Archive for the ‘MAPF’ Category

MAPF Performance: February, 2024

Sunday, March 3rd, 2024

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close February 29, 2024, was $9.2663.

Performance was affected by CU.PR.C underperforming with a -2.75% return (following three months of outperformance), BN.PR.R with a -1.33% return and FTS.PR.M with a -0.06% return. This was outweighed by good performance from NA.PR.W (+6.04%), RY.PR.J (+3.18%) and TD.PF.C (+1,81, adding to the last three month’s outperformance) [small holdings are not considered for individual mention here].

The last few months have been very good to preferred shareholders, following the lows of the TXPR price index on 2023-10-31, but yields remain elevated well above those available on instruments with similar risk.

FixedResets continue to yield more, in general, than PerpetualDiscounts; on February 29, I reported median YTWs of 7.46% and 6.74%, respectively, for these two indices; compare with mean Current Yields of 5.58% and 6.52%, respectively. RY.PR.J, to take a representative example, is calculated by HIMIPref™ as having a yield-to-worst of 7.43% at monthend (Current Yield of 3.86%); bid at 20.75, resetting 2025-5-24 at a spread of 274bp over GOC-5 (assumed to be constant at 3.62%) and currently paying 0.80 p.a. (3.20% annually). The next pay-date is 2024-5-24; it is trading cum-dividend.

If we plug the above data into the yield calculator for resets (which is discussed here and has recently been slightly modified), we arrive at a annualized (compounded semi-annually) yield of 7.35% for RY.PR.J . To take this 8bp (the difference between the spreadsheets and HIMIPref™) above the PerpetualDiscount index median YTW of 6.74% (to account for the calculation methodological differences), which is to say 6.66%, requires the assumption that GOC-5 will be 2.97% forever, as opposed the ‘constant rate’ assumption of 3.61%. Well … pays yer money and takes yer chances, gents! Assiduous Readers with long memories will liken this to all the calculations of Break-even Rate Shock when the puzzle represented the same problem with a different sign! Note that even if the unfavourable scenario of GOC-5 = 2.97% is realized, this has only reduced the yield of RY.PR.J to that of the median adjusted PerpetualDiscount yield of 6.66%, which isn’t the worst outcome one might fear from one’s investments!

Returns to February 29, 2024
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month +1.13% +0.13% N/A
Three Months +10.03% +6.81% N/A
One Year +14.69% +5.61% +5.03%
Two Years (annualized) -1.43% -3.02% N/A
Three Years (annualized) +4.07% +0.87% +0.35%
Four Years (annualized) +10.69% +4.76% N/A
Five Years (annualized) +6.69% +3.48% +2.90%
Six Years (annualized) +3.12% +1.66% N/A
Seven Years (annualized) +5.12% +2.56% N/A
Eight Years (annualized) +8.99% +5.73% N/A
Nine Years (annualized) +4.25% +2.05% N/A
Ten Years (annualized) +4.10% +1.87% +1.37%
Eleven Years (annualized) +3.53% +1.50%  
Twelve Years (annualized) +3.92% +1.80%  
Thirteen Years (annualized) +3.82% +2.08%  
Fourteen Years (annualized) +4.93% +2.62%  
Fifteen Years (annualized) +7.65% +3.93%  
Sixteen Years (annualized) +7.13% +2.48%  
Seventeen Years (annualized) +6.92%    
Eighteen Years (annualized) +6.91%    
Nineteen Years (annualized) +6.84%    
Twenty Years (annualized) +6.96%    
Twenty-One Years (annualized) +7.97%    
Twenty-Two Years (annualized) +7.65%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
Figures for National Bank Preferred Equity Income Fund [NBC780F] (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are +%, +% and +%, respectively, according to National Bank Investments after all fees & expenses. Three year performance is +%; five year is +%; ten year is +%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are +0.74%, +8.73% & +9.60%, respectively. Three year performance is +2.46%, five-year is +4.59%, ten year is +2.81%
Figures for National Bank Preferred Equity Fund [NBC710F] (formerly Altamira Preferred Equity Fund) are +%, +% and +% for one-, three- and twelve months, respectively. Three year performance is +%; five-year is +%; ten-year is +%

Acccording 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 last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO Laddered Preferred Share Index ETF (ZPR) is +7.68% for the past twelve months. Two year performance is -3.04%, three year is +4.01%, five year is +4.78%, ten year is +1.42%

Note that analysis of ZPR shows some doubt as to whether this fund is either "laddered" or an "index fund".

Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to Morningstar are +0.65%, +6.36% and +5.30% for the past one-, three- and twelve-months, respectively. Three year performance is -0.91%; five-year is +1.60%; ten-year is -0.02%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023
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).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are +0.5%, +7.2% and +8.1% for the past one, three and twelve months, respectively. Three year performance is +2.9%, five-year is +3.8%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are +0.23%, +7.56% and +6.71% for the past one, three and twelve months, respectively. Two year performance is -2.78%, three-year is +1.25%, five-year is +3.33%
Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as +0.01%, +8.01% and +5.05% for the past one, three and twelve months, respectively. Three-year performance is +0.94%, five-year is +3.47%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are +0.3%, +7.8% and +8.2% for the past one, three and twelve months, respectively. Three-year performance is +3.9%; five-year is +6.0%
Figures for the Purpose Canadian Preferred Share Fund (Class F) are +1.11%, +7.60% and +9.03% for the past one, three and twelve months, respectively. Three-year performance is +2.29%; five-year is +5.29%; seven-year is +2.68%; ten-year is +5.00%.

The five-year Canada yield was steady, with the five-year Canada yield (“GOC-5”) rising slightly from 3.57% at January month-end to 3.61% at February month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 360bp on 2024-2-21, widening from 340bp on 2024-1-31 (chart end-date 2024-2-9) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly from its 2021-11-10 low of 344bp to a level of 631bp (as of 2024-2-28) … (chart end-date 2024-02-9):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -115bp (as of 2024-2-28) from its 2021-7-28 level of +170bp (chart end-date 2024-02-09):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues.

There is no significant correlation between the Issue Reset Spread and 3-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues.

There is no correlation for either the Pfd-2 Group or the Pfd-3 Group for 1-Month performance against term-to-reset:

… and the same applies for three-month returns vs. Term to Reset for the Pfd-2 Group has disappeared:

It should be noted that to some extent a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August 2022 PrefLetter. In the three months from November 30 to February 29, the GOC-5 rate declined from 3.82% to 3.6`%, but this has had little effect. At present the situation is chaotic.

Upwards-sloping correlations of Performance vs. Term are to be expected when GOC-5 declines.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year-odd has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2024-1-12).

