PrefBlog

Market Action

CF.PR.C : Convert or Hold?

It will be recalled that CF.PR.C will reset to 4.993% (paid on par) effective July 1.

Holders of CF.PR.C have the option to convert to FloatingResets, which will pay 3-month bills plus 403bp on the par value of $25.00, reset quarterly. The deadline for notifying the company of the intent to convert is 5:00 p.m. (Toronto time) on June 15, 2017.; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset, if it is issued, has not yet been announced.

CF.PR.C is a FixedReset, 5.75%+403 that commenced trading 2012-4-10 after being announced 2012-3-22. It has been relegated to the Scraps subindex since inception on credit concerns.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., CF.PR.C and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

We can show the break-even rates for each FixedReset / FloatingReset Strong Pair graphically by plotting the implied average 3-month bill rate against the next Exchange Date (which is the date to which the average will be calculated).

Click for Big

The market appears to have a distaste at the moment for floating rate product; most of the implied rates until the next interconversion are lower than the current 3-month bill rate and the averages for investment-grade and junk issues are both well below current market rates, at -0.04% and -0.16%, respectively! Whatever might be the result of the next few Bank of Canada overnight rate decisions, I suggest that it is unlikely that the average rate over the next five years will be lower than current – but if you disagree, of course, you may interpret the data any way you like.

Since credit quality of each element of the pair is equal to the other element, it should not make any difference whether the pair examined is investment-grade or junk, although we might expect greater variation of implied rates between junk issues on grounds of lower liquidity, and this is just what we see.

If we plug in the current bid price of the CF.PR.C FixedReset, we may construct the following table showing consistent prices for its soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for CF.PR.C) Trading Price In Current Conditions
			Assumed FloatingReset Price if Implied Bill is equal to
FixedReset	Bid Price	Spread	+0.50%	0.00%	-0.50%
CF.PR.C	17.22	403bp	16.80	16.34	15.88

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of CF.PR.C continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the new pair will reflect these conditions.

Issue Comments

TA.PR.F : Convert or Hold?

It will be recalled that TA.PR.F will reset to 4.027% (paid on par) effective June 30.

Holders of TA.PR.F have the option to convert to FloatingResets, which will pay 3-month bills plus 310bp on the par value of $25.00, reset quarterly. The deadline for notifying the company of the intent to convert is 3:00 p.m. (MST) / 5:00 p.m. (EST) on June 15, 2017; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset, if it is issued, has not yet been announced.

TA.PR.F is a FixedReset 4.60%+310 that commenced trading 2011-11-30 after being announced 2011-11-22. It has been relegated to the Scraps subindex since inception on credit concerns.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., TA.PR.F and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

Click for Big

If we plug in the current bid price of the TA.PR.F FixedReset, we may construct the following table showing consistent prices for its soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for TA.PR.F) Trading Price In Current Conditions
			Assumed FloatingReset Price if Implied Bill is equal to
FixedReset	Bid Price	Spread	+0.50%	0.00%	-0.50%
TA.PR.F	16.57	310bp	16.16	15.68	15.21

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of TA.PR.F continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the new pair will reflect these conditions.

Issue Comments

IAG.PR.G : Convert or Hold?

It will be recalled that IAG.PR.G will reset to 3.777% (paid on par) effective June 30.

Holders of IAG.PR.G have the option to convert to FloatingResets, which will pay 3-month bills plus 285bp on the par value of $25.00, reset quarterly. The deadline for notifying the company of the intent to convert is 5:00 p.m. (Montreal time) on June 15, 2017; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset, if it is issued, has not yet been announced.

IAG.PR.G is a FixedReset 4.30%+285 that commenced trading 2012-6-1 (and was, unusually, re-opened on 2012-6-19) after being announced 2012-5-24. It has been a member of the FixedReset subindex since inception.

As this issue is not NVCC compliant, it is analyzed as having a Deemed Retraction.

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., IAG.PR.G and the FloatingReset that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

Click for Big

If we plug in the current bid price of the IAG.PR.G FixedReset, we may construct the following table showing consistent prices for its soon-to-be-issued FloatingReset counterpart given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for IAG.PR.G) Trading Price In Current Conditions
			Assumed FloatingReset Price if Implied Bill is equal to
FixedReset	Bid Price	Spread	+0.50%	0.00%	-0.50%
IAG.PR.G	21.80	285bp	21.36	20.84	20.32

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of IAG.PR.G continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the new pair will reflect these conditions.

Issue Comments

BAM.PR.X : Convert or Hold?

It will be recalled that BAM.PR.X will reset to 2.727% (paid on par) effective July 1.

Holders of BAM.PR.X have the option to convert to FloatingResets, which will pay 3-month bills plus 180bp on the par value of $25.00, reset quarterly. The deadline for notifying the company of the intent to convert is 5:00 p.m. (Toronto time) on June 15, 2017; but note that this is a company deadline and that brokers will generally set their deadlines a day or two in advance, so there’s not much time to lose if you’re planning to convert! However, if you miss the brokerage deadline they’ll probably do it on a ‘best efforts’ basis if you grovel in a sufficiently entertaining fashion. The ticker for the new FloatingReset, if it is issued, will be BAM.PR.Y.

