PrefBlog

John Williams of the San Francisco Fed is sounding very hawkish:

John Williams, president of the Federal Reserve Bank of San Francisco, said the central bank is likely to raise interest rates this year as the economy reaches full employment, though he’s troubled by low inflation.

“I still believe this will be the year for liftoff,” Williams, a voting member of the policy-setting Federal Open Market Committee, said in a speech Friday in San Francisco. Although he’s awaiting more evidence inflation is moving up toward the Fed’s goal, “I see a safer course in starting sooner and proceeding more gradually.”
…
Williams said the U.S. will probably hit his 5.2 percent estimate for the natural rate of unemployment later this year. As of May, the jobless rate stood at 5.5 percent, down from 10 percent in 2009.

“We’re making good progress across most measures of the labor market,” he said. “Now that wage growth is starting to take off across multiple measures, it further confirms that the labor market is nearly healed.”

Employers added 280,000 positions in May, the most in five months. Average hourly earnings accelerated to a 2.3 percent year-over-year pace, the fastest since August 2013.

What’s more, Williams said economic growth in the first quarter of 2015 probably wasn’t as weak as official figures, which showed a 0.7 percent contraction, suggest.

“On closer inspection, the numbers weren’t nearly as bad as they appeared,” Williams said, citing San Francisco Fed research suggesting that the economy may have expanded at a 1.5 percent annual pace in the first three months of the year.

There is some wailing that robo-advisors might be programmed to sell the sponsor’s products:

But some might believe Power’s new alliance with Wealthsimple, as well as the entry by other large financial companies into the robo-adviser space, raises the spectre of a potentially revolutionary platform being slowly co-opted by those more interested in just selling their own products.

“That’s not necessarily bad, but it raises a bit of an issue,” said Mark Yamada, chief executive at Pur Investing Inc., a financial planner in Toronto. “Here we have an innovation that held great promise in providing investments at low cost to different generations of investors and it’s quickly being gobbled up by product folks who are looking for a new and different distribution channel.”

Battle lines on this front are already drawn in the U.S. where financial giants such as Charles Schwab Corp. and The Vanguard Group Inc. have recently jumped into the automated advice space to the chagrin of pure-play robo-advisers such as WealthFront Inc. and Betterment LLC.

WealthFront’s chief executive Adam Nash has been particularly critical of Schwab’s Intelligent Portfolios, which use proprietary ETFs as well as other companies’ funds, for not acting in the best interests of clients.

Greece had a bad week last week:

Failure to reach an agreement between Greek and European Union leaders last week spelled bad news for the banking system of the Hellenic Republic. Talk of capital controls is heating up, and with it the amount of money being pulled from Greece appears to be accelerating.

JPMorgan analysts led by Nikolaos Panigirtzoglou estimate that Greek banks lost about 6 billion euros in the week ending June 19. That takes total deposit outflows from Greece to about 44 billion euros since the beginning of the year. The analysts use Greeks’ purchases of offshore money market funds as a proxy to generate early estimates of those numbers.

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Hard on the heels of my post regarding liquidity implications of the OSC report The Canadian Fixed Income Market: 2014 comes some cheery news about the liquidity of the Canadian market relative to those of other sovereigns:

How — or whether — investors can trade without having prices move against them has become a major worry as bonds globally tanked in the past few months. As a result, liquidity, or the lack of it, is skewing markets in new and surprising ways.

Spain, for instance, must pay more to borrow money than Italy for 30 years, even though Spain is considered safer by credit raters. Why? The Italian bond market is twice as big as the Spanish one — and, therefore, more liquid.

The same thing is happening around the world. Bonds in smaller, less-traded markets like Finland, Singapore and Canada are starting to fall out of favor. And with the Federal Reserve preparing to raise U.S. interest rates, investors want to know they can sell in a hurry if debt markets turn volatile.