I will note that the fund’s current holdings of FixedResets are now paying dividends based on their previous reset at an average GOC-5 rate of 1.34% (weighted by shares held). While nobody knows what the future might bring, I suggest that we won’t see GOC-5 return to that level again for a while!

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 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
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
June 30 8.0197 9.19% 1.003 9.163% 1.0000 $0.7348
September 29 7.9922 9.86% 0.997 9.890% 1.0000 $0.7904
Decenber 29, 2023 8.4715 8.14% 1.002 8.124% 1.0000 $0.6882
February 29, 2024 9.2663 7.83% 0.991 7.901% 1.0000 $0.7321
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 or the regulator (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 the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

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

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
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%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March, 2023 2.93% 4.44%
June 3.74% 5.00%
September 4.31% 5.21%
December, 2023 3.21% 5.13%
February, 2024 3.61% 5.04%

MAPF Portfolio Composition: February, 2024

Sunday, March 3rd, 2024

Turnover remained steady at 6% in February.

Sectoral distribution of the MAPF portfolio on February 29, 2024, were:

MAPF Sectoral Analysis 2024-2-29
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 0% N/A N/A
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 8.7% 7.00% 12.49
Fixed-Reset Discount 63.8% 7.85% 11.90
Insurance – Straight 9.1% 6.14% 13.77
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 0% N/A N/A
Scraps – Ratchet 0% N/A N/A
Scraps – FixedFloater 1.4% 10.04% 10.69
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 3.2% 7.54% 2.11
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 0% N/A N/A
Scraps – FR Discount 13.0% 9.86% 10.09
Scraps – Insurance Straight 0% N/A N/A
Scraps – FloatingReset 0% N/A N/A
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 0% N/A N/A
Cash +0.9% 0.00% 0.00
Total 100% 7.83% 11.45
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
DeemedRetractibles were 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 or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.

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 and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others.

The name of this subindex has been changed to “Insurance Straight” as of November, 2020

Calculations of yield and related attributes of resettable instruments are performed assuming a constant GOC-5 rate of 3.61%, a constant 3-Month Bill rate of 5.04% and a constant Canada Prime Rate of 7.20%

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 2024-02-29
DBRS Rating MAPF Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 41.7%
Pfd-2 30.0%
Pfd-2(low) 9.9%
Pfd-3(high) 9.5%
Pfd-3 2.4%
Pfd-3(low) 5.5%
Pfd-4(high) 0.2%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0%
Pfd-5 0%
Cash +0.9%
Totals will not add precisely due to rounding.
A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous.

Liquidity Distribution is:

MAPF Liquidity Analysis 2024-02-29
Average Daily Trading MAPF Weighting
<$50,000 13.0%
$50,000 – $100,000 19.9%
$100,000 – $200,000 36.0%
$200,000 – $300,000 23.2%
>$300,000 7.0%
Cash +0.9%
Totals will not add precisely due to rounding.

The distribution of Issue Reset Spreads is:

Range MAPF Weight
<100bp 0%
100-149bp 0%
150-199bp 6.6%
200-249bp 54.2%
250-299bp 14.1%
300-349bp 1.7%
350-399bp 1.2%
400-449bp 0%
450-499bp 0%
500-549bp 0%
550-599bp 0%
>= 600bp 0%
Undefined 22.1%

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

Range MAPF Weight
Currently Floating 1.1%
0-1 Year 36.2%
1-2 Years 19.7%
2-3 Years 7.8%
3-4 Years 13.6%
4-5 Years 0.9%
5-6 Years 0%
>6 Years 0%
Not Floating Rate 20.7%

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 directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a 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.

MAPF Performance: January, 2024

Sunday, February 4th, 2024

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close January 31, 2024, was $9.1625.

Performance was affected by MFC.PR.B underperforming with a +3.65% return, NA.PR.W with a +6.07% return and MIC.PR.A with a +6.50% return [after last month’s outperformance]. This was outweighed by good performance from TD.PF.C (+11.96%, after last month’s underperformance), TRP.PR.E (+11.47%) and CU.PR.C (+9.09%, adding to the last two month’s outperformance) [small holdings are not considered for individual mention here].

The last few months have been very good to preferred shareholders, following the lows of the TXPR price index on 2023-10-31, but yields remain elevated well above those available on instruments with similar risk.

FixedResets continue to yield more, in general, than PerpetualDiscounts; on January 31, I reported median YTWs of 7.51% and 6.56%, respectively, for these two indices; compare with mean Current Yields of 6.41% and 5.59%, respectively. RY.PR.J, to take a representative example, is calculated by HIMIPref™ as having a yield-to-worst of 7.59% at monthend (Current Yield of 3.98%); bid at 19.80, resetting 2025-5-24 at a spread of 274bp over GOC-5 (assumed to be constant at 3.57%) and currently paying 0.80 p.a. (3.20% annually). The next pay-date is 2024-2-24; it is trading ex-dividend.

If we plug the above data into the yield calculator for resets (which is discussed here and has recently been slightly modified), we arrive at a annualized (compounded semi-annually) yield of 7.60% for RY.PR.J . To take this 1bp (the difference between the spreadsheets and HIMIPref™) above the PerpetualDiscount median index yield of 6.56% (to account for the calculation methodological differences), which is to say 6.57%, requires the assumption that GOC-5 will be 2.65% forever, as opposed the ‘constant rate’ assumption of 3.57%. Well … pays yer money and takes yer chances, gents! Assiduous Readers with long memories will liken this to all the calculations of Break-even Rate Shock when the puzzle represented the same problem with a different sign! Note that even if the unfavourable scenario of GOC-5 = 2.65% is realized, this has only reduced the yield of RY.PR.J to that of the median adjusted PerpetualDiscount yield of 6.57%, which isn’t the worst outcome one might fear from one’s investments!

