Archive for the ‘PrefLetter’ Category

May PrefLetter Released!

Sunday, May 12th, 2024

The May, 2024, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “previous” edition will refer to the May, 2024, issue, while the “next” edition will be the June, 2024, issue scheduled to be prepared as of the close June 14, and emailed to subscribers prior to the market-opening on June 17. Prefletter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: There have been problems lately with corporate eMail protection systems that substitute “safe” links for the links sent in the eMails; the problem being that the “safe” links do not work and an error is generated by my software. To avoid possible problems and delays, please subscribe through an eMail account that is not “protected” by such software.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

April PrefLetter Released!

Sunday, April 14th, 2024

The April, 2024, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

This edition of PrefLetter contains a short appendix discussing the performance effect of yield curve shape changes, as seen through the lens of zero-coupon bonds and synthetic par bonds. A spreadsheet is available.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “previous” edition will refer to the April, 2024, issue, while the “next” edition will be the May, 2024, issue scheduled to be prepared as of the close May 10, and emailed to subscribers prior to the market-opening on May 13. Prefletter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: There have been problems lately with corporate eMail protection systems that substitute “safe” links for the links sent in the eMails; the problem being that the “safe” links do not work and an error is generated by my software. To avoid possible problems and delays, please subscribe through an eMail account that is not “protected” by such software.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

March PrefLetter Released!

Sunday, March 10th, 2024

The March, 2024, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

This edition of PrefLetter contains a short appendix republishing the summary of the Investigation of ZPR – BMO Laddered Preferred Share Index ETF for those who might not have seen this analysis.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “previous” edition will refer to the March, 2024, issue, while the “next” edition will be the April, 2024, issue scheduled to be prepared as of the close April 12, and emailed to subscribers prior to the market-opening on April 15. Prefletter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: There have been problems lately with corporate eMail protection systems that substitute “safe” links for the links sent in the eMails; the problem being that the “safe” links do not work and an error is generated by my software. To avoid possible problems and delays, please subscribe through an eMail account that is not “protected” by such software.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

February PrefLetter Released!

Sunday, February 11th, 2024

The February, 2024, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “previous” edition will refer to the February, 2024, issue, while the “next” edition will be the March, 2024, issue scheduled to be prepared as of the close March 10, and emailed to subscribers prior to the market-opening on March 13. Prefletter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: There have been problems lately with corporate eMail protection systems that substitute “safe” links for the links sent in the eMails; the problem being that the “safe” links do not work and an error is generated by my software. To avoid possible problems and delays, please subscribe through an eMail account that is not “protected” by such software.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

January PrefLetter Released!

Monday, January 15th, 2024

The January, 2024, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

This month’s edition contains a special appendix briefly discussing tax-loss selling.

The previously mentioned server problems that prevented the sending of PrefLetter last night appear to have resolved themselves, but I have my server-guy looking at the problem anyway.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “previous” edition will refer to the January, 2024, issue, while the “next” edition will be the February, 2024, issue scheduled to be prepared as of the close February 9, and emailed to subscribers prior to the market-opening on February 12. Prefletter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: There have been problems lately with corporate eMail protection systems that substitute “safe” links for the links sent in the eMails; the problem being that the “safe” links do not work and an error is generated by my software. To avoid possible problems and delays, please subscribe through an eMail account that is not “protected” by such software.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

PrefLetter Server Problems

Monday, January 15th, 2024

Delivery of the current edition of PrefLetter will be delayed; it seems I have server problems.

I regret the inconvenience.

December PrefLetter Released!

