PrefBlog

Not a lot of change in the sectoral composition of the fund’s holdings since the June 29, 2007 analysis. Were it not for the other tables, readers might be forgiven for wondering whether there have been any changes at all!

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.), and readers may make their own adjustments to reflect interest. 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:

There has been a slight decline in credit quality,  but quality is still well within normal bounds. The variances in credit be constant as opportunistic trades are executed.

Liquidity Distribution is:

Liquidity has declined somewhat from June’s elevated levels and are now comparable to that found in the analysis of the Claymore ETF April Portfolio.

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 on 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 discussion of July’s performance is available here.

Malachite Aggressive Preferred Fund has been valued for July, 2007, month-end. The unit value is $9.3627. Returns over various periods are:

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.

I’m very happy with the results. The NAV for the Claymore ETF (CPD on the TSX) is not yet available, but as of July 30, they were up only 5bp-and-a-hair on the month, so it looks like I earned my fees. Note that last month I expressed concern that I would underperform this month, since the BCE/Teachers deal was announced subsequent to month-end and was expected to boost returns of the BCE Prefs considerably. Well, returns of BCE Prefs were outrageous this month, I didn’t hold any, CPD did … but I outperformed anyway. Sometimes it works! (Not all the time, unfortunately!)

I will discuss performance further tomorrow, in an update to this post.

Update & Bump, 2007-08-01:

Claymore has published their final monthly numbers and I have derived the following table:

It should be explicitly noted that the CPD returns are shown AFTER ALL FEES AND EXPENSES, while the MAPF numbers are shown after expenses, but before fees … so to make the numbers more comparable, take the annual fee from the fund’s web page and divide by the appropriate number to obtain the period’s fee.

Still, I’m very pleased with these recent results.

Trading during the month returned to normal levels (about 30-35% of the portfolio turned over in July) from June’s frenetic activity. I would certainly like to see more volatility, but I’ll take what I can get! The recent excitement with US Junk Bonds hasn’t really affected the Canadian Preferred market to any huge degree, but it should be noted that Pfd-3 credit spread has increased markedly. The spreads referred to in the linked graph, by the way, represents the spread between Pfd-2 and Pfd-3, and are shown on an after-tax basis.

However, MAPF doesn’t really care a lot about the Pfd-3 spread – holdings continue to be of higher quality and this is not expected to change. Those tempted by the higher yields on Pfd-3 issues should take to heart my cardinal rule: no more than 10% of total holdings in Pfd-3 issues, and no more than 5% in any single Pfd-3 name.

And now … we will see what August brings!

Update, 2007-08-03 The DPS.UN NAV for August 1 has been published, so we can calculate the July-ish returns for it:

It should be noted that the DPS.UN returns for July, estimated as +1.38%, slightly exceed the “BMO Capital Markets 50” index, which came in at +1.33%. DPS.UN strongly outperformed CPD, with a heartfelt ‘thank-you’ to its overweighting in BCE issues.

Now, to see the DPS.UN quarterly NAV approximate return, we refer to the calculations for June-ish and May-ish and construct the following table:

So by this measure MAPF did indeed underperform the competition in July, due to relative weightings in BCE, but out-performed quite handsomely over the prior three months. Note that the DPS.UN returns are net of all fees and expense, while the MAPF returns shown at the top of this post are after expenses, but BEFORE FEES.

To see MAPF performance for a wide variety of periods, with comparisons to the BMO Capital Markets 50 Index (formerly the BMO-NB 50 Index), please see the fund’s main page, where there are numerous links under the heading “Performance”.

Update #2, 2007-08-03: Y’know, something’s just occurred to me, looking at that quarterly data and particularly the monthly data whence it is derived.

At some point in the future some extremely sophisticated ultra-quantitative high-powered analytical shop is going to look at these results with a view towards recommending whether their client should allocate Hymas Investment some assets. They’ll put an MBA in charge of the research.

As we all know, a long time ago, MBA stood for “More Bad Assets”. Then it stood for “Mexico, Brazil, Argentina”. I suppose that someday soon it will stand for “Mortgages, Banks, ABXs”. But that’s beside the point.

Anyway, this MBA won’t know or care about what I held vis a vis the index in the past few months. “Meaningless details!”, he’ll bark. “I’m an extremely sophisticated high-powered ultra-quant! Just yesterday, I showed my mummy a spreadsheet! Results! Don’t give me stories, give me results! Do you know who I had lunch with last week?”

So he’ll look at my results. While the past few months, taken as a whole, will certainly improve the relative returns of my fund, they will also significantly increase the standard deviation of my returns.

I’ll end up losing the account. “Too much variance! Nice returns – but too risky!” Disdaining BCE prefs might end up costing me business.

Update, 2007-8-6: Portfolio composition is discussed here.