Category: Miscellaneous News

Miscellaneous News

Preferred Share Newsletter?

In response to enquiries, I am considering offering a regular monthly newsletter regarding Canadian Preferred Shares on a subscription basis.

I haven’t decided on any of the details of such a newsletter yet, but my initial thoughts are for something about four pages long:

  • a page of prose and general tables that will attempt to communicate an overall description of the market over the preceeding month
  • three or four pages of recommendations … four recommendations per page, with a standardized table showing the characteristics of the issue, a chart and a paragraph regarding the reasoning behind the recommendation. There would be at least one recommendation per class of preferred share (classes defined in accordance with the HIMI Indices though Ratchet / Fixed Floater / Floater would be combined)
  • A “Chart of the Month”

Pricing has not yet been determined. 

If there is anything you would like to see in such a newsletter, please let me know. You can either comment on this post or send me an eMail.

 

Miscellaneous News

Claymore to Offer Preferred Share ETF?

Claymore has filed a preliminary prospectus on SEDAR date January 8, 2007, for the “Claymore S&P CDN Preferred Share ETF”.

The Claymore S&P CDN Preferred Share ETF has been designed to replicate the performance of the S&P CDN Preferred Share Index, net of expenses. The investment strategy of the Claymore S&P CDN Preferred Share ETF is to invest in and hold the Constituent Securities of the S&P CDN Preferred Share Index in the same proportion as they are reflected in the S&P CDN Preferred Share Index.

The preliminary prospectus goes on to advise that

The S&P CDN Preferred Share Index is designed to serve the investment community’s need for an investable benchmark representing the Canadian preferred share market. The S&P CDN Preferred Share Index measures the performance of a selected group of preferred shares listed on the Toronto Stock Exchange. The index is comprised of preferred shares issued by Canadian entities that meet critera relating to minimum size, liquidity, exchange listing and time to maturity determined by Standard & Poor’s

…

The constituents of the S&P CDN Preferred Share Index™ are available on the Claymore website at www.claymoreinvestments.ca and on the S&P website at www.standardandpoors.com

The referenced list of constituents is not yet available, but this is very interesting.

Hat tip to Financial Webring Forum for bringing this to my attention.

Miscellaneous News

CIBCWM Likes Prefs

The current issue of Canadian Portfolio Strategy Outlook has a few things to say about prefs:

While trust valuations are likely to bounce back, trust market issuance will be restricted by the new regulations. Hence investors’ search for yield is likely to lead them to new instruments in 2007. A resurgence in preferred share issuance may be one of the new vehicles to pick up the slack.

I’ve been saying this for a while now – every time a trust blew up, in fact – but now the line is being picked up by the majors. I hope that doesn’t mean it’s not likely any more.

An important advantage of preferred shares for taxable investors is that the income, in contrast to the coupon stream from a bond, qualifies for the dividend tax credit. All the more so given Federal tax changes that lowered the effective tax rate on dividend income from 31% to 25% starting this year. Since 2004 preferred shares have offered a higher yield than even long Canada bonds. The average yield at present on Canadian preferred shares is about 5%, versus 4.0% for the GoC 30-year bond and about 4.7% for the typical Canadian corporate bond (Chart 7). However, on an after-tax basis, the spread against the long Canada rises to 150 bps, (Chart 8 ) a huge yield pickup for investors able to tolerate the somewhat larger degree of repayment risk.

I wish I knew where to pick up a basket of good quality prefs yielding an average 5%, but I guess that’s one of the things you learn when you work for a bank. And I think they could have been more specific about taxation. Still – it’s nice to see an organization that has an actual marketting budget talking about these things!

Issue Comments

BCE Trust Conversion and Preferred Offer Now Dubious?

It has just been announced that there will be a tax on trusts. Any trusts created after today will be subject to the tax in 2007; existing trusts will be taxed in 2011.

 This makes execution of the BCE offer to buy their preferreds rather dubious, since it was conditional on their conversion taking place.

Of course, the pref market never fully believed the conversion would take place anyway: see the attached graph of the flatBidPrice of the most active affected issue, BC.PR.C, for this issue’s reaction to the offer. The putative offer price was $26.25, announced October 11.

The market could be very active tomorrow, and not just in the issues affected by the offer! There may well be a stampede of income investors into prefs out of trusts – well overdue, since they should never have been in those things in the first place.

 

Miscellaneous News

PrefBlog Joins Financial Webring!

Readers will have noticed the occasional reference to Financial Webring Forum in this blog – I’ve been participating there for almost as long as it’s been around.

 I have now joined the Webring itself and the Webring Navigation bar to …

  http://www.financialwebring.com/

will now displayed at the footer of this page. I can’t show the navigation bar in this post … it’s a Javascript and my poor little blogging software gets confused … so to see the actual image, you’ll have to skip down to the footer.

I can’t say I agree with all participants in the Webring … not even some of the people all of the time! … but I strongly agree with the ideals!

Miscellaneous News

S&P Inaugurates US Preferred Index!

According to a press release, S&P is commencing the publication of  an index “designed to serve the investment community’s need for an investable benchmark representing the approximately $200 billion U.S. preferred stock market. The S&P U.S. Preferred Stock Index includes preferred stocks issued by U.S. entities that meet criteria relating to minimum size, liquidity, exchange listing, and time-to-maturity. The index currently has 44 constituents, and an indicated yield of 6.48%.”

Well! It’s nice to have competition, although their index is US only! There is more information via http://www.preferredstock.standardandpoors.com/