Returns to January 31, 2024
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month +8.16% +5.81% N/A
Three Months +21.48% +16.78% N/A
One Year +13.61% +4.47% +3.90%
Two Years (annualized) -3.86% -4.18% N/A
Three Years (annualized) +6.43% +2.22% +1.68%
Four Years (annualized) +8.61% +3.83% N/A
Five Years (annualized) +6.96% +3.88% +3.29%
Six Years (annualized) +2.77% +1.46% N/A
Seven Years (annualized) +5.14% +2.76% N/A
Eight Years (annualized) +8.59% +5.23% N/A
Nine Years (annualized) +4.14% +2.05% N/A
Ten Years (annualized) +4.21% +1.95% +1.45%
Eleven Years (annualized) +3.48% +1.55%  
Twelve Years (annualized) +3.77% +1.78%  
Thirteen Years (annualized) +3.83% +2.15%  
Fourteen Years (annualized) +4.77% +2.62%  
Fifteen Years (annualized) +7.46% +3.84%  
Sixteen Years (annualized) +7.30% +2.62%  
Seventeen Years (annualized) +6.89%    
Eighteen Years (annualized) +6.82%    
Nineteen Years (annualized) +6.76%    
Twenty Years (annualized) +7.00%    
Twenty-One Years (annualized) +7.89%    
Twenty-Two Years (annualized) +7.65%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
Figures for National Bank Preferred Equity Income Fund [NBC780F] (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are +7.47%, +17.51% and +6.19%, respectively, according to National Bank Investments after all fees & expenses. Three year performance is +4.04%; five year is +5.50%; ten year is +3.64%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are +7.03%, +17.69% & +7.82%, respectively. Three year performance is +4.03%, five-year is +4.86%, ten year is +2.81%
Figures for National Bank Preferred Equity Fund [NBC710F] (formerly Altamira Preferred Equity Fund) are +7.61%, +18.20% and +8.94% for one-, three- and twelve months, respectively. Three year performance is +4.44%; five-year is +5.16%; ten-year is +2.95%

Acccording 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 last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO Laddered Preferred Share Index ETF (ZPR) is +7.68% for the past twelve months. Two year performance is -3.04%, three year is +4.01%, five year is +4.78%, ten year is +1.42%
Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to Morningstar are +5.65%, +15.47% and +3.04% for the past one-, three- and twelve-months, respectively. Three year performance is +0.19%; five-year is +1.84%; ten-year is -0.03%.

Note that figures from BMO are highly suspicious, so I have used figures from Morningstar

Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023
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).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are +5.9%, +14.9% and +7.1% for the past one, three and twelve months, respectively. Three year performance is +5.0%, five-year is +4.1%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are +5.90%, +16.47% and +4.36% for the past one, three and twelve months, respectively. Two year performance is -4.91%, three-year is +1.74%, five-year is +2.79%
Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as +7.18%, +18.95% and +4.46% for the past one, three and twelve months, respectively. Three-year performance is +2.76%, five-year is +3.88%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are +%, +% and +% for the past one, three and twelve months, respectively. Three-year performance is +%; five-year is +%
Figures for the Purpose Canadian Preferred Share Fund (Class F) are +5.79%, +15.92% and +8.52% for the past one, three and twelve months, respectively. Three-year performance is +4.97%; five-year is +5.50%; seven-year is +2.83%; ten-year is +5.20%.

The five-year Canada yield increased, with the five-year Canada yield (“GOC-5”) rising from 3.31% at December month-end to 3.57% at January month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 340bp on 2024-1-31, down precipituously from 430bp as of 2023-12-27 (chart end-date 2024-1-12) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly from its 2021-11-10 low of 344bp to a level of 636bp (as of 2024-1-31) … (chart end-date 2024-01-12):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -124bp (as of 2024-1-31) from its 2021-7-28 level of +170bp (chart end-date 2024-01-12):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues.

There is no significant correlation between the Issue Reset Spread and 3-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues.

There was a correlation for the Pfd-2 Group (11%) but none for the Pfd-3 Group for 1-Month performance against term-to-reset (just like last month, but this time the slope of the correlation is negative):

… and last month’s correlation for three-month returns vs. Term to Reset for the Pfd-2 Group has disappeared:

It should be noted that to some extent a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August 2022 PrefLetter. In the three months from October 31 to January 31, the GOC-5 rate declined from 4.16% to 3.57%, but this has had little effect. At present the situation is chaotic.

Upwards-sloping correlations of Performance vs. Term are to be expected when GOC-5 declines.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year-odd has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2024-1-12).

I will note that the fund’s current holdings of FixedResets are now paying dividends based on their previous reset at an average GOC-5 rate of 1.31% (weighted by shares held). While nobody knows what the future might bring, I suggest that we won’t see GOC-5 return to that level again for a while!

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 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
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
June 30 8.0197 9.19% 1.003 9.163% 1.0000 $0.7348
September 29 7.9922 9.86% 0.997 9.890% 1.0000 $0.7904
Decenber 29, 2023 8.4715 8.14% 1.002 8.124% 1.0000 $0.6882
January 31, 2024 9.1625 7.89% 0.996 7.922% 1.0000 $0.7258
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 or the regulator (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 the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

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

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
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%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March, 2023 2.93% 4.44%
June 3.74% 5.00%
September 4.31% 5.21%
December, 2023 3.21% 5.13%
January, 2024 3.57% 5.11%

MAPF Portfolio Composition: January 2024

Sunday, February 4th, 2024

Turnover declined to 5% in January, the absence of tax-loss selling and the market’s violent move upwards combined to make trading difficult.

Sectoral distribution of the MAPF portfolio on January 31, 2024, were:

MAPF Sectoral Analysis 2024-1-31
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 0% N/A N/A
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 9.0% 6.92% 12.65
Fixed-Reset Discount 65.8% 7.83% 11.95
Insurance – Straight 6.9% 6.12% 13.69
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 0% N/A N/A
Scraps – Ratchet 0% N/A N/A
Scraps – FixedFloater 1.4% 9.79% 10.95
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 3.3% 7.69% 2.17
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 0% N/A N/A
Scraps – FR Discount 13.2% 9.83% 10.15
Scraps – Insurance Straight 0% N/A N/A
Scraps – FloatingReset 0% N/A N/A
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 0% N/A N/A
Cash +0.4% 0.00% 0.00
Total 100% 7.89% 11.52
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
DeemedRetractibles were 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 or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.

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 and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others.

The name of this subindex has been changed to “Insurance Straight” as of November, 2020

Calculations of yield and related attributes of resettable instruments are performed assuming a constant GOC-5 rate of 3.57%, a constant 3-Month Bill rate of 5.11% and a constant Canada Prime Rate of 7.20%

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 2024-01-31
DBRS Rating MAPF Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 40.7%
Pfd-2 32.1%
Pfd-2(low) 9.0%
Pfd-3(high) 9.6%
Pfd-3 2.5%
Pfd-3(low) 5.5%
Pfd-4(high) 0.3%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0%
Pfd-5 0%
Cash +0.3%
Totals will not add precisely due to rounding.
A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous.

Liquidity Distribution is:

MAPF Liquidity Analysis 2024-01-31
Average Daily Trading MAPF Weighting
<$50,000 5.3%
$50,000 – $100,000 16.5%
$100,000 – $200,000 43.2%
$200,000 – $300,000 26.8%
>$300,000 7.9%
Cash +0.4%
Totals will not add precisely due to rounding.

