New Issues

New Issue: Royal Bank Fixed-Reset 6.25%+419

Royal Bank has announced:

a domestic public offering of $200 million of Non-Cumulative, 5 year rate reset Preferred Shares Series AP.

The bank will issue 8.0 million Preferred Shares Series AP priced at $25 per share and holders will be entitled to receive non-cumulative quarterly fixed dividend for the initial period ending February 24, 2014 in the amount of $1.5625 per share, to yield 6.25% annually. The bank has granted the Underwriters an option, exercisable in whole or in part, to purchase up to an additional 3.0 million Preferred Shares at the same offering price.

Subject to regulatory approval, on or after February 24, 2014, the bank may redeem the Preferred Shares Series AP in whole or in part at par. Thereafter, the dividend rate will reset every five years at a rate equal to 4.19% over the 5 year Government of Canada bond yield. Holders of Preferred Shares Series AP will, subject to certain conditions, have the right to convert all or any part of their shares to non-cumulative floating rate preferred shares Series AQ (the “Preferred Shares Series AQ”) on February 24, 2014 and on February 24 every five years thereafter.

Holders of the Preferred Shares Series AQ will be entitled to receive a non-cumulative quarterly floating dividend at a rate equal to the 3-month Government of Canada Treasury Bill yield plus 4.19%. Holders of Preferred Shares Series AQ will, subject to certain conditions, have the right to convert all or any part of their shares to Preferred Shares Series AP on February 24, 2019 and on February 24 every five years thereafter.

The offering will be underwritten by a syndicate led by RBC Capital Markets. The expected closing date is January 14, 2009.

January 14 will be a busy day! The new NA 6.60%+463 and TD 6.25%+437 issues will also be settling then.

Index Construction / Reporting

Index Performance: December 2008

Performance of the HIMIPref™ Indices for December, 2008, was:

Total Return
Index Performance
December 2008		 Three Months
to
December 31, 2008
Ratchet -22.78% -45.03
FixFloat -15.60% -39.36%
Floater +34.20% -42.10%
OpRet +1.96% -4.72%
SplitShare +18.39% -8.76%
Interest +2.00% -28.19%
PerpetualPremium +10.68%* -15.00%*
PerpetualDiscount +10.68% -12.72%%
FixedReset +4.11% -11.59%
* The last member of the PerpetualPremium index was transferred to PerpetualDiscount at the October rebalancing; subsequent performance figures are set equal to the PerpetualDiscount index
Funds (see below for calculations)
CPD +9.21% -11.51%
DPS.UN +5.65% -16.82%
Index
BMO-CM 50 +6.39% -12.74%

Claymore has published NAV and distribution data for its exchange traded fund (CPD) and I have derived the following table:

CPD Return, 1- & 3-month, to December, 2008
Date NAV Distribution Return for Sub-Period Monthly Return
Sept 30 16.21      
October 31 15.04 0.00   -7.22%
November 28, 2008 13.37 0.00   -11.10%
Dec 24 12.92 0.2135 -1.77% +7.28%
Dec 31 14.11   +9.21%
Quarterly Return -11.51%

The DPS.UN NAV for December 31 has been published so we may calculate the December returns (approximately!) for this closed end fund. Unfortunately, they did not publish their NAV on their December distribution’s ex-date, so things are a little hairy this month:

DPS.UN NAV Return, December-ish 2008
Date NAV Distribution Return for period
Estimated November Ending Stub +3.80%
November 26, 2008 14.53    
December 24, 2008 14.43   -0.69%
December 29, 2008 14.69 * 0.30 +3.87% *
December 31, 2008 15.64   +6.47%
Estimated December Return +5.65%
* CPD had a NAV of $12.92 on December 24 and $13.52 on December 29. Return for this period for CPD was therefore +3.87%. Assuming equality of returns, then DPS.UN would have had a NAV of 14.99 before payment of the $0.30 dividend.
CPD had a NAV of $12.88 on November 26 and $13.37 on November 28. The estimated November month-end stub period return for CPD was therefore +3.80%, which is subtracted from the DPS.UN period return to estimate a return for the month.
The October return for DPS.UN’s NAV is therefore the product of four period returns, -3.80%, -0.69%, +3.87%, +6.47%, to arrive at an estimate for the calendar month of +5.65%

Now, to see the DPS.UN quarterly NAV approximate return, we refer to the calculations for October and November:

DPS.UN NAV Returns, three-month-ish to end-October-ish, 2008
October-ish -9.56%
November-ish -12.95%
December-ish +5.65%
Three-months-ish -16.82%
Interesting External Papers

Benjamin Graham et al. on Preferred Stocks

A query regarding Graham’s position on preferred stock came to my attention, so I looked it up:

Certain general observations should be made here on the subject of preferred stocks. Really good preferred stocks can and do exist, but they are good in spite of their investment form, which is an inherently bad one. The typical preferred shareholder is dependent for his safety on the ability and desire of the company to pay dividends on its common stock. Once the common dividends are omitted, or even in danger, his own position becomes precarious, for the directors are under no obligation to continue paying him unless they also pay on the common. On the other hand, the typical preferred stock carries no share in the company’s profits beyond the fixed dividend rate. Thus the preferred holder lacks both the legal claim of the bondholder (or creditor) and the profit possibilities of a common shareholder (or partner).

These weaknesses in the legal position of preferred stocks tend to come to the fore recurrently in periods of depression. Only a small percentage of all preferred issues are so strongly entrenched as to maintain an unquestioned investment status through all vicissitudes.

Experience teaches that the time to buy preferred stocks is when their price is unduly depressed by temporary adversity. (At such times they may be well suited to the aggressive investor but too unconventional for the defensive investor.)

In other words, they should be bought on a bargain basis or not at all.
…
Another peculiarity in the general position of preferred stocks deserves mention. They have a much better tax status for corporation buyers than for individual investors. Corporations pay income tax on only 15% of the income they receive in dividends, but on the full amount of their ordinary interest income. Since the 1972 corporate rate is 48%, this means that $100 received as preferred-stock dividends is taxed only $7.20, whereas $100 received as bond interest is taxed $48. On the other hand, individual investors pay exactly the same tax on preferred-stock investments as on bond interest, except for a recent minor exemption. Thus, in strict logic, all investment-grade preferred stocks should be bought by corporations, just as all tax-exempt bonds should be bought by investors who pay income tax.

In the last paragraph, Mr. Graham recognizes that tax differences are important – very important! Using his figures the equivalency ratio within a corporation is a stunning 1.9x – in other words, it took $1.90 in interest to provide the same after tax income as $1.00 in dividends. For an individual, the equivalency ratio was 1:1.

It seems quite clear to me that under these conditions there will be very little left on the table for individual investors – Mr. Graham’s target audience – after corporations have picked through the offerings.

Other than this, the passage is sorely lacking in numeric analysis and opinion based on specific fact. Mr. Graham acknowledges that there is some price – some yield – at which a preferred share becomes superior to a given bond, but does not provide any analytical framework that will allow an interested reader to determine how that price – that yield – might be determined.

The market has changed dramatically since the early ’70’s. Besides the taxation differences between US-then and Canada-now already noted, there are regulatory elements in play that make preferred shares an attractive way to raise capital for banks and some utilities.

However, my main objection to the passage is that it is too rigidly doctrinaire. The world as presented is black and white, with safety on one side and profit on the other. In fact, the real world contains many shades of grey, which are ignored.

The revised edition cited contains further commentary by Jason Zweig:

Preferred shares are a worst-of-both-worlds investment. They are less secure than bonds, since they have only a secondary claim on a company’s assets if it goes bankrupt. And they offer less profit potential than common stocks do, since companies typically “call” (or forcibly buy back) their preferred shares when interest rates drop or their credit rating improves. Unlike the interest payments on most of its bonds, an issuing company cannot deduct preferred dividend payments from its corporate tax bill. Ask yourself: If this company is healthy enough to deserve my investment, why is it paying a fat dividend on its preferred stock instead of issuing bonds and getting a tax break? The likely answer is that the company is not healthy, the market for its bonds is glutted, and you should approach its preferred shares as you would approach an unrefrigerated dead fish.

For all his colourful language, Mr. Zweig shows lamentable ignorance of bank regulation; this is perhaps partly due to his exclusive focus on the American market, in which dividends are taxable to an investor at the same rate as interest; hence the market is much less vibrant in the US than in Canada.

I will certainly agree with Mr. Zweig’s emphasis on the undesirability of call features – but a call is simply another element of investment risk, to be calculated and incorporated when determining the value of an asset.

I will note that according to his biography, Mr. Zweig is a journalist, not an analyst or portfolio manager. It is therefore not possible to gauge the value of his opinions by reference to his results.

Market Action

January 5, 2009

American corporates were on fire today amidst a dramatic steepening in Treasuries; the 2-30 spread widened 26bp. Canadian 2-30s steepened as well, but only by 12bp; a mere bagatelle.

