Category: MAPF

The fund performed well in another month of recovery for the preferred share market. As noted in the report of Index Performance, May 2009, Floaters did extremely well in the month – although still an underperforming sector over the past year – while solid gains were recorded in the key FixedReset and PerpetualDiscount sectors.

Fund performance was hurt by the underweighting in Floating Rate issues noted in MAPF Portfolio Composition: May 2009, as well as an underweighting in lower quality issues (which also outperformed), but these allocation hurdles were handsomely overcome by security selection and trading within the actual portfolio.

The fund’s Net Asset Value per Unit as of the close May 29 was $10.6298..

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.

I am very pleased with the returns, but implore Assiduous Readers not to project this level of outperformance for the indefinite future. The past year in the preferred share market has been filled with episodes of panic and euphoria, together with many new entrants who do not appear to know what they are doing; perfect conditions for a disciplined quantitative approach. While I will continue to exert utmost efforts to outperform, it should be borne in mind that beating the index by 500bp represents a good year, and there will almost inevitably be periods of underperformance in the future.

The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

As discussed in the post MAPF Portfolio Composition: May 2009, the fund has positions in splitShares (almost all BNA.PR.C) and an operating retractible, both of which have high yields that are not sustainable: at some point they will be called or mature and the funds will have to be reinvested. Therefore, both of these positions skew the calculation upwards.. Since the yield on thes positions is higher than that of the perpetuals despite the fact that the term is limited, the sustainability of the calculated “sustainable yield” is suspect, as discussed in August, 2008.

Significant positions were also held in Fixed-Reset issues on May 29; all of which currently have their yields calculated with the presumption that they will be called by the issuers at par at the first possible opportunity.

However, if the entire portfolio except for the PerpetualDiscounts were to be sold and reinvested in these issues, the yield of the portfolio would be the 6.73% shown in the May 29 Portfolio Composition analysis (which is in excess of the 6.33% index yield on May 29). Given such reinvestment, the sustainable yield would be 10.6298 * 0.0673 = $0.7154, an increase from the $0.7016 derived by a similar calculation last month.

Different assumptions lead to different calculations, but the overall positive trend is apparent. I’m very pleased with the results! It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

• the very good performance against the index
• the long term increases in sustainable income per unit

As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance is due to constant exploitation of trading anomalies.

Again, there are no predictions for the future! The fund will continue to trade between issues in an attempt to exploit market gaps in liquidity, in an effort to outperform the index and keep the sustainable income per unit – however calculated! – growing.

Trading activity increased slightly in May, with portfolio turnover of about 90%, as the market extended its gains.

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.

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.

The important change was the shift from FixedResets into PerpetualDiscounts. The initial trade spawned important knock-on trades towards the end of the month:

Credit distribution is:

The increase in weighting of Pfd-2(high) reflects the purchase of POW.PR.D, accumulated as follows:

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:

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

Liquidity Distribution is:

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 is more exposed to PerpetualDiscounts
  • MAPF is much less exposed to Operating Retractibles
  • MAPF is more exposed to SplitShares
  • MAPF is less exposed to FixFloat / Floater / Ratchet
  • MAPF weighting in FixedResets is similar

The fund performed well in a month that was as remarkable for its consistency as it was for the strong performance of the preferred share market. As noted in the report of Index Performance, April 2009, the PerpetualDiscount index experienced only three down-days in the month, compared to eighteen gainers:

The fund’s Net Asset Value per Unit as of the close April 30 was $9.8406.

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 yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

As discussed in the post MAPF Portfolio Composition: April 2009, the fund has positions in splitShares (almost all BNA.PR.C) and an operating retractible (YPG.PR.B), both of which skew the calculation. Since the yield on thes positions is higher than that of the perpetuals despite the fact that the term is limited, the sustainability of the calculated “sustainable yield” is suspect, as discussed in August, 2008.