The distribution of Issue Reset Spreads is:

Range MAPF Weight
<100bp 0%
100-149bp 0%
150-199bp 7.4%
200-249bp 57.5%
250-299bp 12.7%
300-349bp 1.6%
350-399bp 0.9%
400-449bp 0%
450-499bp 0%
500-549bp 0%
550-599bp 0%
>= 600bp 0%
Undefined 19.8%

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

Range MAPF Weight
Currently Floating 1.1%
0-1 Year 25.0%
1-2 Years 28.0%
2-3 Years 14.3%
3-4 Years 12.2%
4-5 Years 0.9%
5-6 Years 0%
>6 Years 0%
Not Floating Rate 18.4%

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 directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a 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.

MAPF Performance: December, 2023

Monday, January 1st, 2024

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close December 29, 2023, was $8.4715 after a dividend distribution on $0.126972.

Performance was affected by TD.PF.C underperforming with a -1.86% return [after last month’s outperformance], PWF.PR.P with a -0.98% return [after last month’s outperformance] and FTS.PR.M with a -0.40% return [repeating last month’s underperformance]. This was mitigated by good performance from MIC.PR.A (+6.40%, following two months of underperformance), BN.PR.R (+5.34%, adding to last month’s outperformance) and CU.PR.C (+3.74%, following last month’s underperformance [small holdings are not considered for individual mention here]. There was more reversion than usual this month!

I feel it is only a matter of time before investors start paying attention to the fundamental risk of these instruments compared to their eye-popping interest-equivalent yields … but as always the best policy is to shut up and clip your coupons. The market continues to give considerable weight to Current Yield as a measure of valuation, ignoring or strongly deprecating the potential for large dividend increases on the next few years of resets.

FixedResets continue to yield more, in general, than PerpetualDiscounts; on December 29, I reported median YTWs of 7.65% and 6.86%, respectively, for these two indices; compare with mean Current Yields of 5.83% and 6.71%, respectively. RY.PR.J, to take a representative example, is calculated by HIMIPref™ as having a yield-to-worst of 7.62% at monthend (Current Yield of 4.22%); bid at 18.94, resetting 2025-5-24 at a spread of 274bp over GOC-5 (assumed to be constant at 3.21%) and currently paying 0.80 p.a. (3.20% annually). The next pay-date is 2024-2-24; it is trading cum-dividend.

If we plug the above data into the yield calculator for resets (which is discussed here and has recently been slightly modified), we arrive at a annualized (compounded semi-annually) yield of 7.55% for RY.PR.J . To take this 7bp (the difference between the spreadsheets and HIMIPref™) above the PerpetualDiscount median index yield of 6.86% (to account for the calculation methodological differences), which is to say 6.93%, requires the assumption that GOC-5 will be 2.68% forever, as opposed the ‘constant rate’ assumption of 3.21%. Well … pays yer money and takes yer chances, gents! Assiduous Readers with long memories will liken this to all the calculations of Break-even Rate Shock when the puzzle represented the same problem with a different sign! Note that even if the unfavourable scenario of GOC-5 = 2.68% is realized, this has only reduced the yield of RY.PR.J to that of the median adjusted PerpetualDiscount yield of 6.93%, which isn’t the worst outcome one might fear from one’s investments!

Returns to December 29, 2023
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month +0.59% +0.82% N/A
Three Months +7.59% +7.28% N/A
One Year +11.98% +5.90% +5.33%
Two Years (annualized) -6.67% -6.86% N/A
Three Years (annualized) +5.09% +1.17% +0.64%
Four Years (annualized) +6.65% +2.39% N/A
Five Years (annualized) +4.87% +2.61% +2.04%
Six Years (annualized) +2.23% +0.77% N/A
Seven Years (annualized) +4.80% +2.52% N/A
Eight Years (annualized) +5.59% +3.06% N/A
Nine Years (annualized) +2.55% +0.89% N/A
Ten Years (annualized) +3.51% +1.46% +0.97%
Eleven Years (annualized) +2.79% +1.08%  
Twelve Years (annualized) +3.59% +1.45%  
Thirteen Years (annualized) +3.45% +1.77%  
Fourteen Years (annualized) +4.32% +2.19%  
Fifteen Years (annualized) +7.61% +3.68%  
Sixteen Years (annualized) +6.86% +2.26%  
Seventeen Years (annualized) +6.34%    
Eighteen Years (annualized) +6.37%    
Nineteen Years (annualized) +6.35%    
Twenty Years (annualized) +6.69%    
Twenty-One Years (annualized) +7.84%    
Twenty-Two Years (annualized) +7.52%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
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 +0.43%, +5.75% and +4.75%, respectively, according to Globe & Mail / Fundata after all fees & expenses. Three year performance is +1.85%; five year is +3.12%; ten year is +2.14%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are +0.83%, +7.32% & +7.50%, respectively. Three year performance is +2.76%, five-year is +3.36%, ten year is +2.18%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are +0.42%, +7.27% and +8.15% for one-, three- and twelve months, respectively. Three year performance is +2.98%; five-year is +3.56%; ten-year is +2.28%

Acccording 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 last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO Laddered Preferred Share Index ETF (ZPR) is +6.98% for the past twelve months. Two year performance is -5.99%, three year is +2.96%, five year is +3.33%, ten year is +0.87%
Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to Morningstar are +0.02%, +5.96% and +3.84% for the past one-, three- and twelve-months, respectively. Three year performance is -0.82%; five-year is +0.55%; ten-year is -0.53%.

Note that figures from BMO are highly suspicious, so I have used figures from Morningstar

Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023
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).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are +0.7%, +7.1% and +8.3% for the past one, three and twelve months, respectively. Three year performance is +4.3%, five-year is +2.8%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are +1.26%, +7.30% and +6.00% for the past one, three and twelve months, respectively. Two year performance is -6.80%, three-year is +1.48%, five-year is +2.32%
Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as +0.96%, +7.55% and +3.27% for the past one, three and twelve months, respectively. Three-year performance is +1.35%, five-year is +2.14%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are +0.9%, +7.2% and +7.3% for the past one, three and twelve months, respectively. Three-year performance is +5.0%; five-year is +4.9%
Figures for the Purpose Canadian Preferred Share Fund (Class F) are +0.59%, +7.47% and +8.82% for the past one, three and twelve months, respectively. Three-year performance is +4.59%; five-year is +4.13%; seven-year is +2.55%; ten-year is +4.47%.