Jon Danielsson has an interesting essay on VoxEU : The myth of the riskometer:

There is a widely held belief that financial risk is easily measured – that we can stick some sort of riskometer deep into the bowels of the financial system and get an accurate measurement of the risk of complex financial instruments. Such misguided belief in this riskometer played a key role in getting the financial system into the mess it is in.
…
One of the biggest problems leading up to the crisis was the twin belief that risk could be modelled and that complexity was good. Certainly the regulators who made risk sensitivity the centrepiece of the Basel 2 Accord believed this.

Under Basel 2, bank capital is risk-sensitive. What that means is that a financial institution is required to measure the riskiness of its assets, and the riskier the assets the more capital it has to hold. At a first glance, this is a sensible idea, after all why should we not want capital to reflect riskiness? But there are at least three main problems: the measurement of risk, procyclicality (see Danielsson et. al 2001), and the determination of capital.

To have risk-sensitive capital we need to measure risk, i.e. apply the riskometer. In the absence of accurate risk measurements, risk-sensitive bank capital is at best meaningless and at worst dangerous.

Risk-sensitive capital can be dangerous because it gives a false sense of security.
…
The unreliability of capital calculations becomes especially visible when we compare standard capital calculations under international standards with the American leverage ratio. The leverage ratio limits the capital to assets ratio of banks and is therefore a much more conservative measure of capital than the risk-based capital of Basel 2. Because it is more conservative, it is much harder to manipulate.
…
As Philipp Hildebrand (2008) of the Swiss National Bank recently observed “Looking at risk-based capital measures, the two large Swiss banks were among the best-capitalised large international banks in the world. Looking at simple leverage, however, these institutions were among the worst-capitalised banks”

I take issue with the description of the leverage ratio as inherently conservative. Its virtue is simplicity, full stop.

Another glorious day for preferreds amidst continued heavy volume. It’s nice to see.

