The fund performaned very well in November, helped by its relatively high concentration in PerpetualDiscount issues but assisted by the usually liquidity-inspired trades between issues.
The fund’s Net Asset Value per Unit as of the close November 30 was $12.5153.
| Returns to November 30, 2009 |
| Period |
MAPF |
Index |
CPD
according to
Claymore |
| One Month |
+3.72% |
+2.40% |
+2.19% |
| Three Months |
+0.25% |
-0.52% |
+0.33% |
| One Year |
+91.67% |
+35.03% |
+32.54% |
| Two Years (annualized) |
+28.27% |
+3.33% |
+2.33% * |
| Three Years (annualized) |
+16.06% |
-0.07% |
|
| Four Years (annualized) |
+13.62% |
+1.03% |
|
| Five Years (annualized) |
+12.14% |
+1.76% |
|
| Six Years (annualized) |
+12.59% |
+2.47% |
|
| Seven Years (annualized) |
+15.00% |
+3.20% |
|
| Eight Years (annualized) |
+12.79% |
+3.12% |
|
| The Index is the BMO-CM “50” |
| MAPF returns assume reinvestment of dividends, and are shown after expenses but before fees. |
| CPD Returns are for the NAV and are after all fees and expenses. |
| * CPD does not directly report its two-year returns. The figure shown is the product of the current one-year return and the similar figure reported for November 2008 |
| Figures for Omega Preferred Equity (which are after all fees and expenses) for 1-, 3- and 12-months are +2.3%, +0.1% and +31.4%, respectively, according to Morningstar after all fees & expenses |
| Figures for Jov Leon Frazer Preferred Equity Fund (which are after all fees and expenses) for 1-, 3- and 12-months are N/A, N/A & N/A, respectively, according to Morningstar and the Globe and Mail |
| Figures for AIC Preferred Income Fund (which are after all fees and expenses) for 1-, 3- and 12-months are +1.7%, -0.4% & N/A, respectively |
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.
I am very pleased with the returns over the past year, but implore Assiduous Readers not to project this level of outperformance for the indefinite future. The year in the preferred share market was filled with episodes of panic and euphoria, together with many new entrants who do not appear to know what they are doing; perfect conditions for a disciplined quantitative approach.
Sometimes everything works … sometimes the trading works, but sectoral shifts overwhelm the increment … sometimes nothing works. The fund seeks to earn incremental return by selling liquidity (that is, taking the other side of trades that other market participants are strongly motivated to execute), which can also be referred to as ‘trading noise’. There have been a lot of strongly motivated market participants in the past year, generating a lot of noise! The conditions of the past year may never be repeated in my lifetime … but the fund will simply attempt to make trades when swaps seem profitable, whether that implies monthly turnover of 10% or 100%.
There’s plenty of room for new money left in the fund. Just don’t expect the current level of outperformance every year, OK? While I will continue to exert utmost efforts to outperform, it should be borne in mind that beating the index by 500bp represents a good year, and there will almost inevitably be periods of underperformance in the future.
The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.
| Calculation of MAPF Sustainable Income Per Unit |
| Month |
NAVPU |
Portfolio
Average
YTW |
Leverage
Divisor |
Securities
Average
YTW |
Sustainable
Income |
| June, 2007 |
9.3114 |
5.16% |
1.03 |
5.01% |
0.4665 |
| September |
9.1489 |
5.35% |
0.98 |
5.46% |
0.4995 |
| December, 2007 |
9.0070 |
5.53% |
0.942 |
5.87% |
0.5288 |
| March, 2008 |
8.8512 |
6.17% |
1.047 |
5.89% |
0.5216 |
| June |
8.3419 |
6.034% |
0.952 |
6.338% |
$0.5287 |
| September |
8.1886 |
7.108% |
0.969 |
7.335% |
$0.6006 |
| December, 2008 |
8.0464 |
9.24% |
1.008 |
9.166% |
$0.7375 |
| March 2009 |
$8.8317 |
8.60% |
0.995 |
8.802% |
$0.7633 |
| June |
10.9846 |
7.05% |
0.999 |
7.057% |
$0.7752 |
| September |
12.3462 |
6.03% |
0.998 |
6.042% |
$0.7460 |
| November 2009 |
12.5153 |
5.92% |
1.002 |
5.908% |
$0.7394 |
NAVPU is shown after quarterly distributions.
“Portfolio YTW” includes cash (or margin borrowing), with an assumed interest rate of 0.00%
“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.
“Sustainable Income” is the resultant estimate of the fund’s dividend income per unit, before fees and expenses. |
As discussed in the post MAPF Portfolio Composition: November 2009, the fund has a position in the high-yielding split-share BNA.PR.C, about half of which was sold during the month in a swap for the slightly lower-yielding PerpetualDiscount BAM.PR.N. Additionally, the fund has a position in the high-yielding Operating Retractible YPG.PR.B. Both BNA.PR.C and YPG.PR.B are scheduled to mature (or to be retracted) in the future, hence the sustainability of sustainable yield calculated while incorporating their contribution is somewhat suspect, as discussed in August, 2008.
Significant positions were also held in Fixed-Reset issues on November 30; all of which currently have their yields calculated with the presumption that they will be called by the issuers at par at the first possible opportunity. This presents another complication in the calculation of sustainable yield.
However, if the entire portfolio except for the PerpetualDiscounts were to be sold and reinvested in these issues, the yield of the portfolio would be the 6.01% shown in the MAPF Portfolio Composition: November 2009 analysis(which is in excess of the 5.90% index yield on November 30). Given such reinvestment, the sustainable yield would be 12.5153 * 0.0601 = 0.7522 a significant increase from the $0.7433 derived by a similar calculation last month.
Different assumptions lead to different results from the calculation, but the overall positive trend is apparent. I’m very pleased with the results! It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in
- the very good performance against the index
- the long term increases in sustainable income per unit
As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance is due to constant exploitation of trading anomalies.
Again, there are no predictions for the future! The fund will continue to trade between issues in an attempt to exploit market gaps in liquidity, in an effort to outperform the index and keep the sustainable income per unit – however calculated! – growing.
BPO: Issuer Bid for Retractibles?
Tuesday, December 8th, 2009Brookfield Properties has announced:
There is no mention of a preferred share NCIB in the 2008 Annual Report (although there is a significant common share NCIB), so this announcement is not something I would normally report. In this case, however, I was specifically asked about it by Assiduous Reader MP and there are some other things that give credence to the idea … like, f’rinstance, relative yields:
BPO.PR.L, the FixedReset, has been insanely expensive since its opening date, yielding less, with a lower chance of 5-year maturity, than the retractible.
Even that might not have been enough for me to take this bid seriously … but there is also the recent YPG FixedReset 6.90%+426 issue to consider. This, the second YPG FixedReset, has just been announced and YPG.PR.B, retractible 2017-6-30 and the target of a real issuer bid continues to trade with a double digit yield. Such is the allure of FixedResets!
A FixedReset issue, being perpetual, will appear in the equity section of the balance sheet (retractibles are considered liabilities for balance sheet purposes) improving credit ratios; additionally, credit rating agencies will assign a greater equity equivalency factor to perpetuals. In terms of lowering the cost of bond issues, refinancing retractibles with FixedResets makes all kinds of sense.
No predictions! But it will be interesting to see how this turns out.
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