PrefBlog

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close January 31, 2023, was $8.5200.

Performance was hurt by the fund’s overweight holdings in FixedResets, which underperformed PerpetualDiscounts during the month (the Solactive Laddered Canadian Preferred Share Index returned +6.42% while TXPR, which includes a significant weight in Straight Preferreds, returned +7.27%). More particularly, MFC.PR.F [again!] (+2.83%), TRP.PR.A [again!] (+4.34%) and GWO.PR.N (+4.73%) underperformed while this was mitigated by good performance by MIC.PR.A [again!] (+11.78%), FTS.PR.K (+9.32%) and FTS.PR.M [rebounding!] (+8.55%) [small holdings are not considered for mention here].

There is still a pronounced ‘risk-off’ sentiment in the market, but 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.

The five-year Canada yield continued its drop that started in late October, with the five-year Canada yield (“GOC-5”) declining from 3.37% at December month-end to 3.07% at January month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) has recently declined to 290bp (as of 2023-2-1) and is very volatile (chart end-date 2023-1-13) :

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 to its current level of 638bp (as of 2023-2-1) … (chart end-date 2023-1-13):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -153bp (as of 2023-1-31) from its 2021-7-28 level of +170bp (chart end-date 2023-1-13):

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, which is normal because there is a lot of noise in this inefficient market.

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 groups for 1-Month performance against term-to-reset, despite the change in the GOC-5 yield from 3.37% to 3.07%) during the period:

… and for three-month performance, there was again no correlation for either group; here, the change in GOC-5 was from 3.45% to 3.07%:

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 PrefLetter.

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, including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year 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 2023-01-13).

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

Turnover was high at 14% in January, due to distortions in relative pricing. Market volumes have been very low for quite some time, having never really recovered from the usual summer decline in 2021.

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

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:

Liquidity Distribution is:

The distribution of Issue Reset Spreads is:

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”.

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.

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close December 30, 2022, was $7.9921 after a dividend distribution of 0.096894.

Performance was hurt by the fund’s holdings in TRP.PR.A (-5.35%), FTS.PR.M (-3.79%) and MFC.PR.F (-3.79%). This was mitigated by good performance by PWF.PR.P (+0.89%) and MIC.PR.A (-0.90%) [small holdings are not considered for mention here]. There was no major pattern apparent in the relative performance of the issues held.

There is still a pronounced ‘risk-off’ sentiment in the market as interest rates rise, but 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.

It has been a very strange year, with the fund having a total return of -22.21%, while at the same time the expected securities income per unit rising 47%, from $0.4635 in December, 2021 to $0.6796 in December 2022 (based on the assumption that contemporary Canada 5-year yields will remain constant forever). Very specific and rather extreme assumptions about market expectations for bond market yields have to be made in order to reconcile those two indicators!

The five-year Canada yield partially reversed its recent drop that started in late October, with the five-year Canada yield (“GOC-5”) rising from 3.21% at November month-end to 3.37% at December month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) has recently popped up to 330bp (as of 2022-12-28) and is very volatile (chart end-date 2022-12-9) :

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 its current level of 690bp (as of 2022-12-28) … (chart end-date 2022-12-9):

…while at the same time the spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -132bp (as of 2022-12-30) from its 2021-7-28 level of +170bp (chart end-date 2022-12-9):

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, which is normal because there is a lot of noise in this inefficient market.

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 groups for 1-Month performance against term-to-reset (just 10% for the Pfd-3 group, shown), but as the GOC-5 rate was little changed (from 3.21% to 3.37%) during the period, the existence of a relationship was was a longshot:

… and for three-month performance, a small (12%) correlation for Pfd-2 was observed, but nothing for Pfd-3; here, the change in GOC-5 was insignificant, from 3.45% to 3.37%:

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 PrefLetter.

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, including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year 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 2022-12-9).

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

Turnover picked up to 11% in December, as tax-loss selling season increased volumes and caused distortion is relative pricing. Market volumes have been very low for quite some time, having never really recovered from the usual summer decline in 2021.

Sectoral distribution of the MAPF portfolio on December 30, 2022, were:

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:

Liquidity Distribution is:

The distribution of Issue Reset Spreads is:

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”.

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.

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close November 30, 2022, was $8.2896.

Performance was hurt by the fund’s holdings in MIC.PR.A (-7.22%), FTS.PR.K (-1.61%) and IFC.PR.A (-1.06%). This was offset by good performance by MFC.PR.F (+6.47%), GWO.PR.N (+6.01%) and SLF.PR.G (+5.17%) [small holdings are not considered for mention here]. There was no major pattern apparent in the relative performance of the issues held.