The five-year Canada yield declined, with the five-year Canada yield (“GOC-5”) falling from 3.82% at November month-end to 3.31% at December month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 430bp as of 2023-12-27 (chart end-date 2023-12-08) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly from its 2021-11-10 low of 344bp to a level of 692bp (as of 2023-12-27) … (chart end-date 2023-12-08):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -105bp (as of 2023-12-27) from its 2021-7-28 level of +170bp (chart end-date 2023-12-8):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues.

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues.

There was a correlation for the Pfd-2 Group (11%) but none for the Pfd-3 Group for 1-Month performance against term-to-reset:

… and the same for three-month returns vs. Term to Reset (correlation for Pfd-2 was 19%):

It should be noted that to some extent such a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August 2022 PrefLetter. In the three months from August 31 to November 30, the GOC-5 rate declined from 4.08% to 3.82%, but this is a small move by recent standards. The smaller correlations may indicate a regime shift from recognition of a rise to expectation of declines in five-year yields, but at present the situation is chaotic.

Upwards-sloping correlations of Performance vs. Term are to be expected when GOC-5 declines.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year-odd has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2023-12-8).

I will note that the fund’s current holdings of FixedResets are now paying dividends based on their previous reset at an average GOC-5 rate of 1.29% (weighted by shares held). While nobody knows what the future might bring, I suggest that we won’t see GOC-5 return to that level again for a while!

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 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
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
June 30 8.0197 9.19% 1.003 9.163% 1.0000 $0.7348
September 29 7.9922 9.86% 0.997 9.890% 1.0000 $0.7904
Decenber 28, 2023 8.4715 8.14% 1.002 8.124% 1.0000 $0.6882
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 or the regulator (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 the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

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

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
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%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March, 2023 2.93% 4.44%
June 3.74% 5.00%
September 4.31% 5.21%
December, 2023 3.21% 5.13%

MAPF Portfolio Composition: December, 2023

Sunday, December 31st, 2023

Turnover remained high at 18% in December, made possible by what seemed to be tax-loss selling.

Sectoral distribution of the MAPF portfolio on December 29, 2023, were:

MAPF Sectoral Analysis 2023-12-29
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 0% N/A N/A
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 9.7% 7.24% 12.27
Fixed-Reset Discount 67.3% 7.95% 11.76
Insurance – Straight 5.5% 6.32% 13.46
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 0% N/A N/A
Scraps – Ratchet 0% N/A N/A
Scraps – FixedFloater 1.4% 10.48% 10.33
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 3.5% 8.20% 2.25
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 0% N/A N/A
Scraps – FR Discount 12.7% 10.27% 9.96
Scraps – Insurance Straight 0% N/A N/A
Scraps – FloatingReset 0% N/A N/A
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 0% N/A N/A
Cash -0.2% 0.00% 0.00
Total 100% 8.14% 11.34
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
DeemedRetractibles were 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 or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.

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 and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others.

The name of this subindex has been changed to “Insurance Straight” as of November, 2020

Calculations of yield and related attributes of resettable instruments are performed assuming a constant GOC-5 rate of 3.21%, a constant 3-Month Bill rate of 5.13% and a constant Canada Prime Rate of 7.20%

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 2023-12-29
DBRS Rating MAPF Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 40.0%
Pfd-2 33.1%
Pfd-2(low) 9.5%
Pfd-3(high) 9.5%
Pfd-3 3.8%
Pfd-3(low) 4.1%
Pfd-4(high) 0.3%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0%
Pfd-5 0%
Cash -0.2%
Totals will not add precisely due to rounding.
A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous.

Liquidity Distribution is:

MAPF Liquidity Analysis 2023-12-29
Average Daily Trading MAPF Weighting
<$50,000 5.3%
$50,000 – $100,000 27.9%
$100,000 – $200,000 37.7%
$200,000 – $300,000 26.0%
>$300,000 3.2%
Cash -0.2%
Totals will not add precisely due to rounding.

The distribution of Issue Reset Spreads is:

Range MAPF Weight
<100bp 0%
100-149bp 0%
150-199bp 6.4%
200-249bp 57.3%
250-299bp 13.7%
300-349bp 1.3%
350-399bp 1.4%
400-449bp 0%
450-499bp 0%
500-549bp 0%
550-599bp 0%
>= 600bp 0%
Undefined 20.0%

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

Range MAPF Weight
Currently Floating 0%
0-1 Year 24.8%
1-2 Years 29.1%
2-3 Years 14.3%
3-4 Years 12.3%
4-5 Years 1.0%
5-6 Years 0%
>6 Years 0%
Not Floating Rate 18.6%

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 directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a 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.

MAPF Performance: November, 2023

Sunday, December 3rd, 2023

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close Novembeer 30, 2023, was $8.5480.

Performance was affected by FTS.PR.M underperforming with a mere +6.41% gain [it outperformed last month], CU.PR.C at +8.71% and MIC.PR.A at +9.90% [repeating last month’s underperformance]. This was mitigated by good performance from PWF.PR.P (+15.91%), BN.PR.R (+13.87%) [after two months of underperformance] and TD.PF.C (+12.48%) [small holdings are not considered for individual mention here].

I feel it is only a matter of time before investors start paying attention to the fundamental risk of these instruments compared to their eye-popping interest-equivalent yields … and perhaps they have already and we have just seen the tide turn due to hopes that monetary policy will soon loosen, reinforced by good news for property insurers with respect to taxation of dividends from their preferred share holdings. But we’ve seen false starts before, so as always the best policy is to shut up and clip your coupons. The market continues to give considerable weight to Current Yield as a measure of valuation, ignoring or strongly deprecating the potential for large dividend increases on the next few years of resets.

FixedResets continue to yield more, in general, than PerpetualDiscounts; on November 30, I reported median YTWs of 8.21% and 6.94%, respectively, for these two indices; compare with mean Current Yields of 5.82% and 6.76%, respectively. RY.PR.J, to take a representative example, is calculated by HIMIPref™ as having a yield-to-worst of 8.31% at monthend (Current Yield of 4.24%); bid at 18.89, resetting 2025-5-24 at a spread of 274bp over GOC-5 (assumed to be constant at 3.82%) and currently paying 0.80 p.a. (3.20% annually). The next pay-date is 2024-2-24; it is trading cum-dividend.

If we plug the above data into the yield calculator for resets (which is discussed here and has recently been slightly modified), we arrive at a annualized (compounded semi-annually) yield of 8.21% for RY.PR.J . To take this 10bp (the difference between the spreadsheets and HIMIPref™) above the PerpetualDiscount median index yield of 6.94% (to account for the calculation methodological differences), which is to say 7.04%, requires the assumption that GOC-5 will be 2.79% forever, as opposed the ‘constant rate’ assumption of 3.82%. Well … pays yer money and takes yer chances, gents! Assiduous Readers with long memories will liken this to all the calculations of Break-even Rate Shock when the puzzle represented the same problem with a different sign! Note that even if the unfavourable scenario of GOC-5 = 2.79% is realized, this has only reduced the yield of RY.PR.J to that of the median adjusted PerpetualDiscount yield of 7.04%, which isn’t the worst outcome one might fear from one’s investments!