Sunday, December 10th, 2023

The December, 2023, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

This month’s edition contains a special appendix delving even deeper into September’s discovery of ZPR: Serious Problems with Reset Date Bucketting by comparing the fund’s portfolio to the index composition … and concludes that BMO has done an even worse job than I previously thought. This is a refinement of (and possibly a correction to) the material published in the November special appendix and contains three new short sections: commentary on “edge effects” as a general problem in quantitative investment, an examination of the relative performance of ZPR and its index (I can’t remember ever having seen such a massive tracking error in a putative index fund), and criticism of BMO’s customer relations.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “previous” edition will refer to the December, 2023, issue, while the “next” edition will be the January, 2024, issue scheduled to be prepared as of the close Januar 12, and emailed to subscribers prior to the market-opening on January 15. Prefletter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: There have been problems lately with corporate eMail protection systems that substitute “safe” links for the links sent in the eMails; the problem being that the “safe” links do not work and an error is generated by my software. To avoid possible problems and delays, please subscribe through an eMail account that is not “protected” by such software.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

November PrefLetter Released!

Sunday, November 12th, 2023

The November, 2023, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

This month’s edition contains a special appendix delving even deeper into September’s discovery of ZPR: Serious Problems with Reset Date Bucketting by comparing the fund’s portfolio to the index composition … and concludes that BMO has done an even worse job than I previously thought.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “previous” edition will refer to the November, 2023, issue, while the “next” edition will be the December, 2023, issue scheduled to be prepared as of the close December 8, and emailed to subscribers prior to the market-opening on December 11. Prefletter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: There have been problems lately with corporate eMail protection systems that substitute “safe” links for the links sent in the eMails; the problem being that the “safe” links do not work and an error is generated by my software. To avoid possible problems and delays, please subscribe through an eMail account that is not “protected” by such software.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments t

October PrefLetter Released!

Sunday, October 15th, 2023

The October, 2023, edition of PrefLetter has been released and is now available for purchase as the “Previous edition”. Those who subscribe for a full year receive the “Previous edition” as a bonus.

This month’s edition contains a special appendix delving deeper into last month’s discovery of ZPR: Serious Problems with Reset Date Bucketting … and concludes that BMO is not complying with the terms of the ZPR prospectus.

PrefLetter may now be purchased by all Canadian residents.

Until further notice, the “previous” edition will refer to the October, 2023, issue, while the “next” edition will be the November, 2023, issue scheduled to be prepared as of the close November 10, and emailed to subscribers prior to the market-opening on November 13. Prefletter is intended for long term investors seeking issues to buy-and-hold. At least one recommendation from each of the major preferred share sectors is included and discussed.

Note: My verbosity has grown by such leaps and bounds that it is no longer possible to deliver PrefLetter as an eMail attachment – it’s just too big for my software! Instead, I have sent passwords – click on the link in your eMail and your copy will download.

Note: There have been problems lately with corporate eMail protection systems that substitute “safe” links for the links sent in the eMails; the problem being that the “safe” links do not work and an error is generated by my software. To avoid possible problems and delays, please subscribe through an eMail account that is not “protected” by such software.

Note: The PrefLetter website has a Subscriber Download Feature. If you have not received your copy, try it!

Note: PrefLetter eMails sometimes runs afoul of spam filters. If you have not received your copy within fifteen minutes of a release notice such as this one, please double check your (company’s) spam filtering policy and your spam repository – there are some hints in the post Sympatico Spam Filters out of Control. If it’s not there, contact me and I’ll get you your copy … somehow!

Note: There have been scattered complaints regarding inability to open PrefLetter in Acrobat Reader, despite my practice of including myself on the subscription list and immediately checking the copy received. I have had the occasional difficulty reading US Government documents, which I was able to resolve by downloading and installing the latest version of Adobe Reader. Also, note that so far, all complaints have been from users of Yahoo Mail. Try saving it to disk first, before attempting to open it.

Note: There have been other scattered complaints that double-clicking on the links in the “PrefLetter Download” email results in a message that the password has already been used. I have been able to reproduce this problem in my own eMail software … the problem is double-clicking. What happens is the first click opens the link and the second click finds that the password has already been used and refuses to work properly. So the moral of the story is: Don’t be a dick! Single Click!

Note: Assiduous Reader DG informs me:

In case you have any other Apple users: you need to install a free App from the apple store called “FileApp”. It comes with it’s own tutorial and allows you to download and save a PDF file.