“Liquidity is our number-one criteria in country selection,” said Olivier de Larouziere, the head of European interest rates in Paris at Natixis Asset Management, which oversees about $367 billion.
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Some investors aren’t waiting to find out. In Spain, where a slump in repurchase agreements and trading of bills sent government-debt turnover in April to lows not seen since at least 2012, they’re starting to demand a bigger premium to own the securities, data compiled by Bloomberg show.

Yields on 10-year Spanish bonds reached 2.54 percent on June 16, and rose to the highest versus Italian securities since the end of 2013. For much of the past year, the relationship was reversed as investors preferred Spain.

Part of the shift has to do with the rising cost of trading as liquidity dries up. The difference in yields for buyers and sellers of Spain’s 10-year notes — known as the bid-ask spread — is almost double that in Italy, the data show.
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“Highly rated, small bond markets can become relatively illiquid,” said Chris Wightman, a London-based money manager at Wells Fargo Asset Management, which oversees about $493 billion. “Providing liquidity for our underlying clients is a paramount investment criteria for us.”
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That hasn’t stopped some investors such as Canada’s Mawer Investment Management from looking toward bigger, more-liquid bond markets as a way to diversify. The Calgary-based firm, which oversees $24 billion, started its first foreign bond fund last week and will invest in the U.S., the U.K. and Europe.

“We recognize that other larger markets are more liquid than the Canadian bond market, which does naturally make Canada more vulnerable,” said James Redpath, a fund manager at Mawer.

Meanwhile, some managers are preparing for lift-off by indulging in market timing:

TCW Group Inc. is taking the possibility of a bond-market selloff seriously.

So seriously that the Los Angeles-based money manager, which oversees almost $140 billion of U.S. debt, has been accumulating more and more cash in its credit funds, with the proportion rising to the highest since the 2008 crisis.

“We never realize what the tipping point is until after it happens,” said Jerry Cudzil, TCW Group’s head of U.S. credit trading. “We’re as defensive as we’ve been since pre-crisis.”

TCW isn’t alone: Bond funds are holding about 8 percent of their assets as cash-like securities, the highest proportion since at least 1999, according to FTN Financial, citing Investment Company Institute data.

And still other managers are upset because now credit analysis means looking at four pieces of paper rather than three:

Institutional investors are rewriting their old rules so they can buy bonds assigned credit ratings by a broader variety of firms, according to Kroll Bond Rating Agency Inc. and Morningstar Inc.

Over the past year, more than 30 investment firms have eased internal guidelines that limited them to bonds rated by at least one or two of the top three graders: Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, said Kim Diamond, Kroll’s head of structured finance.

The loosening comes as some of the biggest bond buyers vocalize frustration that the so-called Big Three ratings firms are being hired less, resulting in fewer bond offerings from which they can choose.
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Underwriters seeking maximum investor participation in bonds also have become frustrated with the “antiquated” restrictions, Deutsche Bank analyst Ashley Hooper wrote in a May report on the market for commercial mortgage-backed securities. Ratings competition has heated up substantially in that market as well this year.

But what of the systemic importance of individual money managers?:

Pimco’s ability to cope with a stampede of investor withdrawals after Bill Gross’s departure gives credence to arguments that mutual funds don’t threaten the broader financial system, the chairman of a global group of market regulators said Monday.

The lack of market turmoil when Pacific Investment Management Co. and the famed bond investor parted ways last year also shows regulators should refrain from treating asset managers like big banks, said Greg Medcraft, chairman of the International Organization of Securities Commissions. While a run on deposits can trigger insolvency for lenders, mutual funds are prepared to deal with surges in redemptions, he said.

“Pimco being able to wind back its positions quickly in a matter of days, it was a pretty damn good test of the liquidity of markets,” Medcraft said.

The world’s biggest money managers won a reprieve last week from being labeled systemically important, which can bring tough oversight and capital rules, when IOSCO said it would instead focus on studying broad “activities” of the asset-management industry. Medcraft said market watchdogs will be “more assertive” in pushing back on claims mutual funds should face strict rules written by bank regulators.
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“We’re no longer the poor cousin” of the banking regulators who predominate at the FSB, Medcraft said. “I’ve already asked for more say and we’re getting more members” on the board, he said.

