Category: Press Clippings

Andrew Allentuck was kind enough to quote me in his piece The return of the 50-year bond:

U.S. pension fund regulation has put more weight on long bonds in pension fund portfolios, encouraging them to buy more long-dated government debt to match long-term liabilities. Canadian regulators are taking a similar course, notes James Hymas, president of Toronto-based Hymas Investment Management Inc. All of this has pushed up the prices of mid- to long-term bonds.
…
The reversion to historical interest rates, which parallel inflation, has to take place – someday. As Hymas explains: “The current situation of low bond yields, which barely cover inflation running at 1.5% per year, cannot last. Doing that with 50-year government debt is not prudent for anybody who does not need half a century’s worth of liquidity.”

Andrew Allentuck was kind enough to quote me in his latest piece for Investment Executive, Are “CoCos” a good fit for your clients?:

“They can call these bonds Tier 1 capital, which is equivalent to common equity,” says James Hymas, president of Hymas Investment Management Inc. in Toronto, “but [the bonds] get a better or more efficient treatment of the cost on income statements. A lot of portfolio managers will buy them because they have a mandate to invest in bonds, and these hybrids meet the definition of a bond and have terrific interest. Clients may be naive enough to accept these hybrids for their portfolios. But what clients forget is that in exchange for a yield pickup of a few hundred basis points over other corporate debt, a loss could approach 100%.”

In the search for yield, hybrids are the latest twist in the old idea of compromising the promise of a traditional bond to pay interest and principal on time, Hymas adds: “Many of these structures will go into bond indices. Index funds would have to buy them and some fund managers would then have to take them on, too.

“I would not be averse to buying them,” he continues. “But I would do it for a bond portfolio, which the client fully understands and accepts.”

Andrew Allentuck was kind enough to quote me in his recent Investment Executive piece, Some Bad Omens for Bonds:

Liquidity can be an issue for corporate issues as well. For example, an A-rated Canadian Utilities Ltd. issue due November 2022 was recently priced to yield 3.67%, a 100-bps spread over a federal issue of similar term. And of that 100-bps point spread, no more than 20 bps can be attributed to default risk, says James Hymas, president of Hymas Investment Management Inc., a specialty fixed-income investment firm in Toronto. As the credit rating declines, he adds, default risk rises, but the largest premium remains the illiquidity premium.

Andrew Allentuck was kind enough to quote me in his piece Five signs your financial manager is not working in your best interest:

2. Your broker cannot explain why he or she wants you to be in a certain asset. Then you should seek someone who can make sense. “You have to be able to understand how an asset fits into your overall plan,” says James Hymas, President of Hymas Investment Management Inc. a Toronto-based specialist in preferred share investing. Just picking up stocks when they are cheap is no way to build a portfolio with a purpose, he adds.

I facetiously suggested that sign #1 should be: ‘He’s breathing!’

Rob Carrick was kind enough to include PrefInfo.com in his article titled Bookmark this: Rob Carrick’s nine favourite investing websites:

It is staggering how complex preferred shares are. They’re full of minute details that can trip up investors who don’t have a resource like this website to help them understand the terms and condition of what’s available. The data here is provided by James Hymas, one of the country’s top preferred share experts. For commentary on preferred shares, try Mr. Hymas’s PrefBlog.

Andrew Allentuck was kind enough to quote me in his Investment Executive piece, A life preserver for rising interest rates:

“[Floaters] are not a one-way street and can just as readily generate price losses if spreads open up,” says James Hymas, president of Hymas Investment Management Inc., a Toronto-based firm that specializes in fixed-income investing. “The spreads can open up for the specific issue, for any category of issuer that ranks below the Government of Canada or because an issuer has subordinated the floater [or, indeed, any other bond] by issuing more debt or more senior debt.”