However, Assiduous Reader Adrian informs me in the comments to the January 2015 release:

Some nitpicking for DG:
FileApp costs $1.19 in the Apple Store.

ZPR: Serious Problems with Reset Date Bucketting

Friday, September 15th, 2023

It looks like ZPR – BMO Laddered Preferred Share Index ETF, a $1.5-billion fund, has been operating contrary to the terms of its prospectus and the promises of its advertising for a significant period.

In the September PrefLetter I reviewed the salient characteristics of the fund as part of a (mostly!) regular series, in which I review the key investment characteristics of ZPR and CPD. This allows those interested to review the composition of their own portfolios – or of Malachite Aggressive Preferred Fund, which regularly reports the statistics in the same format – against those of the big funds, which may be taken as a reasonable approximation of the underlying indices. These articles may not be the most exciting things ever, but I found in November 2012 that the trading generated by the deletion of issues from the indices (due to insufficient trading volume) was sufficient to have the issues added back during the following revision. The index provider changed its rules the following month to stop this costly process (it appears that Solactive considered reinventing the wheel towards the end of 2017).

In the current review, an anomaly with ZPR was found with the ‘Reset Buckets’ of ZPR. These are supposed to be evenly weighted annually over the next five years, so that an equal value of the index resets over each year for the period, at which point the cycle begins again. This was not the case upon checking, though: in years measured from the evaluation date of 2023-7-31, PrefLetter’s table ZPR-6 showed that the highest weighted bucket was 1-2 years, with a weight of 26.46%, while the lowest weighted period, 3-4 Years, had a weight of 10.16%. That’s a lot of variance! Tabke ZPR-6A performed much the same calculation but with buckets defined by calendar years; issues resetting in 2024 had a weight of 27.15%, while 2027 came in at 11.55%.

The relative weights of the reset buckets were in much better alignment at the time of the 2020 ZPR Review: at that time the bucket weights ranged from a low of 16.72% to a high of 22.53%.

An analogous calculation is not available on ZPR’s main page, but fortuitously I found another report via another BMO page, which may be found by:
1. Go to the BMO ETF Dashboard at https://www.bmoetfs.ca
2. Type “Monthly Metrics” into the search box and search
3. The results page shows a link to “Monthly Metrics Summary – ZPR Canadian Preferred Shares”
4. Click to download the document.

This report shows the results of BMO’s analysis:

Reset Year Issues Weight
2023 11 8.30%
2024 49 26.93%
2025 36 21.73%
2026 17 12.92%
2027 21 11.85%
2028 24 18.28%
Portfolio 158 100.00%

Note that minor differences are expected between my figures and theirs, because:
i) I calculated as of 2023-7-31; BMO claims their “Data as of September 6th, 2023”
ii) I use bid prices; I believe BMO uses closing prices.

I surmise that the relatively low weightings for the 2026 and 2027 buckets developed from the wave of redemptions in 2021 and 2022. A quick count of my records indicates that 23 FixedResets were redeemed in each of these two years which will, of course, have affected the weightings for the bucket in which the next reset was supposed to take place.

But it is clear from their own analysis that BMO is not delivering what it has promised:

From the prospectus for ZPR:

Solactive Laddered Canadian Preferred Share Index
The Solactive Laddered Canadian Preferred Share Index includes preferred shares that generally have an adjustable dividend rate and are laddered using equal weights in annual reset term buckets. Securities are market capitalization weighted within the annual term buckets. Constituents are subject to minimum market capitalization, quality and liquidity screens. Further information about the Solactive Laddered Canadian Preferred Share Index and its constituent issuers is available from Solactive on its website at www.solactive.com.

BMO Laddered Preferred Share Index ETF
The investment strategy of BMO Laddered Preferred Share Index ETF is currently to invest in and hold the constituent securities of the Solactive Laddered Canadian Preferred Share Index in the same proportion as they are reflected in the Index. The Manager may also use a sampling methodology in selecting investments for BMO Laddered Preferred Share Index ETF to obtain exposure to the performance of the Index.