BAM.PR.X is a FixedReset, FixedReset, 4.60%+180, that commenced trading 2011-2-8 after being announced 2011-1-19. Thus, the new rate represents a dividend reduction of 41%. Ouch!

The most logical way to analyze the question of whether or not to convert is through the theory of Preferred Pairs, for which a calculator is available. Briefly, a Strong Pair is defined as a pair of securities that can be interconverted in the future (e.g., BAM.PR.X and the FloatingReset BAM.PR.Y that will exist if enough holders convert). Since they will be interconvertible on this future date, it may be assumed that they will be priced identically on this date (if they aren’t then holders will simply convert en masse to the higher-priced issue). And since they will be priced identically on a given date in the future, any current difference in price must be offset by expectations of an equal and opposite value of dividends to be received in the interim. And since the dividend rate on one element of the pair is both fixed and known, the implied average rate of the other, floating rate, instrument can be determined. Finally, we say, we may compare these average rates and take a view regarding the actual future course of that rate relative to the implied rate, which will provide us with guidance on which element of the pair is likely to outperform the other until the next interconversion date, at which time the process will be repeated.

Click for Big

If we plug in the current bid price of the BAM.PR.X FixedReset, we may construct the following table showing consistent prices for its soon-to-be-issued FloatingReset counterpart BAM.PR.Y given a variety of Implied Breakeven yields consistent with issues currently trading:

Estimate of FloatingReset (received in exchange for BAM.PR.X) Trading Price In Current Conditions
			Assumed FloatingReset Price if Implied Bill is equal to
FixedReset	Bid Price	Spread	+0.50%	0.00%	-0.50%
BAM.PR.X	15.95	180bp	15.51	14.99	14.47

Based on current market conditions, I suggest that the FloatingResets that will result from conversion are likely to be cheap and trading below the price of their FixedReset counterparts. Therefore, I recommend that holders of BAM.PR.X continue to hold the issue and not to convert. I will note that, given the apparent cheapness of the FloatingResets, it may be a good trade to swap the FixedReset for the FloatingReset in the market once both elements of each pair are trading and you can – presumably, according to this analysis – do it with a reasonably good take-out in price, rather than doing it through the company on a 1:1 basis. But that, of course, will depend on the prices at that time and your forecast for the path of policy rates over the next five years. There are no guarantees – my recommendation is based on the assumption that current market conditions with respect to the pairs will continue until the FloatingResets commence trading and that the relative pricing of the two new pairs will reflect these conditions.

Market Action

June 8, 2017

A Spanish bank went bust, so obviously the sky is falling:

The collapse of Banco Popular Espanol SA and a subsequent wipeout of its junior debt serves as a reminder for Canadian investors lapping up similar bonds why these securities offer a higher yield than others.

The 1-euro rescue takeover of what was Spain’s sixth-largest bank by rival Banco Santander SA left holders of its stock and contingent convertible bonds with losses of 3.3 billion euros ($3.7 billion). Senior debt was protected as authorities averted a run on the bank and saved taxpayers from bearing costs.

The move comes as investors across the ocean have been buying non-viability contingent capital bonds, securities which convert to equity when certain crisis triggers are hit. While no major Canadian lender is anywhere near the trouble Banco Popular was in, the Bank of Canada warned on Thursday of increased financial system vulnerabilities associated with household debt.

So a Canadian NVCC bond was highlighted in the story:

The spread on the 2.982 percent NVCC bonds of Toronto-Dominion Bank, Canada’s largest bank by assets, with a call date in September 2020 has fallen 160 basis points from its peak in February 2016, while that on the lender’s 2.045 percent deposit notes maturing in March 2021 has shrunk 54 basis points over roughly the same period, according to Bloomberg data.

“It should be a bit of a wake-up call for Canadian investors,” said Bill Girard, who manages corporate bond portfolios at Bank of Nova Scotia’s 1832 Asset Management, arguing that Canadian investors have been buying higher-yielding NVCC bonds without fully realizing the risk. “Banco Popular investors might have thought the same. You’re safe right until the point you aren’t.”

It should be a bit of a wake-up call, but it won’t be. The reason it should be a wake-up call is because … well, first off, let’s take a look at the financial statements for PHILLIPS, HAGER & NORTH SHORT TERM BOND & MORTGAGE FUND (I don’t want to pick on Royal Bank’s subsidiary – it was just the first one I found).

On page four of the document, we find that this fund holds just over $17-million of these things.

WHAT THE #$$%**@$ IS AN NVCC ISSUE DOING IN A SHORT TERM BOND & MORTGAGE FUND?

I have noted in the past that OSFI wanted this stuff incorporated into bond indices, even though they’re not actually bonds as the term is generally understood. OSFI’s desire for this was publicly reported and was consistent with other sleaze-bag regulatory rip-offs of unsophisticated retail bond index investors globally. So, naturally, the bank-owned TSX happily incorporated them in their bond indices. This was a problem for quite some time, but I am pleased to report that May, 2017, revision of the FTSE TMX Canada Universe and Maple Bond Indexes contains section 3.1.4:

Exclusions

The indexes do not include floating-rate notes, convertible bonds (which convert to equity at the option of the holder), Non Viable Contingent Capital bonds (NVCC which convert to equity if the regulator determines a firm is “Non Viable”), residential and commercial mortgage-backed securities (CMBS and MBS), other monthly-pay securities, other prepayable securities, inflation-indexed securities, or securities specifically targeted to the retail market. It also excludes securities that are not priced, which would typically be securities that are closely held and do not trade.