These values reflect the December 2008 revision of the HIMIPref™ Indices
Values are provisional and are finalized monthly
Index Mean
Current
Yield
(at bid)		 Median
YTW		 Median
Average
Trading
Value		 Median
Mod Dur
(YTW)		 Issues Day’s Perf. Index Value
Ratchet 7.06 % 7.78 % 31,123 13.22 2 1.0136 % 871.0
FixedFloater 7.68 % 7.54 % 151,533 13.11 8 1.6567 % 1,330.8
Floater 5.55 % 5.46 % 33,780 14.76 4 6.8556 % 1,098.4
OpRet 5.39 % 4.74 % 127,549 4.04 15 0.6173 % 1,986.9
SplitShare 6.19 % 9.71 % 74,672 4.18 15 1.8315 % 1,795.0
InterestBearing 7.40 % 14.26 % 46,687 0.93 2 2.0962 % 1,912.3
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 1.6519 % 1,529.3
Perpetual-Discount 6.97 % 7.13 % 237,532 12.42 71 1.6519 % 1,408.4
FixedReset 5.90 % 4.95 % 762,978 15.05 18 -0.0880 % 1,800.3
Issue Index Change Notes
TD.PR.P Perpetual-Discount -4.29 % Yield-to-Worst (at Bid) : 6.67 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 20.10
Probability of Maturity : 100.00 %
Recursions 1
BAM.PR.O OpRet -3.95 % Yield-to-Worst (at Bid) : 14.83 %
Maturity Type : Option Certainty
Maturity Date : 2013-06-30
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 2
SBC.PR.A SplitShare -3.93 % Yield-to-Worst (at Bid) : 10.69 %
Maturity Type : Hard Maturity
Maturity Date : 2012-11-30
Maturity Price : 10.00
Probability of Maturity : 100.00 %
Recursions 2
SLF.PR.E Perpetual-Discount -3.83 % Yield-to-Worst (at Bid) : 7.43 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 15.31
Probability of Maturity : 100.00 %
Recursions 1
BCE.PR.A FixedFloater -3.73 % Yield-to-Worst (at Bid) : 7.33 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 1
TD.PR.C FixedReset -3.40 % Yield-to-Worst (at Bid) : 5.08 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 24.35
Probability of Maturity : 68.12 %
Recursions 1
RY.PR.N FixedReset -2.63 % Yield-to-Worst (at Bid) : 5.56 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 25.46
Probability of Maturity : 53.20 %
Recursions 1
TD.PR.A FixedReset -2.33 % Yield-to-Worst (at Bid) : 4.78 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 22.18
Probability of Maturity : 91.19 %
Recursions 1
GWO.PR.G Perpetual-Discount -2.02 % Yield-to-Worst (at Bid) : 7.13 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 18.41
Probability of Maturity : 100.00 %
Recursions 1
BCE.PR.C FixedFloater -2.02 % Yield-to-Worst (at Bid) : 7.54 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 1
BCE.PR.S Ratchet -1.83 % Yield-to-Worst (at Bid) : 7.78 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 1
NA.PR.N FixedReset -1.80 % Yield-to-Worst (at Bid) : 5.11 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 21.25
Probability of Maturity : 100.00 %
Recursions 1
BNA.PR.C SplitShare -1.78 % Yield-to-Worst (at Bid) : 19.39 %
Maturity Type : Hard Maturity
Maturity Date : 2019-01-10
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 2
RY.PR.H Perpetual-Discount -1.37 % Yield-to-Worst (at Bid) : 6.90 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 20.82
Probability of Maturity : 100.00 %
Recursions 1
RY.PR.I FixedReset -1.32 % Yield-to-Worst (at Bid) : 4.71 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 22.36
Probability of Maturity : 89.88 %
Recursions 1
PWF.PR.M FixedReset -1.19 % Yield-to-Worst (at Bid) : 5.42 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 24.85
Probability of Maturity : 61.44 %
Recursions 1
NA.PR.M Perpetual-Discount -1.18 % Yield-to-Worst (at Bid) : 7.29 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 21.00
Probability of Maturity : 100.00 %
Recursions 1
GWO.PR.J FixedReset -1.00 % Yield-to-Worst (at Bid) : 5.34 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 24.70
Probability of Maturity : 63.44 %
Recursions 1
BMO.PR.L Perpetual-Discount 1.02 % Yield-to-Worst (at Bid) : 7.13 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 20.71
Probability of Maturity : 100.00 %
Recursions 1
IAG.PR.C FixedReset 1.03 % Yield-to-Worst (at Bid) : 5.70 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 24.45
Probability of Maturity : 66.78 %
Recursions 1
ALB.PR.A SplitShare 1.05 % Yield-to-Worst (at Bid) : 15.61 %
Maturity Type : Hard Maturity
Maturity Date : 2011-02-28
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 2
TD.PR.S FixedReset 1.10 % Yield-to-Worst (at Bid) : 4.38 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 22.10
Probability of Maturity : 91.53 %
Recursions 1
BNS.PR.P FixedReset 1.12 % Yield-to-Worst (at Bid) : 4.61 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 22.43
Probability of Maturity : 88.82 %
Recursions 1
CM.PR.D Perpetual-Discount 1.13 % Yield-to-Worst (at Bid) : 7.31 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 19.75
Probability of Maturity : 100.00 %
Recursions 1
CM.PR.R OpRet 1.15 % Yield-to-Worst (at Bid) : 4.52 %
Maturity Type : Soft Maturity
Maturity Date : 2013-04-29
Maturity Price : 25.15
Probability of Maturity : 70.66 %
Recursions 2
ELF.PR.F Perpetual-Discount 1.16 % Yield-to-Worst (at Bid) : 8.52 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 15.68
Probability of Maturity : 100.00 %
Recursions 1
TD.PR.O Perpetual-Discount 1.17 % Yield-to-Worst (at Bid) : 6.53 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 18.98
Probability of Maturity : 100.00 %
Recursions 1
POW.PR.C Perpetual-Discount 1.19 % Yield-to-Worst (at Bid) : 7.14 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 20.45
Probability of Maturity : 100.00 %
Recursions 1
TD.PR.R Perpetual-Discount 1.24 % Yield-to-Worst (at Bid) : 6.74 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 21.22
Probability of Maturity : 100.00 %
Recursions 1
POW.PR.D Perpetual-Discount 1.29 % Yield-to-Worst (at Bid) : 7.27 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.31
Probability of Maturity : 100.00 %
Recursions 1
CM.PR.A OpRet 1.29 % Yield-to-Worst (at Bid) : -15.68 %
Maturity Type : Soft Maturity
Maturity Date : 2011-07-30
Maturity Price : 25.00
Probability of Maturity : 63.75 %
Recursions 2
CM.PR.I Perpetual-Discount 1.32 % Yield-to-Worst (at Bid) : 6.99 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 16.87
Probability of Maturity : 100.00 %
Recursions 1
TD.PR.M OpRet 1.33 % Yield-to-Worst (at Bid) : 4.13 %
Maturity Type : Soft Maturity
Maturity Date : 2013-10-30
Maturity Price : 25.00
Probability of Maturity : 71.57 %
Recursions 2
LBS.PR.A SplitShare 1.37 % Yield-to-Worst (at Bid) : 10.14 %
Maturity Type : Hard Maturity
Maturity Date : 2013-11-29
Maturity Price : 10.00
Probability of Maturity : 100.00 %
Recursions 2
BNS.PR.O Perpetual-Discount 1.57 % Yield-to-Worst (at Bid) : 6.77 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 20.75
Probability of Maturity : 100.00 %
Recursions 1
BNS.PR.J Perpetual-Discount 1.58 % Yield-to-Worst (at Bid) : 6.60 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 19.96
Probability of Maturity : 100.00 %
Recursions 1
CM.PR.E Perpetual-Discount 1.60 % Yield-to-Worst (at Bid) : 7.15 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 19.66
Probability of Maturity : 100.00 %
Recursions 1
STW.PR.A InterestBearing 1.65 % Yield-to-Worst (at Bid) : 14.26 %
Maturity Type : Hard Maturity
Maturity Date : 2009-12-31
Maturity Price : 10.00
Probability of Maturity : 100.00 %
Recursions 2
ENB.PR.A Perpetual-Discount 1.65 % Yield-to-Worst (at Bid) : 5.79 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 23.69
Probability of Maturity : 72.97 %
Recursions 1
DFN.PR.A SplitShare 1.66 % Yield-to-Worst (at Bid) : 7.08 %
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Probability of Maturity : 100.00 %
Recursions 2
PWF.PR.L Perpetual-Discount 1.69 % Yield-to-Worst (at Bid) : 7.46 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.50
Probability of Maturity : 100.00 %
Recursions 1
PWF.PR.G Perpetual-Discount 1.76 % Yield-to-Worst (at Bid) : 7.46 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 20.26
Probability of Maturity : 100.00 %
Recursions 1
PWF.PR.H Perpetual-Discount 1.79 % Yield-to-Worst (at Bid) : 7.42 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 19.85
Probability of Maturity : 100.00 %
Recursions 1
CU.PR.B Perpetual-Discount 1.82 % Yield-to-Worst (at Bid) : 6.80 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 22.23
Probability of Maturity : 91.71 %
Recursions 1
TCA.PR.X Perpetual-Discount 1.83 % Yield-to-Worst (at Bid) : 6.65 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 42.26
Probability of Maturity : 100.00 %
Recursions 1
RY.PR.F Perpetual-Discount 1.86 % Yield-to-Worst (at Bid) : 6.46 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.52
Probability of Maturity : 100.00 %
Recursions 1
RY.PR.E Perpetual-Discount 1.96 % Yield-to-Worst (at Bid) : 6.46 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.70
Probability of Maturity : 100.00 %
Recursions 1
SBN.PR.A SplitShare 1.97 % Yield-to-Worst (at Bid) : 6.73 %
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Probability of Maturity : 100.00 %
Recursions 2
CM.PR.H Perpetual-Discount 2.04 % Yield-to-Worst (at Bid) : 7.09 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.00
Probability of Maturity : 100.00 %
Recursions 1
W.PR.H Perpetual-Discount 2.06 % Yield-to-Worst (at Bid) : 7.99 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.35
Probability of Maturity : 100.00 %
Recursions 1
TD.PR.Y FixedReset 2.06 % Yield-to-Worst (at Bid) : 4.60 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 21.71
Probability of Maturity : 94.06 %
Recursions 1
CL.PR.B Perpetual-Discount 2.12 % Yield-to-Worst (at Bid) : 7.28 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 21.70
Probability of Maturity : 100.00 %
Recursions 1
BAM.PR.H OpRet 2.24 % Yield-to-Worst (at Bid) : 12.86 %
Maturity Type : Soft Maturity
Maturity Date : 2012-03-30
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 2
IAG.PR.A Perpetual-Discount 2.36 % Yield-to-Worst (at Bid) : 7.45 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 15.61
Probability of Maturity : 100.00 %
Recursions 1
BCE.PR.R FixedFloater 2.41 % Yield-to-Worst (at Bid) : 7.73 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 1
RY.PR.D Perpetual-Discount 2.45 % Yield-to-Worst (at Bid) : 6.37 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.95
Probability of Maturity : 100.00 %
Recursions 1
MFC.PR.C Perpetual-Discount 2.57 % Yield-to-Worst (at Bid) : 6.34 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.95
Probability of Maturity : 100.00 %
Recursions 1
POW.PR.B Perpetual-Discount 2.59 % Yield-to-Worst (at Bid) : 7.09 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 19.00
Probability of Maturity : 100.00 %
Recursions 1
FIG.PR.A InterestBearing 2.67 % Yield-to-Worst (at Bid) : 13.00 %
Maturity Type : Hard Maturity
Maturity Date : 2014-12-31
Maturity Price : 10.00
Probability of Maturity : 100.00 %
Recursions 2
PWF.PR.E Perpetual-Discount 2.70 % Yield-to-Worst (at Bid) : 7.41 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 19.00
Probability of Maturity : 100.00 %
Recursions 1
TRI.PR.B Floater 2.73 % Yield-to-Worst (at Bid) : 5.46 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 11.30
Probability of Maturity : 100.00 %
Recursions 1
HSB.PR.C Perpetual-Discount 2.82 % Yield-to-Worst (at Bid) : 7.22 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.85
Probability of Maturity : 100.00 %
Recursions 1
WFS.PR.A SplitShare 2.84 % Yield-to-Worst (at Bid) : 9.71 %
Maturity Type : Hard Maturity
Maturity Date : 2011-06-30
Maturity Price : 10.00
Probability of Maturity : 100.00 %
Recursions 2
BCE.PR.I FixedFloater 2.99 % Yield-to-Worst (at Bid) : 7.55 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 1
NA.PR.K Perpetual-Discount 3.10 % Yield-to-Worst (at Bid) : 7.36 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 20.28
Probability of Maturity : 100.00 %
Recursions 1
GWO.PR.I Perpetual-Discount 3.16 % Yield-to-Worst (at Bid) : 7.26 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 15.66
Probability of Maturity : 100.00 %
Recursions 1
TCA.PR.Y Perpetual-Discount 3.23 % Yield-to-Worst (at Bid) : 6.45 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 42.87
Probability of Maturity : 94.43 %
Recursions 1
PWF.PR.K Perpetual-Discount 3.35 % Yield-to-Worst (at Bid) : 7.20 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.58
Probability of Maturity : 100.00 %
Recursions 1
BCE.PR.G FixedFloater 3.39 % Yield-to-Worst (at Bid) : 7.42 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 1
CM.PR.K FixedReset 3.45 % Yield-to-Worst (at Bid) : 4.90 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 21.95
Probability of Maturity : 89.08 %
Recursions 1
BNS.PR.N Perpetual-Discount 3.54 % Yield-to-Worst (at Bid) : 6.42 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 20.50
Probability of Maturity : 100.00 %
Recursions 1
CU.PR.A Perpetual-Discount 3.57 % Yield-to-Worst (at Bid) : 6.66 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 21.78
Probability of Maturity : 94.25 %
Recursions 1
BNS.PR.M Perpetual-Discount 3.76 % Yield-to-Worst (at Bid) : 6.39 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.66
Probability of Maturity : 100.00 %
Recursions 1
NA.PR.L Perpetual-Discount 3.84 % Yield-to-Worst (at Bid) : 7.27 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.02
Probability of Maturity : 100.00 %
Recursions 1
BCE.PR.Y Ratchet 4.04 % Yield-to-Worst (at Bid) : 7.82 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 1
BCE.PR.Z FixedFloater 4.11 % Yield-to-Worst (at Bid) : 8.13 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 1
CIU.PR.A Perpetual-Discount 4.14 % Yield-to-Worst (at Bid) : 7.50 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 15.61
Probability of Maturity : 100.00 %
Recursions 1
LFE.PR.A SplitShare 4.24 % Yield-to-Worst (at Bid) : 7.28 %
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Probability of Maturity : 100.00 %
Recursions 2
BNS.PR.L Perpetual-Discount 4.29 % Yield-to-Worst (at Bid) : 6.27 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 18.00
Probability of Maturity : 100.00 %
Recursions 1
BAM.PR.I OpRet 4.35 % Yield-to-Worst (at Bid) : 11.03 %
Maturity Type : Soft Maturity
Maturity Date : 2013-12-30
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 2
POW.PR.A Perpetual-Discount 4.41 % Yield-to-Worst (at Bid) : 7.18 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 19.64
Probability of Maturity : 100.00 %
Recursions 1
BMO.PR.M FixedReset 4.46 % Yield-to-Worst (at Bid) : 4.33 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 22.45
Probability of Maturity : 88.92 %
Recursions 1
W.PR.J Perpetual-Discount 4.63 % Yield-to-Worst (at Bid) : 8.01 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 17.61
Probability of Maturity : 100.00 %
Recursions 1
FBS.PR.B SplitShare 4.69 % Yield-to-Worst (at Bid) : 11.13 %
Maturity Type : Hard Maturity
Maturity Date : 2011-12-15
Maturity Price : 10.00
Probability of Maturity : 100.00 %
Recursions 2
BAM.PR.N Perpetual-Discount 4.73 % Yield-to-Worst (at Bid) : 10.67 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 11.30
Probability of Maturity : 100.00 %
Recursions 1
PWF.PR.I Perpetual-Discount 4.74 % Yield-to-Worst (at Bid) : 7.40 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 20.76
Probability of Maturity : 100.00 %
Recursions 1
DF.PR.A SplitShare 5.10 % Yield-to-Worst (at Bid) : 7.76 %
Maturity Type : Hard Maturity
Maturity Date : 2014-12-01
Maturity Price : 10.00
Probability of Maturity : 100.00 %
Recursions 2
ELF.PR.G Perpetual-Discount 5.43 % Yield-to-Worst (at Bid) : 8.11 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 14.76
Probability of Maturity : 100.00 %
Recursions 1
BAM.PR.B Floater 5.74 % Yield-to-Worst (at Bid) : 5.99 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 10.31
Probability of Maturity : 100.00 %
Recursions 1
BAM.PR.J OpRet 5.83 % Yield-to-Worst (at Bid) : 10.90 %
Maturity Type : Soft Maturity
Maturity Date : 2018-03-30
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 2
PPL.PR.A SplitShare 6.59 % Yield-to-Worst (at Bid) : 8.36 %
Maturity Type : Hard Maturity
Maturity Date : 2012-12-01
Maturity Price : 10.00
Probability of Maturity : 100.00 %
Recursions 2
PWF.PR.A Floater 6.67 % Yield-to-Worst (at Bid) : 5.17 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 12.00
Probability of Maturity : 100.00 %
Recursions 1
BAM.PR.M Perpetual-Discount 7.42 % Yield-to-Worst (at Bid) : 10.53 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 11.44
Probability of Maturity : 100.00 %
Recursions 1
BAM.PR.G FixedFloater 9.65 % Yield-to-Worst (at Bid) : 10.26 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 25.00
Probability of Maturity : 100.00 %
Recursions 1
PWF.PR.F Perpetual-Discount 11.24 % Yield-to-Worst (at Bid) : 6.81 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 19.70
Probability of Maturity : 100.00 %
Recursions 1
BAM.PR.K Floater 13.15 % Yield-to-Worst (at Bid) : 5.88 %
Maturity Type : Limit Maturity
Maturity Date : 2039-01-05
Maturity Price : 10.50
Probability of Maturity : 100.00 %
Recursions 1
Issue Index Shares
Traded		 Notes
BAM.PR.H OpRet 229,415
FBS.PR.B SplitShare 213,658
MFC.PR.A OpRet 171,715
GWO.PR.F Perpetual-Discount 147,661
BCE.PR.I FixedFloater 126,919
BNA.PR.C SplitShare 117,350
ALB.PR.A SplitShare 111,572
RY.PR.N FixedReset 88,280
LBS.PR.A SplitShare 74,540
NA.PR.L Perpetual-Discount 64,380
PWF.PR.I Perpetual-Discount 64,000
BAM.PR.M Perpetual-Discount 50,550
BAM.PR.O OpRet 35,385
POW.PR.D Perpetual-Discount 34,250
BMO.PR.J Perpetual-Discount 33,640
DF.PR.A SplitShare 31,410
GWO.PR.J FixedReset 28,250
NA.PR.K Perpetual-Discount 28,008
WFS.PR.A SplitShare 27,484
TD.PR.M OpRet 27,200
BAM.PR.B Floater 26,988
SLF.PR.C Perpetual-Discount 25,882
TD.PR.C FixedReset 24,650
TD.PR.A FixedReset 23,860
LFE.PR.A SplitShare 22,800
NA.PR.M Perpetual-Discount 21,890
GWO.PR.I Perpetual-Discount 21,114
CM.PR.H Perpetual-Discount 20,700
SLF.PR.D Perpetual-Discount 19,150
BNS.PR.M Perpetual-Discount 18,006
BMO.PR.N FixedReset 17,935
BCE.PR.F FixedFloater 17,500
MFC.PR.B Perpetual-Discount 16,575
RY.PR.H Perpetual-Discount 16,100
CM.PR.D Perpetual-Discount 16,075
SLF.PR.E Perpetual-Discount 15,790
RY.PR.E Perpetual-Discount 15,350
RY.PR.A Perpetual-Discount 14,572
NA.PR.N FixedReset 14,250
IGM.PR.A OpRet 14,132
HSB.PR.C Perpetual-Discount 14,100
PPL.PR.A SplitShare 13,500
GWO.PR.H Perpetual-Discount 13,472
BNS.PR.Q FixedReset 13,224
CM.PR.G Perpetual-Discount 13,100
CM.PR.P Perpetual-Discount 12,975
SLF.PR.A Perpetual-Discount 12,695
POW.PR.B Perpetual-Discount 11,900
GWO.PR.G Perpetual-Discount 11,050
BNS.PR.N Perpetual-Discount 10,600
PWF.PR.J OpRet 10,252
BNS.PR.O Perpetual-Discount 10,236
SLF.PR.B Perpetual-Discount 10,000
New Issues