Returns to November 30, 2023
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month +11.66% +9.47% N/A
Three Months +10.95% +7.93% N/A
One Year +8.63% +3.21% +2.66%
Two Years (annualized) -7.06% -6.62% N/A
Three Years (annualized) +6.95% +1.70% +1.17%
Four Years (annualized) +7.79% +2.81% N/A
Five Years (annualized) +4.12% +2.12% +1.54%
Six Years (annualized) +2.14% +0.64% N/A
Seven Years (annualized) +5.55% +2.91% N/A
Eight Years (annualized) +5.77% +3.25% N/A
Nine Years (annualized) +2.50% 0.76% N/A
Ten Years (annualized) +3.28% +1.23% N/A
Eleven Years (annualized) +2.84% +1.10%  
Twelve Years (annualized) +3.61% +1.49%  
Thirteen Years (annualized) +3.38% +1.71%  
Fourteen Years (annualized) +4.39% +2.27%  
Fifteen Years (annualized) +8.71% +4.11%  
Sixteen Years (annualized) +7.11% +2.28%  
Seventeen Years (annualized) +6.36%    
Eighteen Years (annualized) +6.37%    
Nineteen Years (annualized) +6.38%    
Twenty Years (annualized) +6.79%    
Twenty-One Years (annualized) +7.81%    
Twenty-Two Years (annualized) +7.37%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
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 +8.78%, +6.85% and +2.71%, respectively, according to Globe & Mail / Fundata after all fees & expenses. Three year performance is +2.70%; five year is +2.85%; ten year is +1.98%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are +9.04%, +8.11% & +5.56%, respectively. Three year performance is +3.70%, five-year is +2.72%, ten year is +1.96%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are +9.38%, +9.09% and +6.60% for one-, three- and twelve months, respectively. Three year performance is +4.10%; five-year is +3.01%; ten-year is +3.08%

Acccording 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 last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is +4.48% for the past twelve months. Two year performance is -5.75%, three year is +3.89%, five year is +2.72%, ten year is +0.64%
Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to Morningstar are +9.28%, +7.94% and +2.65% for the past one-, three- and twelve-months, respectively. Three year performance is +0.02%; five-year is +0.07%; ten-year is -0.64%.

Note that figures from BMO are highly suspicious, so I have used figures from Morningstar

Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023
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).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are -%, -% and -% for the past one, three and twelve months, respectively. Three year performance is +%, five-year is -%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are +8.69%, +7.06% and +2.61% for the past one, three and twelve months, respectively. Two year performance is -7.63%, three-year is +1.09%, five-year is +0.86%
Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as +10.13%, +7.59% and +0.84% for the past one, three and twelve months, respectively. Three-year performance is ++2.41%, five-year is +1.62%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are +9.0%, +7.9% and +5.5% for the past one, three and twelve months, respectively. Three-year performance is +6.1%; five-year is +4.3%
Figures for the Purpose Canadian Preferred Share Fund (Class F) are +8.93%, +9.48% and +5.83% for the past one, three and twelve months, respectively. Three-year performance is +6.13%; five-year is +3.24%; seven-year is +3.08%; ten-year is +4.67%.

The five-year Canada yield declined, with the five-year Canada yield (“GOC-5”) falling from 4.16% at October month-end to 3.82% at November month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 375bp as of 2023-11-29 (chart end-date 2023-11-10) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly from its 2021-11-10 low of 344bp a level of 705bp (as of 2023-11-29) … (chart end-date 2023-11-10):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -159bp (as of 2023-11-29) from its 2021-7-28 level of +170bp (chart end-date 2023-11-10):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues.

Bigger news is that the normally moderate correlation between Issue Reset Spread and three-month performance has returned in this month’s check – at least for the Pfd-2 Group (20%)

This may be taken as at least a small sign that fundamentals such as credit quality, rather than interest-rate anticipation, are regaining importance in FixedReset pricing.

There was no significant correlation for either the Pfd-2 Group or the Pfd-3 Group for 1-Month performance against term-to-reset:

… and for three-month performance against term-to-reset, there was no correlation for the Pfd-2 Group but a small one (12%) for the Pfd-3 Group:

It should be noted that to some extent such a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August 2022 PrefLetter. In the three months from August 31 to November 30, the GOC-5 rate declined from 4.08% to 3.82%, but this is a small move by recent standards. The smaller correlations may indicate a regime shift from recognition of a rise to expectation of declines in five-year yields, but at present the situation is chaotic.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year-odd has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2023-11-10).

I will note that the fund’s current holdings of FixedResets are now paying dividends based on their previous reset at an average GOC-5 rate of 1.27% (weighted by shares held). While nobody knows what the future might bring, I suggest that we won’t see GOC-5 return to that level again for a while!

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 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
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
June 30 8.0197 9.19% 1.003 9.163% 1.0000 $0.7348
September 29 7.9922 9.86% 0.997 9.890% 1.0000 $0.7904
November 30, 2023 8.5480 8.97% 1.006 8.917% 1.0000 $0.7622
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 or the regulator (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 the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

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

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
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%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March, 2023 2.93% 4.44%
June 3.74% 5.00%
September 4.31% 5.21%
November, 2023 3.82% 5.14%

MAPF Portfolio Composition: November, 2023

Sunday, December 3rd, 2023

Turnover remained high at 17% in November, fuelled by market action as investors increasingly took the view that monetary policy will soon loosen, reinforced by good news for property insurers with respect to taxation of dividends from their preferred share holdings.

Sectoral distribution of the MAPF portfolio on November 30, 2023, were:

MAPF Sectoral Analysis 2023-11-30
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 0% N/A N/A
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 6.1% 7.87% 11.46
Fixed-Reset Discount 69.8% 8.72% 11.13
Insurance – Straight 3.4% 6.19% 13.69
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 3.0% 8.35% 11.72
Scraps – Ratchet 0% N/A N/A
Scraps – FixedFloater 1.4% 10.78% 10.19
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 1.2% 7.95% 0.80
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 4.8% 8.84% 10.51
Scraps – FR Discount 15.7% 10.85% 9.43
Scraps – Insurance Straight 0% N/A N/A
Scraps – FloatingReset 0% N/A N/A
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 0% N/A N/A
Cash -0.6% 0.00% 0.00
Total 100% 8.97% 10.92
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
DeemedRetractibles were 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 or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.