It doesn’t happen very often, but sometimes things do get better!

HIMIPref™ Preferred Indices 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	0.00 %	0.00 %	0	0.00	0	0.8707 %	2,115.2
FixedFloater	0.00 %	0.00 %	0	0.00	0	0.8707 %	3,881.3
Floater	3.71 %	3.75 %	78,070	17.88	3	0.8707 %	2,236.8
OpRet	0.00 %	0.00 %	0	0.00	0	-0.1022 %	3,046.9
SplitShare	4.72 %	4.42 %	70,925	3.92	5	-0.1022 %	3,638.7
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.1022 %	2,839.1
Perpetual-Premium	5.28 %	1.33 %	70,381	0.09	25	0.0875 %	2,795.2
Perpetual-Discount	5.08 %	5.09 %	99,995	15.27	12	0.0849 %	3,003.9
FixedReset	4.54 %	4.11 %	198,436	6.53	95	0.5465 %	2,282.8
Deemed-Retractible	4.98 %	4.99 %	123,822	6.26	30	0.0449 %	2,902.5
FloatingReset	2.52 %	3.12 %	49,051	4.39	10	0.0657 %	2,520.7

Performance Highlights
Issue	Index	Change	Notes
SLF.PR.J	FloatingReset	-1.18 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.12 Bid-YTW : 9.25 %
BAM.PF.F	FixedReset	1.04 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-08 Maturity Price : 22.02 Evaluated at bid price : 22.27 Bid-YTW : 4.41 %
MFC.PR.O	FixedReset	1.05 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2021-06-19 Maturity Price : 25.00 Evaluated at bid price : 26.98 Bid-YTW : 3.46 %
MFC.PR.N	FixedReset	1.06 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.96 Bid-YTW : 6.91 %
BAM.PF.A	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-08 Maturity Price : 21.45 Evaluated at bid price : 21.79 Bid-YTW : 4.50 %
SLF.PR.G	FixedReset	1.07 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.03 Bid-YTW : 8.87 %
MFC.PR.J	FixedReset	1.09 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.31 Bid-YTW : 6.03 %
MFC.PR.K	FixedReset	1.14 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.45 Bid-YTW : 7.08 %
HSE.PR.A	FixedReset	1.19 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-08 Maturity Price : 15.22 Evaluated at bid price : 15.22 Bid-YTW : 4.29 %
TRP.PR.C	FixedReset	1.26 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-08 Maturity Price : 15.23 Evaluated at bid price : 15.23 Bid-YTW : 4.04 %
MFC.PR.G	FixedReset	1.29 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.70 Bid-YTW : 5.36 %
CU.PR.I	FixedReset	1.31 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2020-12-01 Maturity Price : 25.00 Evaluated at bid price : 26.22 Bid-YTW : 3.05 %
BAM.PR.X	FixedReset	1.74 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-08 Maturity Price : 15.78 Evaluated at bid price : 15.78 Bid-YTW : 4.41 %
IFC.PR.A	FixedReset	1.87 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.87 Bid-YTW : 8.95 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.R	FixedReset	331,425	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-08 Maturity Price : 23.14 Evaluated at bid price : 24.95 Bid-YTW : 4.25 %
MFC.PR.O	FixedReset	106,705	YTW SCENARIO Maturity Type : Call Maturity Date : 2021-06-19 Maturity Price : 25.00 Evaluated at bid price : 26.98 Bid-YTW : 3.46 %
SLF.PR.H	FixedReset	102,685	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.61 Bid-YTW : 7.37 %
SLF.PR.I	FixedReset	80,295	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.21 Bid-YTW : 5.55 %
TRP.PR.D	FixedReset	60,950	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-08 Maturity Price : 20.15 Evaluated at bid price : 20.15 Bid-YTW : 4.24 %
BMO.PR.S	FixedReset	30,741	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-08 Maturity Price : 21.04 Evaluated at bid price : 21.04 Bid-YTW : 3.99 %
There were 31 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
SLF.PR.J	FloatingReset	Quote: 15.12 – 15.38 Spot Rate : 0.2600 Average : 0.1958 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.12 Bid-YTW : 9.25 %
BMO.PR.Q	FixedReset	Quote: 21.18 – 21.40 Spot Rate : 0.2200 Average : 0.1591 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.18 Bid-YTW : 5.64 %
GWO.PR.R	Deemed-Retractible	Quote: 23.92 – 24.14 Spot Rate : 0.2200 Average : 0.1626 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.92 Bid-YTW : 5.48 %
BAM.PF.H	FixedReset	Quote: 26.27 – 26.56 Spot Rate : 0.2900 Average : 0.2344 YTW SCENARIO Maturity Type : Call Maturity Date : 2020-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.27 Bid-YTW : 3.77 %
CCS.PR.C	Deemed-Retractible	Quote: 24.15 – 24.37 Spot Rate : 0.2200 Average : 0.1653 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.15 Bid-YTW : 5.54 %
PWF.PR.P	FixedReset	Quote: 15.46 – 15.65 Spot Rate : 0.1900 Average : 0.1387 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-08 Maturity Price : 15.46 Evaluated at bid price : 15.46 Bid-YTW : 4.06 %

Market Action

June 7, 2017

PerpetualDiscounts now yield 5.08%, equivalent to 6.60% interest at the standard conversion factor of 1.3x. Long corporates now yield about 3.60%, so the pre-tax interest-equivalent spread (in this context, the “Seniority Spread”) is now about 300bp, a slight (and perhaps spurious) widening from the 295bp reported May 31.