Significant positions were also held in Fixed-Reset issues on April 30 (HSB.PR.E, BMO.PR.O & CM.PR.M); all of which currently have their yields calculated with the presumption that they will be called by the issuers at par at the first possible opportunity.

However, if the entire portfolio except for the PerpetualDiscounts were to be sold and reinvested in these issues, the yield of the portfolio would be the 7.13% shown in the April 30 Portfolio Composition analysis (which is in excess of the 6.80% index yield on April 30). Given such reinvestment, the sustainable yield would be 9.8406 * 0.0713 = $0.7016, an increase from the $0.6712 derived by a similar calculation last month; which I consider rather good considering the increased allocation in April to the lower-yielding Fixed-Reset issues.

Different assumptions lead to different calculations, but the overall positive trend is apparent. I’m very pleased with the results! It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

• the very good performance against the index
• the long term increases in sustainable income per unit

As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance is due to constant exploitation of trading anomalies.

Again, there are no predictions for the future! The fund will continue to trade between issues in an attempt to exploit market gaps in liquidity, in an effort to outperform the index and keep the sustainable income per unit – however calculated! – growing.

Trading remained steady in April, with portfolio turnover of about 80%, as the market strongly advanced in a very consistent fashion: PerpetualDiscounts had only three down-days, against 18 gainers.

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.

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.

The important change was the shift of just under 10% of portfolio weight from PerpetualDiscounts into FixedResets. At month-end, the fund had positions in HSB.PR.E, CM.PR.M and BMO.PR.O. The position in HSB.PR.E was accumulated approximately as follows:

As may be seen, this accumulation has turned out very well so far – only the trade out of CU.PR.B has worked against the fund, which is a good ratio.

Credit distribution is:

The reduction in weighting of Pfd-2(high) reflects the sale of CU.PR.B, related to the shift in sectors shown above.

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:

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

Liquidity Distribution is:

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 similar
  • MAPF is much less exposed to Operating Retractibles
  • MAPF is more exposed to SplitShares
  • MAPF is less exposed to FixFloat / Floater / Ratchet
  • MAPF is more exposed to Fixed-Resets

The fund performed well in a volatile month, in which a sharp early drop in values was overtaken by a slow and steady gain:

And … the end of this month marked the eighth full year of operation for Malachite Aggressive Preferred Fund. Since its inception in March, 2001, it has delivered a cumulative return of +100.38% (after expenses, before fees), doubling its money, while the benchmark index has returned a cumulative total of +4.92%.

The fund’s Net Asset Value per Unit as of the close March 31 was $8.8317 after giving effect to a distribution of $0.191322 per unit.

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 yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

As discussed in the post MAPF Portfolio Composition: March 2009, the fund has positions in splitShares (almost all BNA.PR.C) and an operating retractible (YPG.PR.B), both of which skew the calculation. Since the yield on thes positions is higher than that of the perpetuals despite the fact that the term is limited, the sustainability of the calculated “sustainable yield” is suspect, as discussed in August.

Additionally, the calculated yield for the fixed-floater in the portfolio, BCE.PR.I, depends on the presumed value of Canada Prime (3.00%) and the percentage of Canada Prime paid on par value (100%); both of these figures may change. Prime is, in fact, now only 2.50% – while this change will affect the calculation of sustainable yield, this issue has a fixed yield until August 1, 2011.

And finally, the yield calculations with respect to FixedReset issues is dependent upon a constant yield of the 5-Year Canada bonds whence the reset rate is calculated. Calculations include the contemporary yield on 5-Year Canada’s; if this value were to be increased, the calculated yield-to-worst on the Fixed-Reset issues held would also increase.

However, if the entire portfolio except for the PerpetualDiscounts were to 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 yield would be 8.8317 * 0.0760 = $0.6712., an slight decrease from the $0.6850 derived by a similar calculation last month; the decline may be attributed to the increase in credit quality over the month.