New Issue: National Bank Fixed-Reset 6.60%+463

National Bank has announced:

that it has entered into an agreement with a group of underwriters led by National Bank Financial Inc. for an issue on a bought deal basis of 5 million non-cumulative 5-year rate reset first preferred shares series 24 (the “Series 24 Preferred Shares”), at a price of $25.00 per share, to raise gross proceeds of $125 million.

National Bank has also granted the underwriters an option to purchase, on the same terms, up to an additional 3 million Series 24 Preferred Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing. The maximum gross proceeds raised under the offering will be $200 million should this option be exercised in full.

The Series 24 Preferred Shares will yield 6.60% annually, payable quarterly, as and when declared by the Board of Directors of National Bank, for the initial period ending February 15, 2014. The first of such dividends, if declared, shall be payable on May 15, 2009. Thereafter, the dividend rate will reset every five years at a level of 463 basis points over the then 5-year Government of Canada bond yield.

Holders of the Series 24 Preferred Shares will have the right to convert their shares into an equal number of non-cumulative floating rate first preferred shares series 25 (the “Series 25 Preferred Shares”), subject to certain conditions, on February 15, 2014, and on February 15th every five years thereafter. Holders of the Series 25 Preferred Shares will be entitled to receive quarterly floating dividends, as and when declared by the Board of Directors of National Bank, equal to the 90-day Government of Canada Treasury Bill rate plus 463 basis points.

The net proceeds of the offering will be used for general corporate purposes and are expected to qualify as Tier 1 capital for National Bank. The expected closing date is on or about January 14, 2009. National Bank intends to file in Canada a prospectus supplement to its December 5, 2008 base shelf prospectus in respect of this issue.

National Bank will make an application to list the Series 24 Preferred Shares and the Series 25 Preferred Shares as of the closing date on the Toronto Stock Exchange.

New Issues

New Issue: TD Fixed-Reset 6.25%+437

TD Bank has announced:

that it has entered into an agreement with a group of underwriters led by TD Securities Inc. for an issue of 7 million non-cumulative 5-Year Rate Reset Class A Preferred Shares, Series AE (the Series AE Shares), carrying a face value of $25.00 per share, to raise gross proceeds of $175 million. TDBFG intends to file in Canada a prospectus supplement to its January 11, 2007 base shelf prospectus in respect of this issue.

TDBFG has also granted the underwriters an option to purchase, on the same terms, up to an additional 3 million Series AE Shares. This option is exercisable in whole or in part by the underwriters at any time up to two business days prior to closing. The maximum gross proceeds raised under the offering will be $250 million should this option be exercised in full.

The Series AE Shares will yield 6.25% annually, payable quarterly, as and when declared by the Board of Directors of TDBFG, for the initial period ending April 30, 2014. Thereafter, the dividend rate will reset every five years at a level of 437 basis points over the then five-year Government of Canada bond yield.

Holders of the Series AE Shares will have the right to convert their shares into non-cumulative Floating Rate Class A Preferred Shares, Series AF (the Series AF Shares), subject to certain conditions, on April 30, 2014, and on April 30th every five years thereafter. Holders of the Series AF Shares will be entitled to receive quarterly floating dividends, as and when declared
by the Board of Directors of TDBFG, equal to the three-month Government of Canada Treasury bill yield plus 437 basis points.

The issue is anticipated to qualify as Tier 1 capital for TDBFG and the expected closing date is January 14, 2009. TDBFG will make an application to list the Series AE Shares as of the closing date on the Toronto Stock Exchange.

Update, 2009-1-6: Later on January 5, TD announced:

that as a result of strong investor demand for its domestic public offering of non-cumulative 5-Year Rate Reset Class A Preferred Shares, Series AE (the Series AE Shares), the size of the offering has been increased to 9 million shares. The gross proceeds of the offering will now be $225 million. TDBFG intends to file in Canada a prospectus supplement to its January 11, 2007 base shelf prospectus in respect of this issue.

and on January 6, TD announced:

that a group of underwriters led by TD Securities Inc. has exercised the option to purchase an additional 3 million non-cumulative 5-Year Rate Reset Class A Preferred Shares, Series AE (the Series AE Shares) carrying a face value of $25.00 per share. This brings the total issue announced on January 5, 2009, and expected to close January 14, 2009, to 12 million shares and gross
proceeds raised under the offering to $300 million. TDBFG will file in Canada a prospectus supplement to its January 11, 2007 short form base shelf prospectus in respect of this issue.