HIMIPref™ Preferred Indices 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	0.00 %	0.00 %	0	0.00	0	0.5839 %	2,097.0
FixedFloater	0.00 %	0.00 %	0	0.00	0	0.5839 %	3,847.8
Floater	3.74 %	3.78 %	81,177	17.81	3	0.5839 %	2,217.5
OpRet	0.00 %	0.00 %	0	0.00	0	0.0393 %	3,050.1
SplitShare	4.72 %	4.22 %	73,642	1.53	5	0.0393 %	3,642.4
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.0393 %	2,842.0
Perpetual-Premium	5.28 %	3.77 %	69,539	0.09	25	0.0281 %	2,792.8
Perpetual-Discount	5.09 %	5.08 %	99,799	15.28	12	-0.1271 %	3,001.3
FixedReset	4.56 %	4.17 %	198,449	6.52	95	-0.0885 %	2,270.4
Deemed-Retractible	4.98 %	4.99 %	124,444	6.27	30	-0.0789 %	2,901.2
FloatingReset	2.52 %	3.16 %	48,809	4.39	10	0.1080 %	2,519.0

Performance Highlights
Issue	Index	Change	Notes
IFC.PR.A	FixedReset	-2.93 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.56 Bid-YTW : 9.25 %
IFC.PR.C	FixedReset	-1.44 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.60 Bid-YTW : 6.53 %
BAM.PR.X	FixedReset	-1.27 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-07 Maturity Price : 15.51 Evaluated at bid price : 15.51 Bid-YTW : 4.48 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.R	FixedReset	241,253	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-07 Maturity Price : 23.13 Evaluated at bid price : 24.94 Bid-YTW : 4.25 %
IFC.PR.E	Deemed-Retractible	135,585	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.01 Bid-YTW : 5.26 %
BNS.PR.G	FixedReset	130,030	YTW SCENARIO Maturity Type : Call Maturity Date : 2021-07-25 Maturity Price : 25.00 Evaluated at bid price : 26.97 Bid-YTW : 3.62 %
TD.PF.H	FixedReset	122,924	YTW SCENARIO Maturity Type : Call Maturity Date : 2021-10-31 Maturity Price : 25.00 Evaluated at bid price : 26.04 Bid-YTW : 3.96 %
TRP.PR.E	FixedReset	72,610	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-07 Maturity Price : 20.36 Evaluated at bid price : 20.36 Bid-YTW : 4.23 %
TRP.PR.K	FixedReset	58,234	YTW SCENARIO Maturity Type : Call Maturity Date : 2022-05-31 Maturity Price : 25.00 Evaluated at bid price : 25.94 Bid-YTW : 4.10 %
There were 40 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
IFC.PR.A	FixedReset	Quote: 16.56 – 17.01 Spot Rate : 0.4500 Average : 0.3105 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 16.56 Bid-YTW : 9.25 %
VNR.PR.A	FixedReset	Quote: 20.48 – 20.79 Spot Rate : 0.3100 Average : 0.2319 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-07 Maturity Price : 20.48 Evaluated at bid price : 20.48 Bid-YTW : 4.65 %
MFC.PR.O	FixedReset	Quote: 26.70 – 26.94 Spot Rate : 0.2400 Average : 0.1680 YTW SCENARIO Maturity Type : Call Maturity Date : 2021-06-19 Maturity Price : 25.00 Evaluated at bid price : 26.70 Bid-YTW : 3.75 %
POW.PR.D	Perpetual-Discount	Quote: 24.91 – 25.09 Spot Rate : 0.1800 Average : 0.1118 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-07 Maturity Price : 24.65 Evaluated at bid price : 24.91 Bid-YTW : 5.08 %
BAM.PF.H	FixedReset	Quote: 26.20 – 26.44 Spot Rate : 0.2400 Average : 0.1734 YTW SCENARIO Maturity Type : Call Maturity Date : 2020-12-31 Maturity Price : 25.00 Evaluated at bid price : 26.20 Bid-YTW : 3.85 %
IAG.PR.A	Deemed-Retractible	Quote: 22.90 – 23.14 Spot Rate : 0.2400 Average : 0.1829 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.90 Bid-YTW : 5.97 %

Market Action

June 6, 2017

HIMIPref™ Preferred Indices 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	0.00 %	0.00 %	0	0.00	0	-0.4754 %	2,084.8
FixedFloater	0.00 %	0.00 %	0	0.00	0	-0.4754 %	3,825.5
Floater	3.76 %	3.80 %	82,415	17.77	3	-0.4754 %	2,204.7
OpRet	0.00 %	0.00 %	0	0.00	0	0.2682 %	3,048.9
SplitShare	4.72 %	4.16 %	74,092	1.53	5	0.2682 %	3,641.0
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	0.2682 %	2,840.8
Perpetual-Premium	5.28 %	3.11 %	70,221	0.09	25	-0.0812 %	2,792.0
Perpetual-Discount	5.08 %	5.09 %	101,019	15.27	12	-0.0917 %	3,005.2
FixedReset	4.56 %	4.17 %	193,857	6.52	95	-0.4770 %	2,272.4
Deemed-Retractible	4.98 %	4.96 %	125,078	6.27	30	-0.1454 %	2,903.5
FloatingReset	2.52 %	3.18 %	46,702	4.39	10	-0.0563 %	2,516.3