Different assumptions lead to different calculations, but the overall positive trend is apparent. I’m very pleased with the results! It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

• the very good performance against the index
• the long term increases in sustainable income per unit

As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance is due to constant exploitation of trading anomalies.

Again, there are no predictions for the future! The fund will continue to trade between issues in an attempt to exploit market gaps in liquidity, in an effort to outperform the index and keep the sustainable income per unit – however calculated! – growing.

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.

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:

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:

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 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

In a poor month for preferreds, the fund was able to eke out a slight degree of outperformance against its benchmark index. This is actually better than it sounds, given the fund’s overweighting in PerpetualDiscounts, but the value-added as part of trading did show up in the estimation of sustainable income, which increased again this month.

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 yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

As discussed in the post MAPF Portfolio Composition: February 2009, the fund has positions in splitShares (almost all BNA.PR.C) and an operating retractible (YPG.PR.B), both of which skew the calculation. Since the yield on thes positions is higher than that of the perpetuals despite the fact that the term is limited, the sustainability of the calculated “sustainable yield” is suspect, as discussed in August.

Additionally, the calculated yield for the fixed-floater in the portfolio, BCE.PR.I, depends on the presumed value of Canada Prime (3.00%) and the percentage of Canada Prime paid on par value (100%); both of these figures may change. Prime is, in fact, now only 2.50% – while this change will affect the calculation of sustainable yield, this issue has a fixed yield until August 1, 2011.

However, if the entire portfolio except for the PerpetualDiscounts were to be sold and reinvested in these issues, the yield of the portfolio would be the 7.82% shown in the February 27 Portfolio Composition analysis (which is in excess of the 7.29% index yield on February 27). Given such reinvestment, the sustainable yield would be 8.7600 * 0.0782 = $0.6850, an increase from the $0.6470 derived by a similar calculation last month.

Different assumptions lead to different calculations, but the overall positive trend is apparent. I’m very pleased with the results! It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

• the very good performance against the index
• the long term increases in sustainable income per unit

As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance is due to constant exploitation of trading anomalies.

Again, there are no predictions for the future! The fund will continue to trade between issues in an attempt to exploit market gaps in liquidity, in an effort to outperform the index and keep the sustainable income per unit – however calculated! – growing.

Trading was relatively heavy in February, with portfolio turnover of about 135%, as the market showed an increasing distaste for insurers that eventually spread to banks by month-end. The huge issuance of bank Fixed-Resets ceased during the month, but MFC led the way with an issue that proved wildly popular towards month-end, followed by three bank announcements as quarterly results were unveiled.

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.

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.

The fund’s credit quality was affected by the downgrade of BCE, which did not have a great effect on its price. However, as a precautionary measure, holdings in this name were reduced by a partial swap into YPG.PR.B, an operating retractible also rated Pfd-3(high) by DBRS which is currently trading with an extraordinary yield. Both issues will be swapped into higher grade names as opportunities to do so on an attractive basis permit.

While I am not thrilled at the presence of Pfd-3(high) names in the portfolio, the total exposure and the exposure to individual names is well within reasonable limits and the credit quality of the portfolio remains higher than that of the benchmark indices.

Credit distribution is:

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:

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

The other event impacting MAPF’s credit quality was a wholesale move into insurers, with the fund taking positions in SLF, GWO, IAG and ELF. The trading is too “messy” to present fairly in a table (the move itself was done in pieces; after the move was made there were many opportunities to swap between issues of the same name), so I will content myself with an illustration of the yields of the most liquid CM perpetualDiscount (CM.PR.H) vs. the most liquid SLF perpetualDiscount (SLF.PR.A):

• Yields-to-Worst
• Spread

Trade details will be published with the semi-annual report to unitholders, due in July.

Liquidity Distribution is:

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 higher
• MAPF Yield is higher
• Weightings in
  • PerpetualDiscounts is similar
  • 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

The fund was able to post superb performance in January, greatly in excess of its benchmark. In fact, all I need to do to have a great year is to break even for the next eleven months!