There is still a pronounced ‘risk-off’ sentiment in the market as interest rates rise, but 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.

The five-year Canada yield continued the drop that started in late October during November, with the five-year Canada yield (“GOC-5”) falling from 3.45% at October month-end to 3.21% at November month-end.

Commentary coming soon!

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

Turnover picked up slightly to 4% in October as liquidity continued to decline. Market volumes have been very low for quite some time, having never really recovered from the usual summer decline in 2021.

Sectoral distribution of the MAPF portfolio on November 30, 2022, were:

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:

Liquidity Distribution is:

The distribution of Issue Reset Spreads is:

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”.

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.

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close October 31, 2022, was $8.2062.

Performance was hurt by the fund’s holdings in INE.PR.A (-7.93%), PWF.PR.P (-6.42%) and CVE.PR.G (-6.03%). Some mitigation was provided by IFC.PR.A (+6.06%) and MIC.PR.A (+2.59%). There was no major pattern apparent in the relative performance of the issues held.

There is still a pronounced ‘risk-off’ sentiment in the market as interest rates rise, but 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.

The five-year Canada yield was volatile in October, with the five-year Canada yield (“GOC-5”) rising from 3.45% at September month-end to 3.74% towards the end of month before falling back to 3.45% at month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) has recently popped up to 305bp (as of 2022-11-02) and is very volatile (chart end-date 2022-10-14) :

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 its current level of 611bp (as of 2022-10-31) … (chart end-date 2022-10-14):

…while at the same time the spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -79bp from its 2021-7-28 level of +170bp (chart end-date 2022-9-9):

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, which is normal because there is a lot of noise in this inefficient market.

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 groups for 1-Month performance against term-to-reset (just 10% for the Pfd-3 group, shown), but as the GOC-5 rate remained unchanged at 3.45% during the period, the existence of a relationship was was a longshot:

… and for three-month performance, no correlation for both Pfd-2 and Pfd-3 were observed; here, however, the change in GOC-5 was significant, from 2.69% to 3.45%:

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.

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, including resets at the current GOC-5 rate. The sharp increase in GOC-5 this year 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.

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

Turnover remained at a miserable 1% in October as liquidity continued to decline. Market volumes have been very low for quite some time, having never really recovered from the usual summer decline in 2021.

Sectoral distribution of the MAPF portfolio on October 31, 2022, were:

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:

Liquidity Distribution is:

The distribution of Issue Reset Spreads is:

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”.

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.

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close September 30, 2022, was $8.4093 after a dividend distribution of 0.103746.

Performance was hurt by the fund’s holdings in BAM.PR.R (-11.23%) and IFC.PR.A (-10.38%); smaller positions returning less than -10% were BCE.PR.K, IFC.PR.C, BPO.PR.N and RY.PR.H. Some mitigation was provided by CVE.PR.G (-1.53%) and FTS.PR.K (-5.60%). There was no major pattern apparent in the relative performance of the issues held.

There is still a pronounced ‘risk-off’ sentiment in the market as interest rates rise, but 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.

Prior yield increases reversed in July, with the five-year Canada yield (“GOC-5”) falling from 3.24% at June month-end to 2.69% at July month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) has recently popped up to 340bp (as of 2022-10-05) and is very volatile (chart end-date 2022-9-9) :

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 its current level of 556bp (as of 2022-10-5) … (chart end-date 2022-9-9):

…while at the same time the spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to 4bp from its 2021-7-28 level of 170bp (chart end-date 2022-9-9):

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, which is normal because there is a lot of noise in this inefficient market.

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 groups for 1-Month performance against term-to-reset (just 10% for the Pfd-3 group, shown), but the relatively small change in the GOC-5 rate of 55bp (from 3.29% to 3.45%) during the period made that a longshot:

… and for three-month performance, no correlation for both Pfd-2 and Pfd-3 were observed; again, the change in GOC-5 was small, from 3.24% to 3.45%:

It should be noted that to some extent such a dependence 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. In this case, however, there has been no significant change in GOC-5 over the three-month period, so it would appear that interest rate anticipation has had an effect over this time.

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, including resets at the current GOC-5 rate. The sharp increase in GOC-5 this year 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.

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

Turnover declined to a miserable 1% in September as liquidity continued to decline. Market volumes have been very low for quite some time, having never really recovered from the usual summer decline in 2021.

Sectoral distribution of the MAPF portfolio on September 30, 2022, were:

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:

Liquidity Distribution is:

The distribution of Issue Reset Spreads is:

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”.

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.