Performance Highlights
Issue	Index	Change	Notes
MFC.PR.N	FixedReset	-1.93 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.85 Bid-YTW : 6.99 %
MFC.PR.M	FixedReset	-1.53 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.95 Bid-YTW : 6.97 %
TRP.PR.B	FixedReset	-1.49 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 13.85 Evaluated at bid price : 13.85 Bid-YTW : 3.98 %
TRP.PR.E	FixedReset	-1.41 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 20.26 Evaluated at bid price : 20.26 Bid-YTW : 4.25 %
IFC.PR.A	FixedReset	-1.39 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.06 Bid-YTW : 8.68 %
TD.PF.A	FixedReset	-1.34 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 20.61 Evaluated at bid price : 20.61 Bid-YTW : 4.01 %
BMO.PR.W	FixedReset	-1.31 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 20.30 Evaluated at bid price : 20.30 Bid-YTW : 4.01 %
MFC.PR.J	FixedReset	-1.31 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.15 Bid-YTW : 6.14 %
IFC.PR.C	FixedReset	-1.28 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.90 Bid-YTW : 6.29 %
IAG.PR.G	FixedReset	-1.25 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.28 Bid-YTW : 6.25 %
RY.PR.H	FixedReset	-1.24 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 20.67 Evaluated at bid price : 20.67 Bid-YTW : 3.98 %
MFC.PR.K	FixedReset	-1.23 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.24 Bid-YTW : 7.25 %
TD.PF.C	FixedReset	-1.22 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 20.32 Evaluated at bid price : 20.32 Bid-YTW : 4.06 %
BMO.PR.Q	FixedReset	-1.18 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.00 Bid-YTW : 5.83 %
RY.PR.J	FixedReset	-1.17 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 21.77 Evaluated at bid price : 22.02 Bid-YTW : 4.17 %
TD.PF.B	FixedReset	-1.16 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 20.46 Evaluated at bid price : 20.46 Bid-YTW : 4.05 %
BAM.PR.T	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 18.43 Evaluated at bid price : 18.43 Bid-YTW : 4.56 %
MFC.PR.G	FixedReset	-1.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.54 Bid-YTW : 5.46 %
SLF.PR.G	FixedReset	-1.00 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.84 Bid-YTW : 9.05 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.R	FixedReset	189,067	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 23.13 Evaluated at bid price : 24.93 Bid-YTW : 4.25 %
IAG.PR.G	FixedReset	184,300	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.28 Bid-YTW : 6.25 %
TD.PF.H	FixedReset	67,430	YTW SCENARIO Maturity Type : Call Maturity Date : 2021-10-31 Maturity Price : 25.00 Evaluated at bid price : 26.02 Bid-YTW : 3.98 %
TD.PF.A	FixedReset	50,372	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 20.61 Evaluated at bid price : 20.61 Bid-YTW : 4.01 %
MFC.PR.N	FixedReset	36,449	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.85 Bid-YTW : 6.99 %
TRP.PR.D	FixedReset	33,000	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 20.05 Evaluated at bid price : 20.05 Bid-YTW : 4.26 %
There were 30 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
BAM.PR.K	Floater	Quote: 12.52 – 12.77 Spot Rate : 0.2500 Average : 0.1759 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 12.52 Evaluated at bid price : 12.52 Bid-YTW : 3.82 %
CU.PR.I	FixedReset	Quote: 26.00 – 26.29 Spot Rate : 0.2900 Average : 0.2322 YTW SCENARIO Maturity Type : Call Maturity Date : 2020-12-01 Maturity Price : 25.00 Evaluated at bid price : 26.00 Bid-YTW : 3.31 %
IAG.PR.G	FixedReset	Quote: 21.28 – 21.59 Spot Rate : 0.3100 Average : 0.2586 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.28 Bid-YTW : 6.25 %
PWF.PR.T	FixedReset	Quote: 22.41 – 22.65 Spot Rate : 0.2400 Average : 0.1891 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 21.87 Evaluated at bid price : 22.41 Bid-YTW : 3.77 %
ELF.PR.F	Perpetual-Premium	Quote: 25.21 – 25.45 Spot Rate : 0.2400 Average : 0.1896 YTW SCENARIO Maturity Type : Call Maturity Date : 2017-07-06 Maturity Price : 25.00 Evaluated at bid price : 25.21 Bid-YTW : 3.90 %
HSE.PR.A	FixedReset	Quote: 15.20 – 15.40 Spot Rate : 0.2000 Average : 0.1526 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-06 Maturity Price : 15.20 Evaluated at bid price : 15.20 Bid-YTW : 4.35 %