For clients, I must say that I am relieved that absolute return has finally joined relative return in the black.

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.

All I can say is … don’t expect this every month, folks! Extreme inefficiency in the preferred share market made trading highly profitable and returns were also enhanced by receipt of retraction proceeds from the split-shares WFS.PR.A and FFN.PR.A

When it works, it really, really works!

The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

As discussed in the post MAPF Portfolio Composition: January 2009, the fund has positions in splitShares, which complicate the calculation greatly. Since the yield is, by and large, higher than that of the perpetuals despite the fact that the term is limited, the sustainability of the calculated “sustainable yield” is suspect, as discussed in August.

Additionally, the calculated yield for the fixed-floater in the portfolio, BCE.PR.I, depends on the presumed value of Canada Prime (3.00%) and the percentage of Canada Prime paid on par value (100%); both of these figures may change. Prime did, in fact, change this month and the presumed future dividend payments for BCE.PR.I changed from $25 * 0.035 = 0.875 to $25 * 0.03 = 0.75. This effect accounted for the bulk of the decline in estimated sustainable income … but frankly, I’m happy that trading in the fund was effective in offsetting the negative effects on the calculation of reducing the holdings of high-yielding short-term instruments, the split shares.

However, if the entire portfolio except for the PerpetualDiscounts were to be sold and reinvested in these issues, the yield of the portfolio would be the 7.28% shown in the January 30 Portfolio Composition analysis (which is in excess of the 6.85% index yield on January 30). Given such reinvestment, the sustainable yield would be 8.8875 * 0.0728 = $0.6470, an increase from the $0.6027 derived by a similar calculation last month.

Different assumptions lead to different calculations, but the overall positive trend is apparent. I’m very pleased with the results! It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

• the very good performance against the index
• the long term increases in sustainable income per unit

As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance is due to constant exploitation of trading anomalies.

The fixed-floater postion discussed last month remains – but is much more profitable than it was

So, again, there are no predictions for the future. The fund will continue to trade between issues in an attempt to exploit market gaps in liquidity, in an effort to outperform the index and keep the sustainable income per unit – however calculated! – growing.

Trading was relatively heavy in January, with portfolio turnover of about 120%, as the late-December rally continued for the first half of the month and then settled in for a more traditional grind. The market was also affected by heavy issuance of Fixed-Resets, many of which had their issue sizes bumped upwards to meet investor demand. These Fixed-Reset issues seem to have found a new level for the initial fixed rate: 6.25% which is much more interesting than the 5.00% of last year. While still rather expensive as a class, the newer issues are at the point where they are becoming competitive with straight perpetuals.

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.

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.

Positions held in the split-share corporations WFS.PR.A and FTN.PR.A were tendered for their monthly retraction in mid-December and retraction proceeds were received in mid-January. The retraction was highly profitable.

The fund’s closing position in the Fixed-Reset BNS.PR.X arrived by a circuitous route:

Perhaps not the most profitable sequence of trades ever presented on this website, but they did a reasonable job of protecting the capital gains earned at mid-month! It should be noted that HIMIPref™ works by comparing like securities to like and is very cautious when swapping between classes … the impetus of initial trade was only partially direct analysis that NA.PR.O was more attractive than BMO.PR.K & BMO.PR.L; a major driving force of the trade was that the NA issue when taken relative to other fixed-resets was more attractive than the BMO issues relative to other PerpetualDiscounts.

Credit distribution is:

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.

The lowest rated issues in the portfolio are BCE.PR.I and BNA.PR.C. The latter issue is an entirely reasonable credit; a split share secured by shares of BAM.A with asset coverage that continues to be about 1.8:1.

Liquidity Distribution is:

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 higher
• MAPF Yield is higher
• Weightings in
  • PerpetualDiscounts is similar
  • 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