MAPF

MAPF Portfolio Composition: December 2008

Trading was frenzied in December as a hesitant rally in PerpetualDiscounts was swamped by a wave of tax-loss selling and then skyrocketted after the selling pressure lifted. Meanwhile, SplitShares enjoyed a sharp recovery from their November trough and BCE issues (which comprised the whole of the FixFloat index until the month-end rebalancing) reacted very badly to news of the failure of the BCE / Teachers’ Deal:

Trades were, as ever, triggered by a desire to exploit transient mispricing in the preferred share market (which may the thought of as “selling liquidity”), rather than any particular view being taken on market direction, sectoral performance or credit anticipation.

MAPF Sectoral Analysis 2008-12-31
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 9.2% (+9.2) 8.50% 12.22
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare
(normal)		 12.3% (-21.1) 17.01% 5.55
SplitShare
(tendered)		 20.7% (+20.7) 9.52% 3.79
Interest Rearing 0% N/A N/A
PerpetualPremium 0.0% (0) N/A N/A
PerpetualDiscount 58.6% (-7.9) 7.49% 12.00
Scraps 0% N/A N/A
Cash -0.8% (-0.9) 0.00% 0.00
Total 100% 9.24% 9.62
Totals and changes will not add precisely due to rounding. Bracketted figures represent change from October month-end. Cash is included in totals with duration and yield both equal to zero.

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.

Positions held in WFS.PR.A and FTN.PR.A were tendered for their monthly retraction on their final dates (as per the fund’s sub-custodian): Dec 18 & Dec 11, respectively. I expect these retractions to be profitable, but not as profitable as they seemed at the time, since the market closed much of the gap between the trading price and the estimated retraction price between the tender date and the retraction dates of December 31:


Click Image for full-size PDF

Still, that’s the price you pay for caution! My very rough estimate of the retraction prices are $9.60 for WFS.PR.A and $8.32 for FTN.PR.A, but much depends on what price the issuer paid for the capital units required to make matched pairs.

Many readers will be more interested in the fixed-floater position: BCE.PR.I was purchased in two pieces on December 22 and December 23, following news that the normal course issuer bid would be restricted to 5% of outstanding common (which gives some comfort that the company will remain investment grade) and the DBRS pronouncement that Bell Canada (the operating subsidiary) is under credit review positive. These pieces of reassurance and the continued collapse of the share price (see chart above for fixed-floater total return) tipped the scales.

Post-Mortem on BCE.PR.I Purchase
Date BCE.PR.I SLF.PR.E BMO.PR.K NA.PR.L
Nov. 28 17.00 13.60 16.75 15.00
Dec. 22 Bought
13.00		 Sold
12.50		    
Dec 23 Bought
13.03		   Sold
15.50		 Sold
14.36
Closing Bid
Dec 31		 13.50 15.18 18.51 15.58
Dividend
Effects		 Earned
$0.29		 None None None

I mourn the absence of the PerpetualDiscounts which were swapped into the BCE.PR.I, but that’s life! I will note that on January 2, BCE.PR.I closed with a bid of $14.71 having traded as high as $15.49 on the day … so I won’t throw away the valuation model just yet! I will note that these trades have decreased the mis-match between the fund and the index.

Credit distribution is:

MAPF Credit Analysis 2008-12-31
DBRS Rating Weighting
Pfd-1 56.1% (-0.6)
Pfd-1(low) 3.1% (-7.4)
Pfd-2(high) 0% (0)
Pfd-2
(held)		 2.0% (+1.6)
Pfd-2
(tendered for retraction)		 9.3% (+9.3)
Pfd-2(low)
(held)		 19.0% (-13.3)
Pfd-2(low)
(tendered for retraction)		 11.4% (+11.4)
Cash -0.8% (-0.9)
Totals will not add precisely due to rounding. Bracketted figures represent change from November month-end.

The fund does not set any targets for overall credit quality; trades are executed one by one. Variances in overall credit will be constant as opportunistic trades are executed. The overall credit quality of the portfolio is now roughly equal to the credit quality of CPD at August month-end.

The lowest rated issues in the portfolio are the previously discussed BCE.PR.I and BNA.PR.C. The latter issue is an entirely reasonable credit; a split share secured by shares of BAM.A with asset coverage of about 1.8:1. In fact, the fund topped up its holdings of BNA.PR.C in December … the price has continued weak, but the yield of approximately 19% is very hard to resist! I will note that given a price of $9.00 for BNA.PR.C the asset coverage of the market price is approximately 5:1 … so I consider the investment well secured!

Liquidity Distribution is:

MAPF Liquidity Analysis 2008-12-31
Average Daily Trading Weighting
<$50,000 0.6% (-10.5)
$50,000 – $100,000
(held)		 1.2% (-31.0)
$50,000 – $100,000
(tendered for retraction)		 9.3% (+9.3)
$100,000 – $200,000
(held)		 31.2% (+30.2)
$100,000 – $200,000
(tendered for retraction)		 11.4% (+11.4)
$200,000 – $300,000 30.3% (+10.0)
>$300,000 16.9% (-15.3)
Cash -0.8% (-0.9)
Totals will not add precisely due to rounding. Bracketted figures represent change from November month-end.

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. A “unit trust” is like a regular mutual fund, but is sold by offering memorandum rather than prospectus. This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission) and those who subscribe for $150,000+. Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

A similar portfolio composition analysis has been performed on The Claymore Preferred Share ETF (symbol CPD) as of August 29. When comparing CPD and MAPF:

  • MAPF credit quality is similar
  • MAPF liquidity is higher
  • MAPF Yield is higher
  • Weightings in
    • PerpetualDiscounts is similar
    • MAPF is less exposed to Fixed-Resets and Operating Retractibles
    • MAPF is more exposed to SplitShares
    • FixFloat / Floater / Ratchet is similar
Reader Initiated Comments

Shut Up and Clip Your Coupons!

Ellen Roseman of the Toronto Star has been kind enough to publish some remarks I made about a preferred share portfolio.

The situation is probably common enough to be republished here … although after the last week of phenomenal returns, the querant is probably feeling a little better:

Since June, the preferred shares in my portfolio are down in market value by $165,000$ on an original purchase price of about $300,000.

I am approaching retirement and whenever I talk to my financial adviser at RBC Dominion Securities, he reassures me that I will continue to receive all interest payments AND the full amount of my original purchases when the preferred shares mature or are called.

If preferreds are less volatile, why are the original values down by a whopping 50 per cent?!!!!!!!!!

I own a mix of Perpetuals and Retractables but I am no financial wizard. I have spoken to a new financial adviser at the the National Bank and he implies that I am indeed in trouble with the preferreds, especially the Perpetuals. He is implying that I will have to sell at least some at a loss.

Here is the descriptive list of my holdings in preferreds as supplied to me by my broker.

These assets are down -45.8% to date!!!! My broker insists that I will continue to collect full interest payments until the Preferreds are called or redeemed, AND, when they are called, it will be at the full purchase price, which is fixed at $25 per unit.

The only impediment to this process is, of course, if any company issuing said Preferreds would go bankrupt.

I would like to know from your expert in preferred shares the following:

1) Is my broker’s contention that I will receive full interest payments and full unit value a correct interpretation?

2) Is there any chance that these assets could return to full original value when and if the markets recover?

3) Do I have any options with these preferreds, other than selling at a loss? Am I helplessly locked into these positions?

4) Was this a misguided tactic (to save on taxes) by putting 40 per cent of a 64-year-old client’s assets into preferreds and call it “fixed income”?

5) And lastly, should any client pay fees, under these circumstances, to a broker just to sit and wait for bonds and preferreds to mature?

Ellen, thank you sincerely for helping me on this matter. An independent analysis will assist me immeasurably to finally take the right road to recovery. Naturally I will wish you a happy and healthy 2009!

BAM split corp. series c–pfd2L

Bank of Montreal non cum.class B series 13, 4.50% pfd1

Bank of N.S. non-cum series 14, 4.50% pfd 1
BNS non-cum series 15, 4.50% pfd 1
BNS non-cum series 16 , 5.25% pfd 1
BNS non-cum, series 22, 5.00% pfd 1

BCE fix/ float cum. Red series AC 4.6% BBP P2 Neg.

Brookfield Asset Mgmt. Class A series 18, 4.75% pfd 2L
Brookfield Properties 5.00% Class AAA series J bb+p3h
Brookfield Properties 5.20% Class AAA series K BB+P3H

CIBC 4.50% non-cum class A Pref. series 32 pfd1

Dundee Corp 5.00% cum, ser 1 P3

Epcor Power Equity 4.85% cum redeem pref. series 1 pfd 3H

George Weston Ltd. 5.20% cum- pref, series 4 pfd3

Great West Lifeco NON-CUM SERIES H 4.85% pfd1L
Great West Lifeco Inc. 4.5% non cum 1st pref. series 1 pfd 1L

HSBC Bank Canada 5.10% non-cum Red. c1 1 prefd. series c

Laurentien Bank non cum class A series 10 5.25% pfd3

National Bank series non cum 16 4.85% pfd1

Power Financial non cum series L 1st pref 5.10% pfd 1

Royal Bank non cum 1st Pref 4.70 series AB pfd1

Sun Life Financial 4.45% class A non cum. series 3 pfd 1

TD Bank non cum. class A Series P 5.25% pfd1

I trust these are the details that you need. My meeting with a new prospective broker is slated for Jan. 14.