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 and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others.

The name of this subindex has been changed to “Insurance Straight” as of November, 2020

Calculations of yield and related attributes of resettable instruments are performed assuming a constant GOC-5 rate of 3.82%, a constant 3-Month Bill rate of 5.14% and a constant Canada Prime Rate of 7.20%

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 2023-11-30
DBRS Rating MAPF Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 42.2%
Pfd-2 31.6%
Pfd-2(low) 8.5%
Pfd-3(high) 11.9%
Pfd-3 1.4%
Pfd-3(low) 4.7%
Pfd-4(high) 0.3%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0%
Pfd-5 0%
Cash -0.6%
Totals will not add precisely due to rounding.
A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous.

Liquidity Distribution is:

MAPF Liquidity Analysis 2023-11-30
Average Daily Trading MAPF Weighting
<$50,000 7.6%
$50,000 – $100,000 42.5%
$100,000 – $200,000 44.2%
$200,000 – $300,000 2.8%
>$300,000 3.5%
Cash -0.6%
Totals will not add precisely due to rounding.

The distribution of Issue Reset Spreads is:

Range MAPF Weight
<100bp 0%
100-149bp 1.4%
150-199bp 13.1%
200-249bp 55.2%
250-299bp 16.4%
300-349bp 1.5%
350-399bp 0.9%
400-449bp 0%
450-499bp 0%
500-549bp 0%
550-599bp 0%
>= 600bp 0%
Undefined 11.5%

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

Range MAPF Weight
Currently Floating 0%
0-1 Year 11.0%
1-2 Years 45.4%
2-3 Years 19.1%
3-4 Years 11.1%
4-5 Years 3.2%
5-6 Years 0%
>6 Years 0%
Not Floating Rate 10.1%

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 directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a 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.

MAPF Performance: October, 2023

Sunday, November 5th, 2023

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close October 31, 2023, was $7.6555.

Performance was affected by MIC.PR.A underperforming at -13.17% [repeating last month’s underperformance], BN.PR.R at -8.11% [repeating last month’s underperformance] and BN.PR.T at -7.69%. This was mitigated by good performance (relatively speaking!) from FTS.PR.M (-0.60%), TRP.PR.A (-2.76%) and RY.PR.J (-3.59%) [small holdings are not considered for individual mention here].

I feel it is only a matter of time before investors start paying attention to the fundamental risk of these instruments compared to their eye-popping interest-equivalent yields. In addition, the market appears to be giving considerable weight to Current Yield as a measure of valuation, ignoring or strongly deprecating the potential for large dividend increases on the next few years of resets.

FixedResets continue to yield more, in general, than PerpetualDiscounts; on October 31, I reported median YTWs of 9.33% and 7.46%, respectively, for these two indices; compare with mean Current Yields of 6.28% and 7.28%, respectively. RY.PR.J, to take a representative example, is calculated by HIMIPref™ as having a yield-to-worst of 9.57% at monthend (Current Yield of 4.72%); bid at 16.96, resetting 2025-5-24 at a spread of 274bp over GOC-5 (assumed to be constant at 4.16%) and currently paying 0.80 p.a. (3.20% annually). The next pay-date is 2023-11-24; it is trading ex-dividend.

If we plug the above data into the yield calculator for resets (which is discussed here and has recently been slightly modified), we arrive at a annualized (compounded semi-annually) yield of 9.46% for RY.PR.J . To take this 11bp (the difference between the spreadsheets and HIMIPref™) above the PerpetualDiscount median index yield of 7.46% (to account for the calculation methodological differences), which is to say 7.57%, requires the assumption that GOC-5 will be 2.64% forever, as opposed the ‘constant rate’ assumption of 4.16%. Well … pays yer money and takes yer chances, gents! Assiduous Readers with long memories will liken this to all the calculations of Break-even Rate Shock when the puzzle represented the same problem with a different sign! Note that even if the unfavourable scenario of GOC-5 = 2.64% is realized, this has only reduced the yield of RY.PR.J to that of the median adjusted PerpetualDiscount yield of 7.57%, which isn’t the worst outcome one might fear from one’s investments!

Returns to October 31, 2023
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month -4.21% -2.80% N/A
Three Months -5.02% -5.55% N/A
One Year -1.72% -6.32% -6.76%
Two Years (annualized) -12.89% -11.42% N/A
Three Years (annualized) +6.23% +0.35% -0.15%
Four Years (annualized) +4.96% +0.81% N/A
Five Years (annualized) +0.09% -0.94% -1.49%
Six Years (annualized) +0.45% -0.75% N/A
Seven Years (annualized) +3.96% +1.50% N/A
Eight Years (annualized) +4.32% +1.93% N/A
Nine Years (annualized) +1.42% -0.17% N/A
Ten Years (annualized) +2.20% +0.44% N/A
Eleven Years (annualized) +1.89% +0.28%  
Twelve Years (annualized) +2.63% +0.75%  
Thirteen Years (annualized) +2.61% +1.03%  
Fourteen Years (annualized) +3.84% +1.78%  
Fifteen Years (annualized) +7.21% +2.67%  
Sixteen Years (annualized) +6.36% +1.63%  
Seventeen Years (annualized) +5.78%    
Eighteen Years (annualized) +5.81%    
Nineteen Years (annualized) +5.84%    
Twenty Years (annualized) +6.30%    
Twenty-One Years (annualized) +7.18%    
Twenty-Two Years (annualized) +6.79%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
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 -3.21%, -5.71% and -5.63%, respectively, according to Globe & Mail / Fundata after all fees & expenses. Three year performance is +1.78%; five year is +0.19%; ten year is +1.24%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are -2.40%, -4.61% & -3.96%, respectively. Three year performance is +2.78%, five-year is -0.53%, ten year is +1.22%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are -2.34%, -4.13% and -3.44% for one-, three- and twelve months, respectively. Three year performance is +3.09%; five-year is -0.29%; ten-year is +1.27%

Acccording 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 last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is -6.06% for the past twelve months. Two year performance is -10.99%, three year is +2.69%, five year is -0.67%, ten year is -0.17%
Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to Morningstar are -3.06%, -5.65% and -7.44% for the past one-, three- and twelve-months, respectively. Three year performance is -1.32%; five-year is -3.11%; ten-year is -1.42%.