Market Action

June 5, 2017

HIMIPref™ Preferred Indices 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	0.00 %	0.00 %	0	0.00	0	0.1852 %	2,094.8
FixedFloater	0.00 %	0.00 %	0	0.00	0	0.1852 %	3,843.8
Floater	3.74 %	3.78 %	83,168	17.81	3	0.1852 %	2,215.2
OpRet	0.00 %	0.00 %	0	0.00	0	-0.0237 %	3,040.7
SplitShare	4.73 %	4.49 %	72,172	3.93	5	-0.0237 %	3,631.3
Interest-Bearing	0.00 %	0.00 %	0	0.00	0	-0.0237 %	2,833.2
Perpetual-Premium	5.28 %	0.32 %	71,000	0.09	25	0.0766 %	2,794.3
Perpetual-Discount	5.08 %	5.08 %	102,442	15.28	12	-0.1655 %	3,007.9
FixedReset	4.54 %	4.14 %	194,769	6.54	95	-0.2077 %	2,283.3
Deemed-Retractible	4.97 %	4.96 %	125,080	6.27	30	0.0231 %	2,907.7
FloatingReset	2.52 %	3.10 %	47,304	4.40	10	-0.3834 %	2,517.7

Performance Highlights
Issue	Index	Change	Notes
TRP.PR.A	FixedReset	-2.46 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-05 Maturity Price : 17.85 Evaluated at bid price : 17.85 Bid-YTW : 4.08 %
BAM.PR.X	FixedReset	-2.36 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-05 Maturity Price : 15.70 Evaluated at bid price : 15.70 Bid-YTW : 4.43 %
SLF.PR.J	FloatingReset	-2.27 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.10 Bid-YTW : 9.25 %
BMO.PR.S	FixedReset	-1.53 %	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-05 Maturity Price : 21.27 Evaluated at bid price : 21.27 Bid-YTW : 3.94 %
IAG.PR.G	FixedReset	-1.24 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.55 Bid-YTW : 6.05 %
MFC.PR.L	FixedReset	-1.07 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.44 Bid-YTW : 7.16 %
BNS.PR.D	FloatingReset	-1.01 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.58 Bid-YTW : 4.89 %
TD.PF.F	Perpetual-Premium	1.02 %	YTW SCENARIO Maturity Type : Call Maturity Date : 2024-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.77 Bid-YTW : 4.51 %
IAG.PR.A	Deemed-Retractible	1.09 %	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.10 Bid-YTW : 5.83 %

Volume Highlights
Issue	Index	Shares Traded	Notes
CM.PR.R	FixedReset	255,851	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-05 Maturity Price : 23.14 Evaluated at bid price : 24.97 Bid-YTW : 4.24 %
BMO.PR.C	FixedReset	51,398	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-05 Maturity Price : 23.30 Evaluated at bid price : 25.43 Bid-YTW : 4.19 %
NA.PR.W	FixedReset	31,767	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-05 Maturity Price : 20.41 Evaluated at bid price : 20.41 Bid-YTW : 4.05 %
BMO.PR.B	FixedReset	28,352	YTW SCENARIO Maturity Type : Call Maturity Date : 2022-02-25 Maturity Price : 25.00 Evaluated at bid price : 26.05 Bid-YTW : 3.92 %
BNS.PR.D	FloatingReset	27,200	YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.58 Bid-YTW : 4.89 %
HSE.PR.C	FixedReset	26,281	YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-05 Maturity Price : 22.17 Evaluated at bid price : 22.52 Bid-YTW : 4.64 %
There were 11 other index-included issues trading in excess of 10,000 shares.

Wide Spread Highlights
Issue	Index	Quote Data and Yield Notes
TRP.PR.A	FixedReset	Quote: 17.85 – 18.27 Spot Rate : 0.4200 Average : 0.2922 YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2047-06-05 Maturity Price : 17.85 Evaluated at bid price : 17.85 Bid-YTW : 4.08 %
PVS.PR.E	SplitShare	Quote: 25.91 – 26.48 Spot Rate : 0.5700 Average : 0.4439 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-10-31 Maturity Price : 25.00 Evaluated at bid price : 25.91 Bid-YTW : 4.75 %
SLF.PR.J	FloatingReset	Quote: 15.10 – 15.40 Spot Rate : 0.3000 Average : 0.1843 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.10 Bid-YTW : 9.25 %
BNS.PR.C	FloatingReset	Quote: 24.06 – 24.35 Spot Rate : 0.2900 Average : 0.1854 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.06 Bid-YTW : 3.35 %
IFC.PR.A	FixedReset	Quote: 17.30 – 17.72 Spot Rate : 0.4200 Average : 0.3194 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 17.30 Bid-YTW : 8.46 %
SLF.PR.A	Deemed-Retractible	Quote: 23.93 – 24.19 Spot Rate : 0.2600 Average : 0.1804 YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.93 Bid-YTW : 5.42 %

MAPF

MAPF Performance : May, 2017

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close May 31, 2017, was $9.1975.