… and my response was …

Well, I can tell you that this has been the worst year for preferreds since at least 1993 (when my records start).

In fact, of the 12 worst months since Dec. 31, 1993, six have been this year.

PerpetualDiscount issues (the most common type of preferred) are down 26.24% in the year to Dec. 24, 2008, and that’s total return (which includes dividends).

Since the beginning of the current bear market on Mar. 31, 2007, total return has been -35.83%.

The index tracking ETF (stock symbol CPD) ended 2007 with a Net Asset Value of $17.95. It has paid distributions in 2008 of about 84 cents and now has a Net Asset Value (at the close on 12/24) of $12.92.

CPD has its problems (see http://www.prefblog.com/?p=3478) but is the best publicly available snapshot of the investment-grade preferred share universe as a whole.

I’ve been receiving queries like this for the past year – interestingly, most of these have been from brokers asking me what to tell their clients.

In the case of, for instance, bank perpetuals, I tell them to tell their clients: “Hey – you bought the things for a (say) $1.15 p.a. dividend; they continue to pay a $1.15 p.a. dividend, there is no current indication they will ever fail to pay a $1.15 p.a. dividend … shut up and clip your coupons.”

Weights of the issues in the portfolio are not given. All subsequent analysis assumes equal-weighting.

The portfolio contains the following types of preferreds (see http://www.prefletter.com/whatPrefLetter.php):

Fixed-Reset: 1

FixedFloater: 1

Operating-Retractible: 3

Perpetual Discount: 17

SplitShare: 1

This is heavy on the PerpetualDiscounts (which represent about half the issues tracked by my analytics), which have underperformed this year. It’s light on Operating Retractibles & SplitShares, which have done better.

Preferred Share dividends may be halted at any time at the discretion of the company. A dividend halt is generally a last-ditch effort to save the company and there is no immediate danger of a halt in any of the issues held.

The credit ratings (which were supplied by the broker) are an attempt to estimate the chance of a future halt in dividends, or other inability to meet the terms of the prospectus. The breakdown is:

Pfd-1/Pfd-1 (low): 14

Pfd-2 (low): 3

Pfd-3 (high)/ Pfd-3/Pfd-3 (low): 6

This isn’t bad. There are more Pfd-3 issues than I like (I recommend no more than 10% of the portfolio in these lower-grade credits, with no more than 5% in a single name).

But there are also more Pfd-1/Pfd-1(low) names than I would normally expect. See http://www.prefblog.com/?p=211 for more about credit ratings.

With four names in the Brookfield group, the exposure there is a little high. I would recommend an exposure of no more than 10% of portfolio value in this name.

There is no information given about performance, other than the vague “-45.8% to date!!!!”

My dad’s house is up around 3,000% from his purchase price, while mine is up only about 50%, but that means nothing – we purchased at different times, that’s all.

To address the specific questions:

1) As mentioned above, there is no immediate fear of a dividend halt on any of these issues – although lightning can strike anywhere at any time. If the shares are redeemed, consent of the shareholders would be required to do this at any price other than par.

2) The OperatingRetractible & SplitShare issues have retraction dates, at which time you may force the company to return the principal, or to give you common stock with a value (probably) in excess of the principal. It depends on the terms of the prospectus, but for these issues you may reasonably expect to receive par value on the retraction date.

As far as the PerpetualDiscounts are concerned, it depends on what you mean by “recover”. They each pay $X of dividends per annum. If the issuers can issue replacement shares paying less than $X, it will be in their interest to call the shares at par and issue new ones that are cheaper for them. We might arrive at this situation tomorrow. It might happen next year. It might never happen. I certainly can’t predict the future levels of interest rates with any confidence!

3) None of the shares have an immediate retraction option.

4) Complex! It is not clear what is meant by “put” – is the portfolio advisory or discretionary? What instructions were given to the broker? What are the client objectives and risk tolerance, and what does the Know Your Client form show? What performance benchmarks were specified?

As far as the 40% of assets are concerned, what form does the other 60% take? My rule of thumb is that no more than 50% of the total fixed income portion of a portfolio should be in preferred shares.

As far as calling them “fixed income” is concerned, I’m not sure what else one might call them.

5) It depends on how much the fees are and what services are offered. I suspect that the broker is simply buying the occasional new issue and taking his 3% (issuer-paid) commission, in which case the continuing fees are nil.

My own fund (see http://www.himivest.com/malachite/MAPFMain.php) charges a fee of 1% p.a. on the first half-million, and has expenses on top of that of 0.50%.

It is down substantially both this year and last – but has handsomely outperformed its benchmark since inception due to active management. I suspect my performance – after fees and expenses – exceeds that of the reader’s portfolio, but the portfolio return is not specified here.

Besides the fund, I offer two services which may be considered helpful: a monthly newsletter (http://www.prefletter.com) and portfolio review. I’ll review this portfolio, with specific buy/sell/hold recommendations taylored to client investment objectives, for $1,000.

Sincerely,

HYMAS INVESTMENT MANAGEMENT INC.

James Hymas

President

There was one interesting snippet in the query that hadn’t been in the extract I saw: I have spoken to a new financial adviser at the the National Bank and he implies that I am indeed in trouble with the preferreds, especially the Perpetuals. He is implying that I will have to sell at least some at a loss.

Well, of course that’s what the new guy said. It’s plain from the tone of the query that that’s what the client wanted to hear and by some kind of amazing coincidence, that’s what he was told.

But my question is: on what grounds does the client believe the new guy is better than the old one? Does either advisor publish an audited track record?

Market Action

January 2, 2009

Great news! I’ve made the switchover to the “December Revision” of the HIMIPref™ Preferred Indices for daily reporting purposes. While this may not mean a lot to you, it is very important to me, since the tables are prepared programmatically.

There’s some problems: inclusion of dividend effects is haphazard at best and for some reason the tables on daily performance and volume are getting the index assignments wrong, but I’ll figure out how to address these quirks shortly. The main thing is: I can now push a button and get my damn reports output by HIMIPref™ as nice clean HTML code … or at least, it will be clean once I get some other quirks ironed out.

This will save me considerable time!

And – oh, yeah – the market was up again today. But then, the market always goes up, doesn’t it?

