpetual-Discount | 5.47 % | 5.48 % | 120,340 | 14.63 | 18 | 0.1919 % | 2,187.2 |
| FixedReset | 5.17 % | 3.23 % | 212,365 | 2.70 | 57 | 0.1595 % | 2,309.3 |
| Deemed-Retractible | 5.09 % | 4.89 % | 286,691 | 8.15 | 47 | 0.1431 % | 2,151.4 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| BAM.PR.O | OpRet | -1.62 % | YTW SCENARIO Maturity Type : Option Certainty Maturity Date : 2013-06-30 Maturity Price : 25.00 Evaluated at bid price : 25.50 Bid-YTW : 3.98 % |
| ELF.PR.F | Perpetual-Discount | 1.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-06-30 Maturity Price : 22.32 Evaluated at bid price : 22.68 Bid-YTW : 5.84 % |
| BNS.PR.Q | FixedReset | 1.19 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-10-25 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 2.70 % |
| BAM.PR.N | Perpetual-Discount | 1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-06-30 Maturity Price : 21.42 Evaluated at bid price : 21.71 Bid-YTW : 5.49 % |
| ELF.PR.G | Perpetual-Discount | 1.75 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2041-06-30 Maturity Price : 21.00 Evaluated at bid price : 21.00 Bid-YTW : 5.68 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.M | FixedReset | 70,936 | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-08-25 Maturity Price : 25.00 Evaluated at bid price : 26.09 Bid-YTW : 3.15 % |
| TD.PR.G | FixedReset | 46,191 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-30 Maturity Price : 25.00 Evaluated at bid price : 27.31 Bid-YTW : 3.20 % |
| TD.PR.C | FixedReset | 38,393 | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-01-31 Maturity Price : 25.00 Evaluated at bid price : 26.72 Bid-YTW : 3.20 % |
| BNS.PR.Q | FixedReset | 37,648 | YTW SCENARIO Maturity Type : Call Maturity Date : 2013-10-25 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 2.70 % |
| SLF.PR.D | Deemed-Retractible | 37,557 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.03 Bid-YTW : 6.02 % |
| CU.PR.A | Perpetual-Premium | 29,350 | YTW SCENARIO Maturity Type : Call Maturity Date : 2012-03-01 Maturity Price : 25.00 Evaluated at bid price : 25.24 Bid-YTW : 5.06 % |
| There were 34 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.O | OpRet | Quote: 25.50 – 26.00 Spot Rate : 0.5000 Average : 0.3381 YTW SCENARIO |
| BAM.PR.P | FixedReset | Quote: 27.04 – 27.35 Spot Rate : 0.3100 Average : 0.2124 YTW SCENARIO |
| SLF.PR.F | FixedReset | Quote: 26.77 – 27.00 Spot Rate : 0.2300 Average : 0.1501 YTW SCENARIO |
| BNA.PR.E | SplitShare | Quote: 24.10 – 24.54 Spot Rate : 0.4400 Average : 0.3629 YTW SCENARIO |
| BMO.PR.L | Deemed-Retractible | Quote: 26.75 – 26.98 Spot Rate : 0.2300 Average : 0.1546 YTW SCENARIO |
| TD.PR.K | FixedReset | Quote: 27.44 – 27.69 Spot Rate : 0.2500 Average : 0.1748 YTW SCENARIO |
[…] the MAPF Portfolio Composition: May 2011 analysis (which is greater than the 5.48% index yield on June 30). Given such reinvestment, the sustainable yield would be $11.1194 * 0.0565 = $0.6282, a decrease […]