As an alternative to or in conjunction with investing in and holding all or some of the constituent securities of the Solactive Laddered Canadian Preferred Share Index, BMO Laddered Preferred Share Index ETF may invest in or use Other Securities to obtain exposure to the performance of the Index.

BMO ETF Current Index Rebalancing and
Adjustment
BMO Laddered Preferred Share
Index ETF
Solactive Laddered Canadian Preferred
Share Index
Rebalanced monthly

From BMO’s main page on ZPR:

Portfolio Strategy
BMO Laddered Preferred Share Index ETF has been designed to replicate, to the extent possible, the performance of the Solactive Laddered Canadian Preferred Share Index, net of expenses. The Fund invests in and holds the Constituent Securities of the Index in the same proportion as they are reflected in the Index.

Benchmark Info
The Solactive Laddered Canadian Preferred Share Index includes Canadian preferred shares that meet size, liquidity, listing and quality criteria. The Index uses a five year laddered structure where annual buckets are equal weighted while constituent securities within each bucket are market capitalization weighted.

We can also look at the Index Provider’s (Solactive) role in this affair:

From the Solactive Methodology:

The Solactive Laddered Canadian Preferred Share Index includes preferred shares that generally have an adjustable dividend rate and are laddered using equal weights in annual reset term buckets. Securities are market capitalization weighted within the annual term buckets. Constituents are subject to minimum market capitalization, quality and liquidity screens.

2.1 Selection of the Index Components
The initial composition of the Index as well as any ongoing adjustment is based on the following rules:
The Solactive Laddered Canadian Preferred Share Index includes preferred shares that generally have an adjustable dividend rate and are laddered using equal weights in annual reset term buckets. Securities are market capitalization weighted within the annual term buckets. Constituents are subject to minimum market capitalization, quality and liquidity screens.

On the Selection Days, Solactive AG defines its Selection Universe. All instruments that fulfil the Solactive Laddered Canadian Preferred Share Index Universe criteria stated under 4. are eligible for inclusion in the Solactive Laddered Canadian Preferred Share Index.

The preferred shares in the Solactive Laddered Canadian Preferred Share Index Universe are clustered by their Maturity bucket. There are 5 Maturity buckets available: 1 year, 2 years, 3 years, 4 years, and one bucket covering instruments for 0 and 5 years to maturity.

Each Maturity bucket (except from the bucket covering instruments for 0 and 5 years to maturity) must consist of at least 5 preferred shares. If less preferred shares are part of one bucket, than the bucket will be refilled with preferred shares that are closest to the respective Maturity bucket. If still less than 5 preferred shares are included in one bucket, the Index Committee will decide about the composition of the respective Maturity bucket.

2.3 Extraordinary adjustment
If an instrument included in Index is removed from the Index between Adjustment Days due to an Extraordinary Event, if necessary, the term bucket would be reweighted based on the market capitalization of the remaining issues. This is announced by Solactive AG after the close of business on the day on which the new composition of the Index was determined by the Committee. The Index is adjusted with one Business Day notice if possible.

In particular an “Extraordinary Event” is
– a Merger
– a Takeover bid
– a delisting
– the Nationalisation of a company
– Insolvency.

An Index Component is “delisted” if the Exchange announces pursuant to the Exchange regulations that the listing of, the trading in or the issuing of public quotes on the Index Component at the Exchange has ceased immediately or will cease at a later date, for whatever reason (provided delisting is not because of a Merger or a Takeover bid), and the Index Component is not immediately listed, traded or quoted again on an exchange, trading or listing system, acceptable to the Index Calculator,

But this is the Solactive announcement with respect to IAF.PR.I, which was redeemed effective 2023-3-31:

Redemption | IA FINANCIAL CORP INC NON-CUM CONV RED PERP PFD REGISTERED SHS A SERIES I | 3rd April 2023
Due to the redemption of IA FINANCIAL CORP INC NON-CUM CONV RED PERP PFD REGISTERED SHS A SERIES I, the following treatment will be applied to the following indices:

IA FINANCIAL CORP INC NON-CUM CONV RED PERP PFD REGISTERED SHS A SERIES I will be removed from the Index.
The weight of IA FINANCIAL CORP INC NON-CUM CONV RED PERP PFD REGISTERED SHS A SERIES I (IAF_pi.TO) based on its last close price will be distributed pro rata to remaining Index constituents.
Effective Date (open): 03/04/2023
Solactive Laddered Canadian Preferred Share Index
Solactive Laddered Canadian Preferred Share Index PR
Solactive Canadian Rate Reset Preferred Share Index (TR)

However, this announcement was not followed by the announcement of an “Extraordinary adjustment”, which would seem to be required by Section 2.3 quoted above. I have sent a query to Solactive.

But oddly enough, it’s hard to find anything that says explicitly that the so-called Maturity Buckets (they’re actually reset-date buckets!) are to be equally weighted and how this is to be accomplished, other than the general statement in the Index Specifications listed above. The closest I can find is:

1.6 Weighting
On each Adjustment Day each Index Component of the Solactive Laddered Canadian Preferred Share Index is weighted according to the Market Capitalization of the respective preferred share within the term buckets. The weights are capped twofold on a Selection day, whereas a cap on an issuer basis is applied of 12.5% per issuer on a selection day as well as a Cap of 20% per Maturity Bucket.

A “Cap of 20% per Maturity Bucket” sounds pretty good, but does that refer to the issuer weight within each bucket or the weight of the bucket relative to the total index? It’s not clear at all. There are only six references to “Maturity Bucket” in the entire document and section 1.6 is the only one that refers to anything like a cap.

So I currently have inquiries in at both BMO and Solactive and we’ll see what comes of those in the coming weeks. I suspect that right now both parties are enthusiastically blaming each other; my own conclusion is that:
1. The index definition is flawed in that it is insufficiently precise regarding what they call “Maturity Buckets”, what their weighting should be, and what happens when their relative weights get distorted by new issues or redemptions. The parties are equally to blame for this.
2. If, as I surmise above, the problem developed due to the wave of redemptions in 2021 and 2022, then it is clear that, whatever one part of BMO was doing with its “Monthly Metrics” report, there was no internal monitoring happening by which a problem such as this could be caught early and corrected.

Update, 2023-9-27 : I found an academic reference that looks like it will be useful when I write this up formally, a paper by Adriana Robertson titled Passive in Name Only: Delegated Management and ‘Index’ Investing:

This Article provides the first detailed empirical analysis of the landscape of U.S. stock market indices. First, I hand collect detailed information about the universe of indices used as benchmarks for U.S. mutual funds. I document substantial heterogeneity across indices and find that the overwhelming majority of the indices in my sample are used as a primary benchmark by only a single fund. I then turn to “passive” index funds and find that both these phenomena are even more extreme among the indices that these funds track. Far from being “passive,” my findings indicate that index investing is better understood as a form of delegated management, where the delegee is the index creator rather than the fund manager. Finally, I turn to ETFs and find that a substantial fraction of these funds track indices that they or their affiliates create. Even controlling for other factors, I find that these funds have, on average, higher expense ratios. My findings shed light on an overlooked part of the financial market and have substantial implications for investor protection.

Update, 2023-10-6: Further reference data to be used in a formal write-up can be found in the Statistics Canada page Distributions of household economic accounts for income, consumption, saving and wealth of Canadian households, second quarter 2023, specifically the table used as source data for the article’s tables: Distributions of household economic accounts, wealth, by characteristic, Canada, quarterly (x 1,000,000) with the “Statistics” setting at “Value per Household”.

Update, 2023-11-2: See the October, 2023, PrefLetter for more information.

Update, 2024-3-1: See the post HIMI Releases Research Into ZPR for more information.