There was a substantial amount of trading in July, as the collapse in prices of PerpetualDiscounts in a confused market brought many opportunities to the Fund. Turnover was close to 100% for the month, but a high proportion of these trades were intra-issuer (trades between the CM issues were particularly frequent) and most others were intra-sector (PerpetualDiscounts fell at different rates).
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 2008-7-31 | |||
| HIMI Indices Sector | Weighting | YTW | ModDur |
| Ratchet | 0% | N/A | N/A |
| FixFloat | 0% | N/A | N/A |
| Floater | 0% | N/A | N/A |
| OpRet | 0% | N/A | N/A |
| SplitShare | 11.6% (+10.7) | 9.07% | 2.84 |
| Interest Rearing | 0% | N/A | N/A |
| PerpetualPremium | 0.3% (0) | 5.79% | 2.29 |
| PerpetualDiscount | 91.7% (-2.7) | 6.70% | 13.97 |
| Scraps | 0% | N/A | N/A |
| Cash | -3.6% (-8.4) | 0.00% | 0.00 |
| Total | 100% | 7.21% | 12.23 |
| Totals and changes will not add precisely due to rounding. Bracketted figures represent change from June month-end. | |||
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.
The increase in SplitShares is due to purchases of WFS.PR.A, discussed below.
Credit distribution is:
| MAPF Credit Analysis 2008-7-31 | |
| DBRS Rating | Weighting |
| Pfd-1 | 67.5% (+30.9) |
| Pfd-1(low) | 13.2% (-27.0) |
| Pfd-2(high) | 0% (-7.9) |
| Pfd-2 | 0.5% (+0.1) |
| Pfd-2(low) | 22.4% (+12.1) |
| Cash | -3.6% (-8.4) |
| Totals will not add precisely due to rounding. Bracketted figures represent change from June 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 increase in the proportion of Pfd-2(low) issues held is due to purchases of WFS.PR.A:
| Post Mortem: Purchase of WFS.PR.A Position | |||||
| Date | GWO.PR.G | NA.PR.L | NA.PR.K | PWF.PR.K | WFS.PR.A |
| June 30 (Closing bid) |
21.13 | 20.05 | 23.21 | 20.25 | 9.11 |
| Trade, 7/3 Price Including Commission |
Sold 19.98 |
Bought 23.50 |
|||
| Trade 7/9 |
Sold 21.20 |
Sold 19.56 |
Bought 9.08 |
||
| Trade 7/11 |
Sold 23.25 |
Bought 9.05 |
|||
| July 31 closing bid bid-YTW |
21.20 6.22% |
18.70 6.52% |
23.15 6.34% |
19.50 6.40% |
9.00 9.50% |
| Dividends | 7/9 0.30 |
7/9 0.37 |
7/8 0.31 |
||
As of month-end, the move into WFS.PR.A has not borne fruit – but given the substantial yield pick-up (over 3 points!) I consider it to be only a matter of time before the WFS.PR.A experiences a substantial price increase. As of July 24, it had asset coverage of 1.6+:1, according to Mulvihill; comparable issues (insofar as anything is comparable; as the name implies, World Financial Split has a portfolio with considerably more geographic diversification than most split share corporations) are trading to yield 5.5%-5.8%. If WFS.PR.A were to trade to yield a more reasonable (to me!) 6%, the price would be about $9.85, an increase of almost 10% from the the July month-end value. Frankly, it seems like a pretty good bet, particularly given the decrease in interest-rate risk when trading from perpetuals to a split-share maturing in just under three years!
Liquidity Distribution is:
| MAPF Liquidity Analysis 2008-7-31 | |
| Average Daily Trading | Weighting |
| <$50,000 | 0.6% (+0.1) |
| $50,000 – $100,000 | 22.2% (+21.5) |
| $100,000 – $200,000 | 58.7% (+11.5) |
| $200,000 – $300,000 | 11.9% (-17.1) |
| >$300,000 | 10.2% (-7.8) |
| Cash | -3.6% (-8.4) |
| Totals will not add precisely due to rounding. Bracketted figures represent change from June 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 CPD as of May month end; it should be noted that the underlying TXPR index has been rebalanced and I have not yet fully analyzed the changes. While the changes affect the allocation to the different sectors, I do not believe the credit or liquidity metrics will have changed much.
- MAPF credit quality is superior
- MAPF liquidity is comparable
- MAPF Yield is higher
- But … MAPF is more exposed to PerpetualDiscounts
- MAPF is less exposed to Fixed-Resets
Best & Worst Performers: July 2008
August 1st, 2008These are total returns, with dividends presumed to have been reinvested at the bid price on the ex-date. The list has been restricted to issues in the HIMIPref™ indices.
[Review – Negative]
… however, the previously scheduled end of the world was cancelled on July 17, and …
… so, after all the smoke has cleared …
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