Returns to May 31, 2017
Period	MAPF	BMO-CM “50” Preferred Share Index	TXPR* Total Return	CPD – according to Blackrock
One Month	-1.14%	-2.11%	-1.67%	N/A
Three Months	+1.06%	-0.54%	+0.11%	N/A
One Year	+22.27%	+17.61%	+15.77%	+15.33%
Two Years (annualized)	+1.58%	+2.20%	+0.98%	N/A
Three Years (annualized)	+0.48%	+0.32%	-0.40%	-0.80%
Four Years (annualized)	+1.00%	+0.34%	-0.36%	N/A
Five Years (annualized)	+2.71%	+1.28%	+0.81%	+0.35%
Six Years (annualized)	+2.17%	+1.71%	+1.22%
Seven Years (annualized)	+5.40%	+3.83%	+2.99%
Eight Years (annualized)	+7.13%	+4.74%	+3.65%
Nine Years (annualized)	+9.17%	+3.59%	+2.60%
Ten Years (annualized)	+8.50%	+3.03%		+1.45%
Eleven Years (annualized)	+8.19%	+2.84%
Twelve Years (annualized)	+7.95%	+2.86%
Thirteen Years (annualized)	+8.12%	+3.16%
Fourteen Years (annualized)	+9.01%	+3.23%
Fifteen Years (annualized)	+8.84%	+3.53%
Sixteen Years (annualized)	+9.30%	+3.43%
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The full name of the BMO-CM “50” index is the BMO Capital Markets “50” Preferred Share Index. It is calculated without accounting for fees.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees.
CPD Returns are for the NAV and are after all fees and expenses.
Figures for National Bank Preferred Equity Income Fund (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are -1.17%, +0.73% and +14.37%, respectively, according to Morningstar after all fees & expenses. Three year performance is +0.91%; five year is +1.79%
Figures for Manulife Preferred Income Class Adv [into which was merged Manulife Preferred Income Fund (formerly AIC Preferred Income Fund)] (which are after all fees and expenses) for 1-, 3- and 12-months are -2.80%, -0.90% & +18.52%, respectively. It will be noted that AIC Preferred Income Fund was in existence prior to August, 2009, but long term performance figures have been suppressed.
Figures for Horizons Active Preferred Share ETF (which are after all fees and expenses) for 1-, 3- and 12-months are -1.78%, +0.15% & +16.91%, respectively. Three year performance is +1.30%, five-year is +2.12%
Figures for National Bank Preferred Equity Fund (formerly Altamira Preferred Equity Fund) are -1.95%, -0.15% and +16.50% for one-, three- and twelve months, respectively. Three year performance is +0.30%. According to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical.
The figures for the NAV of BMO S&P/TSX Laddered Preferred Share Index ETF (ZPR) is +18.52% for the past twelve months. Two year performance is -0.76%, three year is -2.61%.
Figures for NexGen Canadian Preferred Share Tax Managed Fund (Dividend Tax Credit Class, the best performing) are -%, +% and -% for one-, three- and twelve-months, respectively.
Figures for BMO Preferred Share Fund are -0.75% and +12.96% for the past three- and twelve-months, respectively. Three year performance is -1.00%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F are +19.38% for the past twelve months. The three-year figure is +0.67%; five years is +0.76%
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR)

MAPF returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not a guarantee of future performance. You can lose money investing in Malachite Aggressive Preferred Fund or any other fund. For more information, see the fund’s main page. The fund is available either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited.

Obviously, the last twelve months have been superb for both preferred shares in general and the fund in particular, but I think that there is still room for outsized gains. The Seniority Spread (the interest-equivalent yield on reasonably liquid, investment-grade PerpetualDiscounts less the yield on long term corporate bonds) is still quite elevated (chart end-date 2017-5-12):

Click for Big

… and the relationship between five-year Canada yields and yields on investment-grade FixedResets is also well within what I consider ‘decoupled panic’ territory (chart end-date 2017-4-13):

Click for Big

In addition, I feel that the yield on five-year Canadas is unsustainably low (it should be the inflation rate plus an increment of … 1%? 1.5%? 2.0%?),and a return to sustainable levels is likely over the medium term.

The performance gap between FixedResets and PerpetualDiscounts, remarked on last month, widened in May:

Click for Big

Of course, it’s one thing to say that ‘spreads are unsustainable and so are government yields’ and it’s quite another to forecast just how and when a more economically sustainable environment will take effect. It could be years. There could be a reversal, particularly if Trump’s international trade policies cause a severe recession or even a depression. And, of course, I could be just plain wrong about the sustainability of the current environment. The drop in FixedReset relative performance could be related to uninspiring economic news:

In the first official growth estimates of Trump’s presidency, federal economists reported gross domestic product, a broad measure of economic growth, grew at an annualized rate of just 0.7 percent in the year’s first quarter, down from 2.1 percent growth in the fourth quarter of 2016.

I think that a broad, sustainable rally in FixedResets will require higher five-year Canada yields (or a widespread expectation of them) … and although I’m sure this will happen eventually, it would be foolish to speculate on just when it will happen!

