Category: Press Clippings

I will be appearing on the “Market Wrap” segment of the show today, October 14, at 3:45pm.

Update, 2008-10-17: The clip is on the BNN website, but neither I nor anybody else can find the bit with me! I have made inquiries; BNN will be getting back to me with an explanation.

Many of those who have contacted me about this have asked which issues I recommended. They were:

• WFS.PR.A
• CU.PR.A
• … er … the other one. Sorry, folks! I’m not trying to be cute here, I honestly can’t remember. It was taken from the October PrefLetter

Note that the market has been rather volatile lately; there is no guarantee that what I recommended as of last Friday’s close and then recycled on short notice for the following trading day is the same thing as what I would recommend today. As previously announced, there will be an update to PrefLetter prepared as of the close today, October 17.

Ellen Roseman, who writes the “Money 911” column for the Toronto Star, devoted a piece to preferred shares today: Preferred Shares are Ideal for the Risk-Averse

It’s a good introduction – considering she only had 600-words! I was interviewed and mentioned in the article:

So, why invest in preferred shares? I asked James Hymas of Hymas Investment Management Inc. in Toronto, who runs a fund for high-net-worth investors, publishes a newsletter about preferred shares and has a website, www.prefblog.com.

“The common share investor is taking the first loss,” he says. “Common shares provide a higher expected long-term return, but it could be a bumpier flight.”

He points to U.S. banks, hit hard by the credit crunch. News reports indicate that up to half of them may be cutting their dividends this year.

Preferred shares have a somewhat more secure dividend than common shares. Moreover, they trade in a tight price range, generally with no big gains or losses.

Suppose you have $10,000 or more to invest in preferred shares. Hymas recommends buying at least three issues with a top-quality credit rating, such as Pfd-1 from Dominion Bond Rating Service.

“If you can afford five to six issues, you can get a Pfd-2. And with 10 different issues, I wouldn’t mind too much if one was Pfd-3.”

You don’t have much choice when it comes to sectors. A large proportion of preferred shares are from banks and insurance companies.

“With Canadian preferred shares, you have to resign yourself to a high exposure to financials,” he says. “You can make allowances for that in the rest of your portfolio.”

I discussed US Banks cutting their common dividends in FDIC Releases 1Q08 Report on US Banks.

The column quotes me as saying “If you can afford five to six issues, you can get a Pfd-2” … I shouldn’t have said “a”, I should have said “some”. I have published an article on Portfolio Construction which fleshes out my thoughts on this matter.

It was very kind of Ms. Roseman to mention my product offerings! The fund mentioned is Malachite Aggressive Preferred Fund and the newsletter is PrefLetter.

Update: The column has attracted some comment on Financial Webring Forum, where in response to a question about the ‘irritant of issuer calls’ I posted the following:

There’s some data in my article A Call, too, Harms – but note that data for that article reflect a period when, after a long period of declining long term rates, most perpetuals were trading above par … something that is not currently the case.

Many investors – some of them professional – buy preferreds on the basis of current yield, ignoring potential calls. This is not a strategy I recommend to my friends. I’ve summarized data on potential calls at prefInfo.com.

In times where call-dates become important, they cannot be escaped by buying a passive fund, as I point out in my article Closed End Preferred Funds: Effects of Calls

Hugh Anderson has a column in today’s Financial Post, Clear Thinking for Smart Investing :

Above all, you need to understand clearly who has the upper hand in the never-ending tussle between issuer and buyer. The answer revolves around the ability of the issuer to terminate the investment at its option. Naturally, this almost always occurs at the best time for the issuer. That’s why James Hymas terms the yield to call the “yield to worst.”

Hymas owns Hymas Investment Management … one of the few easily available sources of comment and key data on the Canadian preferred market. He writes a monthly subscription newsletter, makes available detailed data on a selection of preferred issues at www.prefinfo.com and writes a blog (www.prefblog.com) about what’s going on in the preferred market.

Hymas’s writing is refreshingly candid, Buffett-style. He describes as “monumental bad timing” and “the greatest mistake of my professional life” his brief employment at Portus Alternative Asset Management three months before “the roof fell in.” Portus collapsed because of regulatory problems “over which he had no control”.

The website reported for Hymas Investment Management in the article is incorrect and I’ve removed it with ellipsis in the quotation. The correct website is www.himivest.com.

I should clarify that Yield-to-Worst is a technical, not a pejoritive, term. There is more than one yield to call … a perpetual has an infinite number of potential calls, although the difference between a call at $25 on November 27, 2185, and a call at $25 on November 28, 2185, might be considered negligible!

The Yield-to-Worst is the lowest yield that can result from the issuer exercising its privileges while honouring its responsibilities, and one of the choices is the possibility that the issue is not called at all. It is a much better predictor of performance than current yield, as further explained in my article A Call, too, Harms.

It’s nice to see my writing described as “refreshingly candid, Buffet-style” … but geez, there’s good old Portus being mentioned again. That, unfortunately, will be a millstone around my neck for the rest of my life – even though I have never even been accused of wrong-doing.

Rob Carrick of the Globe and Mail has taken a look at the preferred share market and was kind enough to quote me extensively.

I liked the bit:

You won’t hear Mr. Hymas say so directly because he refuses to make a call on the market. But he does go so far as to offer this bit of wisdom: “Preferred shares are more attractive now than they usually are.”

It’s very frustrating, I know, for a journalist to ask a specialist – “Are these things going up?” and not get a straight answer!

I was mentioned in an article in the Globe and Mail by Rob Carrick:

There are 38 different bank preferred share issues listed on the Toronto Stock Exchange, according to Globeinvestor.com. For some ideas on which might be suitable for conservative investors, let’s consult James Hymas, president of Hymas Investment Management and a top expert on preferred shares.

Mr. Hymas highlighted the following: Canadian Imperial Bank of Commerce Series 26 (CM.PR.D). These shares pay annual dividends of $1.44 and have traded around $25.35 this week, which means a yield of 5.7 per cent. Mr. Hymas said CIBC can redeem these shares at its discretion in May, 2012, for $25, and he thinks there’s a reasonable chance of this happening. This would mean a slight capital loss, which you’d have to weigh against the high yield.

National Bank of Canada Series 16 (NA.PR.L). National Bank announced a fourth-quarter loss as a result of exposure to asset-backed commercial paper, and its preferred shares have not been immune. At current prices around $21.40, the dividend of $1.21 yields 5.6 per cent.

Royal Bank of Canada Series W (RY.PR.W). The annualized dividend of $1.23 yields about 5.3 per cent based on this week’s pricing in the range of $23.30.

The article has also been discussed at Financial Webring Forum.