These values reflect the December 2008 Revision of the HIMIPref™ Indices
Effects of dividends are not incorporated into the daily updates at this time.
Index Mean
Current
Yield
(at bid)		 Median
YTW		 Median
Average
Trading
Value		 Median
Mod Dur
(YTW)		 Issues Day’s Perf. Index Value
Ratchet 7.16 % 7.65 % 31,187 13.36 2 8.3712 % 862.3
FixedFloater 7.81% 7.68 % 153,247 13.13 8 4.5619% 1,309.2
Floater 5.94 % 5.61 % 34,403 14.53 4 4.1898% 1,028.0
OpRet 5.42 % 4.80 % 127,701 4.05 15 0.3454% 1,974.7
SplitShare 6.31 % 10.23 % 75,880 4.18 15 0.2140 % 1,762.7
Interest-Bearing 7.55 % 15.94 % 48,596 0.94 2 2.0126 % 1,873.1
Perpetual-Premium 0.00 % 0.00 % 0 0.00 0 2.5183 % 1,504.4
Perpetual-Discount 7.09 % 7.20 % 245,625 12.35 71 2.5183 % 1,385.5
FixedReset 5.90 % 4.79 % 789,307 15.32 18 0.4754% 1,801.9
Issue Index Change Notes
IAG.PR.A PerpetualPremium -3.24 % Now with a pre-tax bid-YTW of 7.62% based on a bid of 15.25 and a limitMaturity. Closing quote of 15.25-17.49 (!) 2×2. No trades.
WFS.PR.A SplitShare -2.00 % Asset coverage of 1.2-:1 as of Dec. 22 according to Mulvihill. Now with a pre-tax bid-YTW of 10.93% based on a bid of 8.81 and a hardMaturity 2011-6-30 at 10.00. Closing quote of 8.81-17, 3×1. No Trades.
CM.PR.R OpRet -1.52 % Now with a pre-tax bid-YTW of 4.80% based on a bid of 25.21 and a softMaturity 2013-4-29 at 25.00. Closing quote of 25.21-99, 8×5. No trades.
IAG.PR.C FixedReset -1.50 %  
SBN.PR.A SplitShare -1.08 % Asset coverage of 1.6-:1 as of December 22 according to Mulvihill. Now with a pre-tax bid-YTW of 7.11% based on a bid of 9.15 and a hardMaturity 2014-12-1 at 10.00. Closing quote of 9.15-48, 18×3. No trades.
CM.PR.H PerpetualDiscount 1.09 % Now with a pre-tax bid-YTW of 7.23% based on a bid of 16.66 and a limitMaturity. Closing quote of 16.66-81, 1×1. Day’s range of 16.50-96.
BNS.PR.R FixedReset 1.14 %  
CM.PR.K FixedReset 1.16 %  
BNA.PR.B SplitShare 1.20 % Asset coverage of 1.8+:1 based on BAM.A at 18.81 and 2.4 BAM.A per preferred. Now with a pre-tax bid-YTW of 8.67% based on a bid of 20.25 and a hardMaturity 2016-3-25 at 25.00. Closing quote of 20.25-74, 5×1. No trades.
LBS.PR.A SplitShare 1.26 % Asset coverage of 1.4-:1 as of December 31 according to Brompton Group. Now with a pre-tax bid-YTW of 10.46% based on a bid of 8.05 and a hardMaturity 2013-11-29 at 10.00. Closing quote of 8.05-46, 199×1. No trades.
RY.PR.D PerpetualDiscount 1.27 % Now with a pre-tax bid-YTW of 6.53% based on a bid of 17.52 and a limitMaturity. Closing quote of 17.52-01, 1×2. Day’s range of 17.55-75.
ALB.PR.A SplitShare 1.32 % Asset coverage of 1.1+:1 as of December 23 according to Scotia. Now with a pre-tax bid-YTW of 16.09% based on a bid of 19.91 and a hardMaturity 2011-2-28 at 25.00. Closing quote of 19.91-89, 40×1. No trades.
CU.PR.A PerpetualDiscount 1.33 % Now with a pre-tax bid-YTW of 6.91% based on a bid of 21.30 and a limitMaturity. Closing quote of 21.30-75, 5×2. Day’s range of 21.25-72.
CM.PR.D PerpetualDiscount 1.40 % Now with a pre-tax bid-YTW of 7.39% based on a bid of 19.53 and a limitMaturity. Closing quote of 19.53-75, 2×3. Day’s range of 19.10-75.
BNS.PR.M PerpetualDiscount 1.47% Now with a pre-tax bid-YTW of 6.63% based on a bid of 17.02 and a limitMaturity. Closing quote of 17.02-42, 3×3. Day’s range of 16.57-42.
RY.PR.C PerpetualDiscount 1.54 % Now with a pre-tax bid-YTW of 6.58% based on a bid of 17.78 and a limitMaturity. Closing quote of 17.02-42, 3×3. Day’s range of 16.57-42.
W.PR.J PerpetualDiscount 1.57 % Now with a pre-tax bid-YTW of 8.38% based on a bid of 16.83 and a limitMaturity. Closing quote of 16.83-55, 4×1. No trades.
RY.PR.B PerpetualDiscount 1.90% Now with a pre-tax bid-YTW of 6.54% based on a bid of 18.26 and a limitMaturity. Closing quote of 18.26-45, 9×8. Day’s range of 18.00-45.
BNS.PR.J PerpetualDiscount 1.93% Now with a pre-tax bid-YTW of 6.70% based on a bid of 19.65 and a limitMaturity. Closing quote of 19.65-80, 20×3. Day’s range of 19.43-80.
RY.PR.W PerpetualDiscount 2.01 % Now with a pre-tax bid-YTW of 6.45% based on a bid of 19.30 and a limitMaturity. Closing quote of 19.30-49, 10×9. Day’s range of 19.25-35.
TCA.PR.Y PerpetualDiscount 2.01% Now with a pre-tax bid-YTW of 6.67% based on a bid of 42.10 and a limitMaturity. Closing quote of 42.10-62, 7×6. Day’s range of 41.42-42.63.
NA.PR.N FixedReset 2.08 %  
CM.PR.E PerpetualDiscount 2.11 % Now with a pre-tax bid-YTW of 7.26% based on a bid of 19.35 and a limitMaturity. Closing quote of 19.35-39, 1×2. Day’s range of 19.35-49.
HSB.PR.D PerpetualDiscount 2.23% Now with a pre-tax bid-YTW of 7.46% based on a bid of 16.93 and a limitMaturity. Closing quote of 16.93-25, 13×1. Day’s range of 16.85-39
CM.PR.G PerpetualDiscount 2.23 % Now with a pre-tax bid-YTW of 7.22% based on a bid of 18.76 and a limitMaturity. Closing quote of 18.76-80, 1×5. Day’s range of 18.39-00.
ELF.PR.G PerpetualDiscount 2.34 % Now with a pre-tax bid-YTW of 8.54% based on a bid of 14.00 and a limitMaturity. Closing quote of 14.00-71, 6×8. Day’s range of 14.00-75.
CL.PR.B PerpetualDiscount 2.41 % Now with a pre-tax bid-YTW of 7.43% based on a bid of 21.25 and a limitMaturity. Closing quote of 21.25-49, 2×2. Day’s range of 21.24-48.
BNS.PR.N PerpetualDiscount 2.43% Now with a pre-tax bid-YTW of 6.65% based on a bid of 19.80 and a limitMaturity. Closing quote of 19.80-00, 5×8. Day’s range of 19.80-00.
BAM.PR.K Floater 2.54 %  
BNS.PR.Q FixedReset 2.62%  
BMO.PR.H PerpetualDiscount 2.65 % Now with a pre-tax bid-YT
W of 7.09% based on
a bid of 19.01 and a limitMaturity. Closing quote of 19.01-40, 7×3. Day’s range of 18.65-40.
BMO.PR.K PerpetualDiscount 2.65 % Now with a pre-tax bid-YTW of 7.02% based on a bid of 19.00 and a limitMaturity. Closing quote of 19.00-35, 1×5. Day’s range of 18.75-00.
ELF.PR.F PerpetualDiscount 2.65 % Now with a pre-tax bid-YTW of 8.61% based on a bid of 15.50 and a limitMaturity. Closing quote of 15.50-00, 1×10. Day’s range of 15.50-86.
RY.PR.I FixedReset 2.67 %  
RY.PR.F PerpetualDiscount 2.69 % Now with a pre-tax bid-YTW of 6.58% based on a bid of 17.20 and a limitMaturity. Closing quote of 17.20-42, 3×5. Day’s range of 17.00-40.
TD.PR.R PerpetualDiscount 2.69 % Now with a pre-tax bid-YTW of 6.83% based on a bid of 20.96 and a limitMaturity. Closing quote of 20.96-34, 2×2. Day’s range of 20.60-21.64.
GWO.PR.F PerpetualDiscount 2.72% Now with a pre-tax bid-YTW of 7.43% based on a bid of 20.05 and a limitMaturity. Closing quote of 20.05-50, 2×10. Day’s range of 20.00-20.00.
POW.PR.A PerpetualDiscount 2.79% Now with a pre-tax bid-YTW of 7.49% based on a bid of 18.81 and a limitMaturity. Closing quote of 18.80-19.90 (!), 5×1. Day’s range of 18.72-19.85.
POW.PR.C PerpetualDiscount 2.85% Now with a pre-tax bid-YTW of 7.22% based on a bid of 20.21 and a limitMaturity. Closing quote of 20.21-74, 3×2. Day’s range of 20.14-70.
CM.PR.P PerpetualDiscount 2.93 % Now with a pre-tax bid-YTW of 7.28% based on a bid of 18.95 and a limitMaturity. Closing quote of 18.95-00, 21×25. Day’s range of 18.50-24.
TD.PR.A FixedReset 2.94 %  
PWF.PR.I PerpetualDiscount 2.96 % Now with a pre-tax bid-YTW of 7.75% based on a bid of 19.82 and a limitMaturity. Closing quote of 19.82-21.40 (!), 3×2. Day’s range of 19.24-21.40 (!).
PWF.PR.F PerpetualDiscount 2.97 % Now with a pre-tax bid-YTW of 7.59% based on a bid of 17.71 and a limitMaturity. Closing quote of 17.71-19.99 (!!) 1×3. Day’s range of 17.70-20.00 (!).
BNA.PR.C SplitShare 2.97 % Asset coverage of 1.8+:1 based on BAM.A at 18.81 and 2.4 BAM.A per preferred. Now with a pre-tax bid-YTW of 19.06% based on a bid of 9.01 and a hardMaturity 2019-1-10. Closing quote of 9.01-94, 18×8. Day’s range of 9.00-20.
PWF.PR.A Floater 3.12 %  
RY.PR.A PerpetualDiscount 3.26 % Now with a pre-tax bid-YTW of 6.36% based on a bid of 17.76 and a limitMaturity. Closing quote of 17.76-00, 2×7. Day’s range of 17.39-00.
TRI.PR.B Floater 3.29 %  
BMO.PR.J PerpetualDiscount 3.30 % Now with a pre-tax bid-YTW of 6.89% based on a bid of 16.60 and a limitMaturity. Closing quote of 16.60-63, 2×5. Day’s range of 16.25-60.
TD.PR.Q PerpetualDiscount 3.40 % Now with a pre-tax bid-YTW of 6.71% based on a bid of 21.30 and a limitMaturity. Closing quote of 21.30-92, 2×9. Day’s range of 21.50-70.
RY.PR.E PerpetualDiscount 3.46 % Now with a pre-tax bid-YTW of 6.59% based on a bid of 17.36 and a limitMaturity. Closing quote of 17.36-54, 10.8. Day’s range of 16.99-46.
CIU.PR.A PerpetualDiscount 3.52% Now with a pre-tax bid-YTW of 7.81% based on a bid of 14.99 and a limitMaturity. Closing quote of 14.99-25, 3×1. Day’s range of 14.98-99.
BAM.PR.N PerpetualDiscount 3.65% Now with a pre-tax bid-YTW of 11.17% based on a bid of 10.79 and a limitMaturity. Closing quote of 10.79-15, 5×2. Day’s range of 10.49-15.
GWO.PR.G PerpetualDiscount 3.70% Now with a pre-tax bid-YTW of 6.98% based on a bid of 18.79 and a limitMaturity. Closing quote of 18.79-90, 1×6. Day’s range of 18.55-29.
POW.PR.D PerpetualDiscount 3.70% Now with a pre-tax bid-YTW of 7.36% based on a bid of 17.09 and a limitMaturity. Closing quote of 17.09-49, 4×18. Day’s range of 16.50-18.01.
BCE.PR.A FixedFloater 3.87 %  
BNS.PR.L PerpetualDiscount 4.04% Now with a pre-tax bid-YTW of 6.54% based on a bid of 17.26 and a limitMaturity. Closing quote of 17.26-64, 5×13. Day’s range of 17.24-25.
PWF.PR.L PerpetualDiscount 4.05% Now with a pre-tax bid-YTW of 7.59% based on a bid of 17.21 and a limitMaturity. Closing quote of 17.21-00, 5×10. Day’s range of 17.10-25.
RY.PR.G PerpetualDiscount 4.15 % Now with a pre-tax bid-YTW of 6.51% based on a bid of 17.56 and a limitMaturity. Closing quote of 17.56-70, 1×5. Day’s range of 16.90-70.
BNS.PR.K PerpetualDiscount 4.24% Now with a pre-tax bid-YTW of 6.63% based on a bid of 18.15 and a limitMaturity. Closing quote of 18.15-24, 5×9. Day’s range of 17.53-15.
FBS.PR.B SplitShare 4.25 % Asset coverage of 1.1+:1 as of December 31, according to TD Securities. Now with a pre-tax bid-YTW of 12.87% based on a bid of 8.10 and a hardMaturity 2011-12-15 at 10.00. Closing quote of 8.10-49, 50×20. Day’s range of 7.61-10.
NA.PR.K PerpetualDiscount 4.29 % Now with a pre-tax bid-YTW of 7.59% based on a bid of 19.67 and a limitMaturity. Closing quote of 19.67-39, 2×2. Day’s range of 19.95-39.
PWF.PR.K PerpetualDiscount 4.36% Now with a pre-tax bid-YTW of 7.45% based on a bid of 17.01 and a limitMaturity. Closing quote of 17.01-25, 5×9. Day’s range of 16.83-50.
BAM.PR.M PerpetualDiscount 4.41% Now with a pre-tax bid-YTW of 11.32% based on a bid of 10.65 and a limitMaturity. Closing quote of 10.65-98, 1×3. Day’s range of 10.40-98.
BCE.PR.Z FixedFloater 4.45 %  
TD.PR.O PerpetualDiscount 4.45% Now with a pre-tax bid-YTW of 6.60% based on a bid of 18.76 and a limitMaturity. Closing quote of 18.76-10, 3×7. Day’s range of 17.85-19.14.
BMO.PR.L PerpetualDiscount 4.49% Now with a pre-tax bid-YTW of 7.20% based on a bid of 20.50 and a limitMaturity. Closing quote of 20.50-00, 5×20. Day’s range of 20.75-19.
PWF.PR.G PerpetualDiscount 4.79% Now with a pre-tax bid-YTW of 7.58% based on a bid of 19.91 and a limitMaturity. Closing quote of 19.91-21.99 (!!) 1×5. Day’s range of 19.40-00.
SLF.PR.B PerpetualDiscount 4.87 % Now with a pre-tax bid-YTW of 7.21% based on a bid of 16.81 and a limitMaturity. Closing quote of 16.81-19, 3×10. Day’s range of 16.45-20.
SLF.PR.E PerpetualDiscount 4.87 % Now with a pre-tax bid-YTW of 7.13% based on a bid of 15.92 and a limitMaturity. Closing quote of 15.92-15, 12×17. Day’s range of 16.15-38.
PWF.PR.E PerpetualDiscount 5.11% Now with a pre-tax bid-YTW of 7.61% based on a bid of 18.50 and a limitMaturity. Closing quote of 18.50-00, 5×10. Day’s range of 17.99-50.
NA.PR.L PerpetualDiscount 5.20 % Now with a pre-tax bid-YTW of 7.55% based on a bid of 16.39 and a limitMaturity. Closing quote of 16.39-83, 3×23. Day’s range of 16.21-80.
BCE.PR.G FixedFloater 5.36 %  
MFC.PR.B PerpetualDisco

