PrefBlog

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close December 31, 2025, was $10.5056 after a dividend distribution of $0.177813 and a capital gain distribution of $1.627841.

Fund returns were adversely affected by MFC.PR.B (+0.64% following last month’s underperformance) and SLF.PR.D (+1.03%) but benefitted from good performance by ENB.PR.B (+3.64%), ENB.PR.Y (+2.87%) and BN.PR.B (+2.73%); small holdings are not considered for individual mention here.

The fund returned 18.15% (including reinvested dividends; after expenses but before fees) for the year compared to +16.03% for the TXPR index (including notionally reinvested dividends; no expenses, no fees). Not a blow-out year but a solid workmanlike effort, I’d say! I’ll take it!

FixedResets continue to yield slightly more, in general, than PerpetualDiscounts; on December 31, I reported median YTWs of 5.98% and 5.61%, respectively, for these two indices; compare with mean Current Yields of 5.77% and 5.56%, respectively.

So at the time of initial writing (2026-01-04) only one of the comparator funds had published returns to year-end. I will, as usual, have to fill in the blanks prior to publishing the January PrefLetter. Remember, readers, if you want customer service, you have to go to a big firm like Hymas Investment Management Inc. – if you go to some tiny outfit like Royal Bank, you’ll find that they simply do not have the resources to publish returns promptly after each applicable month-end.

Update, 2026-01-10: Well, I’ve updated the table in order to produce the PrefLetter comparison page and three of the funds have been unable to achieve the arduous task of updating their performance pages to year-end: the two run by National Bank and the one run by Dynamic. Shows you how seriously the big vendors take performance …

The five-year Canada yield increased, with the five-year Canada yield (“GOC-5”) moving from 2.79% at November month-end to 2.93% at December month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 240bp on 2025-12-31 dramatically down from 260bp on 2025-11-26 and recovering the widening experienced last month (chart end-date 2025-12-12).

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly (despite recent narrowing) from its 2021-11-10 low of 344bp to a level of 482bp (as of 2025-12-31)… (chart end-date 2025-12-12):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -48bp (as of 2025-12-31) from its 2021-7-28 level of +170bp (chart end-date 2025-12-12):

There is no correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 Group or for Pfd-3 Group issues.

There is no correlation for either the Pfd-2 group or the Pfd-3 group between the Issue Reset Spread and 3-month performance for discounted FixedResets.

There is no correlation for either the Pfd-2 Group or the Pfd-3 Group for 1-Month performance against term-to-reset:

… and the three-month returns vs. Term to Reset, show no correlation for the Pfd-2 Group or the Pfd-3 Group:

It should be noted that to some extent a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit (adverse effects) of higher (lower) projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August 2022 PrefLetter.

Upward-sloping correlations of Performance vs. Term are to be expected when GOC-5 declines.

I keep talking about ‘Sustainable Income’ and it still exceeds – by a much smaller margin than previously – dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past few years has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in the fairly near future. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2025-12-12).

I will note that the fund’s current holdings of FixedResets are now paying dividends based on their previous reset at an average GOC-5 rate of 2.73% (for discounted FixedResets only, weighted by shares held)

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

Turnover jumped to 19% in December. About half of this amount was comprised of trades from FTS.PR.M and CU.PR.C to IFC.PR.A; the two issues sold have not only outperformed since about November 20, they have become uncomfortably close to par value, implying that future gains will be harder to come by.

In the following chart, IFC.PR.A is the green ‘area chart’, while the blue and brown lines are the issues sold.

Sectoral distribution of the MAPF portfolio on December 31, 2025, was:

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.

Credit distribution is:

Liquidity Distribution is:

The distribution of Issue Reset Spreads is:

Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.

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. The fund may be purchased directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a prospectus This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission). Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.