Note that figures from BMO are highly suspicious, so I have used figures from Morningstar

Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023
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).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are -1.3%, -2.7% and -2.7% for the past one, three and twelve months, respectively. Three year performance is +5.1%, five-year is -0.7%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are -2.64%, -5.48% and -5.98% for the past one, three and twelve months, respectively. Two year performance is -12.08%, three-year is -0.05%, five-year is -2.12%
Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as -3.13%, -7.09% and -9.39% for the past one, three and twelve months, respectively. Three-year performance is +1.19%, five-year is -1.81%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are -2.5%, -4.6% and -3.1% for the past one, three and twelve months, respectively. Three-year performance is +5.4%; five-year is +1.1%
Figures for the Purpose Canadian Preferred Share Fund (Class F) are -1.92%, -3.36% and -4.61% for the past one, three and twelve months, respectively. Three-year performance is +5.66%; five-year is -0.40%; seven-year is +1.92%; ten-year is +3.99%.

The five-year Canada yield declined, with the five-year Canada yield (“GOC-5”) rising from 4.31% at September month-end to 4.16% at October month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 375bp as of 2023-11-01 (chart end-date 2023-10-13) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly from its 2021-11-10 low of 344bp a level of 819bp (as of 2023-10-25) … (chart end-date 2023-10-13):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -276bp (as of 2023-10-25) from its 2021-7-28 level of +170bp (chart end-date 2023-10-13):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for the Pfd-2 but a small one exists (12%) Pfd-3 Group issues.

However, the normally moderate correlations between Issue Reset Spread and three-month performance have disappeared again in this month’s check:

There was no significant correlation for either the Pfd-2 Group or the Pfd-3 Group for 1-Month performance against term-to-reset:

… and for three-month performance against term-to-reset, there were correlations for both the Pfd-2 Group (23%) and the Pfd-3 Group (18%):

It should be noted that to some extent such a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August 2022 PrefLetter. In the three months from June 30 to September 29, the GOC-5 rate increased from 3.97% to 4.16%, but this is a small move by recent standards. The smaller three-month correlations and the lack of significant one-month correlations may indicate a regime shift from recognition of a rise to expectation of declines in five-year yields, but at present the situation is chaotic.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year-odd has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2023-9-8).

I will note that the fund’s current holdings of FixedResets are now paying dividends based on their previous reset at an average GOC-5 rate of 1.36% (weighted by shares held). While nobody knows what the future might bring, I suggest that we won’t see GOC-5 return to that level again for a while!

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 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
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
June 30 8.0197 9.19% 1.003 9.163% 1.0000 $0.7348
September 29 7.9922 9.86% 0.997 9.890% 1.0000 $0.7904
October 31, 2023 7.6555 10.15% 0.994 10.211% 1.0000 $0.7817
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 or the regulator (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 the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

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

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
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%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March, 2023 2.93% 4.44%
June 3.74% 5.00%
September 4.31% 5.21%
October, 2023 4.16% 5.15%

MAPF Portfolio Composition: October, 2023

Sunday, November 5th, 2023

Turnover exploded to 24% in October, fuelled by market action following the September announcement of the surprise redemption of TD.PF.K, reinforced by a seeiming overall view that interest rates were on the rise (although I remain bewildered as to why this should have such an effect on FixedResets) and, on the last day of the month, a big rise in the market that may have been simply reinvestment of the TD.PF.K redemption proceeds, but which events in the first three days of November suggest might have marked a turn of the tide – at least for a week or two, anyway!

Sectoral distribution of the MAPF portfolio on October 31, 2023, were:

MAPF Sectoral Analysis 2023-10-31
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 0% N/A N/A
Interest Rearing 0% N/A N/A
PerpetualPremium 0% N/A N/A
PerpetualDiscount 0% N/A N/A
Fixed-Reset Discount 64.1% 10.08% 10.03
Insurance – Straight 4.7% 7.07% 12.41
FloatingReset 0% N/A N/A
FixedReset Premium 0% N/A N/A
FixedReset Bank non-NVCC 0% N/A N/A
FixedReset Insurance non-NVCC 7.9% 9.23% 10.60
Scraps – Ratchet 0% N/A N/A
Scraps – FixedFloater 1.4% 11.77% 9.59
Scraps – Floater 0% N/A N/A
Scraps – OpRet 0% N/A N/A
Scraps – SplitShare 0% N/A N/A
Scraps – PerpPrem 0% N/A N/A
Scraps – PerpDisc 4.8% 8.84% 10.51
Scraps – FR Discount 16.5% 12.35% 8.65
Scraps – Insurance Straight 0% N/A N/A
Scraps – FloatingReset 0% N/A N/A
Scraps – FR Premium 0% N/A N/A
Scraps – Bank non-NVCC 0% N/A N/A
Scraps – Ins non-NVCC 0% N/A N/A
Cash +0.6% 0.00% 0.00
Total 100% 10.15% 9.92
Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero.
The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices.
DeemedRetractibles were 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 or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.

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 and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others.

The name of this subindex has been changed to “Insurance Straight” as of November, 2020

Calculations of yield and related attributes of resettable instruments are performed assuming a constant GOC-5 rate of 4.16%, a constant 3-Month Bill rate of 5.15% and a constant Canada Prime Rate of 7.20%

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 2023-10-31
DBRS Rating MAPF Weighting
Pfd-1 0
Pfd-1(low) 0
Pfd-2(high) 45.9%
Pfd-2 19.3%
Pfd-2(low) 16.4%
Pfd-3(high) 13.0%
Pfd-3 1.4%
Pfd-3(low) 3.3%
Pfd-4(high) 0.3%
Pfd-4 0%
Pfd-4(low) 0%
Pfd-5(high) 0%
Pfd-5 0%
Cash +0.6%
Totals will not add precisely due to rounding.
A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous.

Liquidity Distribution is:

MAPF Liquidity Analysis 2023-10-31
Average Daily Trading MAPF Weighting
<$50,000 16.4%
$50,000 – $100,000 27.4%
$100,000 – $200,000 38.1%
$200,000 – $300,000 17.5%
>$300,000 0%
Cash +0.6%
Totals will not add precisely due to rounding.

The distribution of Issue Reset Spreads is:

Range MAPF Weight
<100bp 0%
100-149bp 1.8%
150-199bp 13.8%
200-249bp 52.4%
250-299bp 18.4%
300-349bp 1.2%
350-399bp 1.0%
400-449bp 0%
450-499bp 0%
500-549bp 0%
550-599bp 0%
>= 600bp 0%
Undefined 11.4%

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

Range MAPF Weight
Currently Floating 0%
0-1 Year 9.2%
1-2 Years 43.2%
2-3 Years 18.7%
3-4 Years 12.4%
4-5 Years 6.3%
5-6 Years 0%
>6 Years 0%
Not Floating Rate 10.1%

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 directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a 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.