unt

 5.57% Now with a pre-tax bid-YTW of 6.32% based on a bid of 18.59 and a limitMaturity. Closing quote of 18.59-89, 2×1. Day’s range of 17.84-18.89.
BCE.PR.R FixedFloater 5.76 %  
FIG.PR.A InterestBearing 6.12% Asset coverage of 1.1+:1 as of December 31, based on Capital Unit Value of 1.75 and 0.71 Capital Units per preferred. Now with a pre-tax bid-YTW of 13.56% based on a bid of 7.11 and a hardMaturity 2014-12-31 at 10.00. Closing quote of 7.11-49, 3×3. Day’s range of 7.34-35.
BCE.PR.Y Ratchet 6.13 %  
TD.PR.P PerpetualDiscount 6.33% Now with a pre-tax bid-YTW of 6.38% based on a bid of 21.00 and a limitMaturity. Closing quote of 21.00-20, 8×40. Day’s range of 20.35-21.49.
GWO.PR.H PerpetualDiscount 6.34% Now with a pre-tax bid-YTW of 7.38% based on a bid of 16.60 and a limitMaturity. Closing quote of 16.60-93, 5×10. Day’s range of 16.30-95.
PWF.PR.H PerpetualDiscount 6.50 % Now with a pre-tax bid-YTW of 7.55% based on a bid of 19.50 and a limitMaturity. Closing quote of 19.50-20, 1×15. Day’s range of 18.99-50.
NA.PR.M PerpetualDiscount 6.78 % Now with a pre-tax bid-YTW of 7.20% based on a bid of 21.25 and a limitMaturity. Closing quote of 21.25-40, 40×7. Day’s range of 20.45-21.75.
BCE.PR.C FixedFloater 7.25 %  
BAM.PR.B Floater 8.21 %  
BAM.PR.J OpRet 8.52 % Now with a pre-tax bid-YTW of 11.76% based on a bid of 16.30 and a softMaturity 2018-3-30 at 25.00. Closing quote of 16.30-88, 5×18. Day’s range of 15.80-16.88.
POW.PR.B PerpetualDiscount 8.81% Now with a pre-tax bid-YTW of 7.27% based on a bid of 18.52 and a limitMaturity. Closing quote of 18.52-15, 2×3. Day’s range of 17.49-18.96.
BCE.PR.I FixedFloater 8.96 %  
BCE.PR.S Ratchet 10.56 %  
Issue Index Shares
Traded		 Notes
CM.PR.P PerpetualDiscount 24,520 Now with a pre-tax bid-YTW of 7.28% based on a bid of 18.95 and a limitMaturity.
POW.PR.D PerpetualDiscount 22,200 Now with a pre-tax bid-YTW of 7.36% based on a bid of 17.09 and a limitMaturity.
CM.PR.H PerpetualDiscount 20,100 Now with a pre-tax bid-YTW of 7.23% based on a bid of 16.66 and a limitMaturity.
BMO.PR.J PerpetualDiscount 18,575 Now with a pre-tax bid-YTW of 6.89% based on a bid of 16.60 and a limitMaturity.
RY.PR.G PerpetualDiscount 17,940 Now with a pre-tax bid-YTW of 6.51% based on a bid of 17.56 and a limitMaturity.

There were twelve other index-included $25-p.v.-equivalent issues trading over 10,000 shares today.

HIMI Preferred Indices

HIMIPref™ Preferred Indices: December 2008

HIMI Index Values 2008-12-31
These values reflect the December 2008 Revision
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 795.7 2 2.00 8.48% 12.5 32M 7.79%
FixedFloater 1,252.0 8 2.00 8.11% 12.5 83M 8.17%
Floater 986.6 4 1.72 5.78% 14.2 34M 6.18%
OpRet 1,967.9 15 1.35 4.69% 3.9 129M 5.44%
SplitShare 1,758.9 15 2.00 10.00% 4.18 79M 6.32%
Interest-Bearing 1,836.1 2 2.00 14.76% 0.9 51M 7.70%
Perpetual-Premium 1,467.5 0 N/A N/A N/A N/A N/A
Perpetual-Discount 1,351.5 71 1.23 7.29% 12.2 243M 7.27%
FixedReset 1,793.3 18 1.06 4.81% 15.1 801M 5.92%

For Index Revisions during December 2008, see the post HIMIPref™ Index Rebalancing: December 2008.

Publication of index details is embargoed for six months following index date.