Calculation of MAPF Sustainable Income Per Unit
Month	NAVPU	Portfolio Average YTW	Leverage Divisor	Securities Average YTW	Capital Gains Multiplier	Sustainable Income per current Unit
June, 2007	9.3114	5.16%	1.03	5.01%	1.3240	0.3524
September	9.1489	5.35%	0.98	5.46%	1.3240	0.3773
December, 2007	9.0070	5.53%	0.942	5.87%	1.3240	0.3993
March, 2008	8.8512	6.17%	1.047	5.89%	1.3240	0.3938
June	8.3419	6.034%	0.952	6.338%	1.3240	$0.3993
September	8.1886	7.108%	0.969	7.335%	1.3240	$0.4537
December, 2008	8.0464	9.24%	1.008	9.166%	1.3240	$0.5571
March 2009	$8.8317	8.60%	0.995	8.802%	1.3240	$0.5872
June	10.9846	7.05%	0.999	7.057%	1.3240	$0.5855
September	12.3462	6.03%	0.998	6.042%	1.3240	$0.5634
December 2009	10.5662	5.74%	0.981	5.851%	1.1141	$0.5549
March 2010	10.2497	6.03%	0.992	6.079%	1.1141	$0.5593
June	10.5770	5.96%	0.996	5.984%	1.1141	$0.5681
September	11.3901	5.43%	0.980	5.540%	1.1141	$0.5664
December 2010	10.7659	5.37%	0.993	5.408%	1.0298	$0.5654
March, 2011	11.0560	6.00%	0.994	5.964%	1.0298	$0.6403
June	11.1194	5.87%	1.018	5.976%	1.0298	$0.6453
September	10.2709	6.10% Note	1.001	6.106%	1.0298	$0.6090
December, 2011	10.0793	5.63% Note	1.031	5.805%	1.0000	$0.5851
March, 2012	10.3944	5.13% Note	0.996	5.109%	1.0000	$0.5310
June	10.2151	5.32% Note	1.012	5.384%	1.0000	$0.5500
September	10.6703	4.61% Note	0.997	4.624%	1.0000	$0.4934
December, 2012	10.8307	4.24%	0.989	4.287%	1.0000	$0.4643
March, 2013	10.9033	3.87%	0.996	3.886%	1.0000	$0.4237
June	10.3261	4.81%	0.998	4.80%	1.0000	$0.4957
September	10.0296	5.62%	0.996	5.643%	1.0000	$0.5660
December, 2013	9.8717	6.02%	1.008	5.972%	1.0000	$0.5895
March, 2014	10.2233	5.55%	0.998	5.561%	1.0000	$0.5685
June	10.5877	5.09%	0.998	5.100%	1.0000	$0.5395
September	10.4601	5.28%	0.997	5.296%	1.0000	$0.5540
December, 2014	10.5701	4.83%	1.009	4.787%	1.0000	$0.5060
March, 2015	9.9573	4.99%	1.001	4.985%	1.0000	$0.4964
June, 2015	9.4181	5.55%	1.002	5.539%	1.0000	$0.5217
September, 2015	7.8140	6.98%	0.999	6.987%	1.0000	$0.5460
December, 2015	8.1379	6.85%	0.997	6.871%	1.0000	$0.5592
March, 2016	7.4416	7.79%	0.998	7.805%	1.0000	$0.5808
June	7.6704	7.67%	1.011	7.587%	1.0000	$0.5819
September	8.0590	7.35%	0.993	7.402%	1.0000	$0.5965
December, 2016	8.5844	7.24%	0.990	7.313%	1.0000	$0.6278
March, 2017	9.3984	6.26%	0.994	6.298%	1.0000	$0.5919
May, 2017	9.1975	6.55%	0.995	6.583%	1.0000	$0.6055
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains. Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00% The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99 Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings. The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested. Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or 2025-1-31 (insurers and insurance holding companies), in addition to the call schedule explicitly defined. See OSFI Does Not Grandfather Extant Tier 1 Capital, CM.PR.D, CM.PR.E, CM.PR.G: Seeking NVCC Status and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis. The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks.
Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012.

These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:

Canada Yields Assumed in Calculations
Month-end	GOC-5	3-Month Bill
September, 2015	0.78%	0.40%
December, 2015	0.71%	0.46%
March, 2016	0.70%	0.44%
June	0.57%	0.47%
September	0.58%	0.53%
December, 2016	1.16%	0.47%
March, 2017	1.08%	0.55%
May, 2017	0.95%	0.54%

Significant positions were held in NVCC non-compliant regulated FixedReset issues on March 31, 2017; all of these currently have their yields calculated with the presumption that they will be called by the issuers at par prior to 2022-1-31 (banks) or 2025-1-31 (insurers and insurance holding companies) or on a different date (SplitShares) This presents another complication in the calculation of sustainable yield, which also assumes that redemption proceeds will be reinvested at the same rate. It will also be noted that my analysis of likely insurance industry regulation as recently updated is not given much weight by the market.

I will also note that the sustainable yield calculated above is not directly comparable with any yield calculation currently reported by any other preferred share fund as far as I am aware. The Sustainable Yield depends on:
i) Calculating Yield-to-Worst for each instrument and using this yield for reporting purposes;
ii) Using the contemporary value of Five-Year Canadas to estimate dividends after reset for FixedResets. The assumption regarding the five-year Canada rate has become more important as the proportion of low-spread FixedResets in the portfolio has increased.
iii) Making the assumption that deeply discounted NVCC non-compliant issues from both banks and insurers, both Straight and FixedResets will be redeemed at par on their DeemedMaturity date as discussed above.

PrefBlog

June 9, 2017

CF.PR.C : Convert or Hold?

TA.PR.F : Convert or Hold?

IAG.PR.G : Convert or Hold?

BAM.PR.X : Convert or Hold?

June 8, 2017

June 7, 2017

June 6, 2017

June 5, 2017

MAPF Performance : May, 2017

Archives

Of Interest