One very important point to note is that even though floaters usually are short-term notes, they have been issued as long-dated obligations in the past. Says Hymas: “Where an investor holds a long-dated floater, there’s more time for credit-quality issues to arise. In that case, rate resets will matter less than quality deterioration and potential decline in liquidity if holders rush to sell and overwhelm buyers. This is all potential, but it did happen in 2008.”

Romina Maurino of the Canadian Press was kind enough to quote me in her story Preferred company shares can provide steady income, tax benefits:

James Hymas, president of Hymas Investment Management in Toronto, said preferred shares, which have taken a hit as investors speculate about what the U.S. Federal Reserve will do about its tapering program, are currently more attractive relative to bonds than they have been since the credit crunch.

“I believe that people will be nibbling away at the preferred shares market,” Hymas said. “No taxable investor should own more than a bare minimum of long-term corporate bonds because preferred shares are much more attractive than long-term corporate bonds at this point.”

Update: No sooner are the words out of my mouth than TCA.PR.X is called for redemption; this issue carries a 5.6% coupon, and that’s a dividend! On September 9 – that is to say, four days ago – TCA issued a preliminary prospectus for $300-million in 4.55% 28-year debentures priced at 99.521.

Today’s skill testing question is: would you borrow at 4.55% interest to earn 5.6% dividend?

I will be taking questions on the Globe’s chatline at 1pm today, June 25:

Preferred shares can be complex investment instruments, but when used effectively in a portfolio, they can provide a stable income stream at lower risk than common shares or in some cases corporate bonds – and with tax advantages. For this week’s live discussion at Inside the Market, we’ll hear from one of Canada’s top experts on preferred shares, James Hymas, president of Hymas Investment Management.

Mr. Hymas has been in the investment industry for nearly three decades and is frequently called upon for his advice of preferred shares.

John Heinzl was kind enough to quote me in his latest piece for the Globe and Mail, Beware the tax trap of these tempting preferreds:

The banks gave themselves the option to redeem the shares on the reset date. With preferred yield spreads having contracted sharply now that the financial system has stabilized, “virtually all of them are going to be called,” says preferred share expert James Hymas, president of Hymas Investment Management. Any high-quality preferred with a spread of at least three percentage points is pretty much a lock for redemption, barring another financial crisis, he says.
…
“Most investors look only at current yield,” Mr. Hymas says. But the more important number is the “yield-to-call” (similar to the yield-to-maturity of a bond), which also takes into account the expected capital loss or gain. In the case of RY.PR.T, the yield-to-call is about 2.3 per cent.

There are tax implications, too. If you’re investing in a non-registered account and buy a rate-reset preferred with a current yield of 6 per cent, you’ll have to pay tax on the inflated dividend. Even taking into account the dividend tax credit and assuming you can use the capital loss to offset other capital gains, you could end up paying an effective tax rate of more than 30 per cent on the yield-to-call of 2.3 per cent, Mr. Hymas says.
…
“Before you even think about buying them, you have to do your calculations properly and account for taxes, if any,” Mr. Hymas says.

For more on preferred share yields, plus a link to an online yield calculator, read Mr. Hymas’ article at goo.gl/tjr72

Dominique Beauchamp was kind enough to quote me in her article Privilégiées : comment se prémunir contre la hausse des taux (“Preferred: how to protect themselves against rising rates” – translation by Google)

[Translation by Google]

A repeat of 2008, which was flinching preferred shares is not in the cards, since we are not witnessing a credit crisis this time, but a return to normal levels, said for his part James Hymas, a leader of the Preferred Shares, president of Hymas Investment Management and author of prefblog.
…
Mr. Hymas expects a gradual increase in interest rates and an equally gradual effect that the preferred shares. When interest rates rise, fixed income securities fall for the performance of their distribution, dividend or interest increases in proportion to their course, so as to be competitive with the new rates.

“Over a period of 12 months, I expect that the Preferred Shares will maintain a positive total return. In other words, the dividend income will fully offset the decline in stock prices, “said Hymas, in an interview.