While I support the end result, the rationale seems very facile to me. It’s reasonably safe to assume that most of the $27.5-billion in October 2014 redemptions were reinvested in funds or other vehicles with a similar mandate; to the extent that that hypothesis is true, most of Pimco’s selling pressure will have been offset by other managers’ buying pressure. However, the final paragraph makes it clear that this is just another turf-battle for influence between regulators.

But all this talk of bond liquidity is a distraction from the real liquidity and valuation sink-hole:

The push to attract new institutional investors is ramping up at Manulife Financial Corp., as the insurer brings on new leaders to fuel the five-year expansion plan for its private markets business.

Manulife said Monday that it appointed three senior managers to newly created roles, a response to some early success the asset management group has seen since being formed in late 2013.

Manulife’s growing private markets group was created to attract new institutional investment in several target areas, including commercial real estate equity, commercial mortgage lending, and private placements. This built on Manulife’s existing Hancock Natural Resource Group, a trio of farmland, timber and renewable energy investments, as well as private equity and oil and gas investment arms. Manulife Asset Management Private Markets had $98-billion in assets as of the end of March, including assets managed for the company’s general fund.

It was yet another poor day for the Canadian preferred share market, with PerpetualDiscounts down 17bp, FixedResets losing 30bp and DeemedRetractibles off 13bp. The lengthy Performance Highlights table is, unsurprisingly, dominated by losers. Volume was below average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

Click for Big

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.51 to be $1.13 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.84 cheap at its bid price of 16.03.

Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule). The lowest spread issue, MFC.PR.F, is again noticeably off the line defined by the higher-spread issues.

Most expensive is MFC.PR.J, resetting at +261bp on 2018-3-19, bid at 24.71 to be $0.50 rich, while MFC.PR.N, resetting at +230bp on 2020-3-19, is bid at 22.57 to be $0.31 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.15 to be $1.06 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 22.45 and appears to be $0.71 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.25, looks $0.60 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.45 and is $0.46 rich.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.45%, including the outliers TRP.PR.A / TRP.PR.F at -0.65% and FTS.PR.H / FTS.PR.I at +1.34%. On the junk side there are three outliers: FFH.PR.E / FFH.PR.F at -0.91%; DC.PR.B / DC.PR.D at -0.30%; and BRF.PR.A / BRF.PR.B at -0.47%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

Click for Big

It’s time for … Battling Robots!

Vanguard has an ally in Palo Alto, California–based Wealthfront. The company’s algorithms direct about 90 percent of the average portfolio to Vanguard funds. The firms don’t have a financial relationship, and they’re chasing different markets. Yet their CEOs praise each other’s strategies. “I’m a big fan of what’s happened in the robo-world,” Vanguard CEO Bill McNabb says.
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Fidelity is embracing the robo-product route via the 3,200 independent advisory firms for which it clears trades and holds about $1.5 trillion in assets. Boston-based Fidelity teamed up with No. 2 robo-firm Betterment in October to steer those advisers toward Betterment’s software. The robo-programs pick portfolios, often based on Vanguard funds, and automatically rebalance them to cut time and costs. Fidelity gets a referral fee, which it won’t disclose, from its New York–based partner. “Financial firms can no longer wait for the emerging affluent to appear at their doorstep when they have enough assets,” says David Canter, who heads a Fidelity unit serving independent advisers. “You have to think about them now.”
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In the rising robo-rivalry between Fidelity and Vanguard, the winner may be … Charles Schwab Corp. The largest independent U.S. brokerage by client assets started a robo-offering for retail investors on March 9. By the end of May, the new program had $2.4 billion in client money and about 33,000 accounts. “The pressure is on,” Aite’s Pirker says.

So far, at any rate, there doesn’t appear to be any big threat to human advisors; everything’s happening in the discount space and clients are those who were already willing to go it alone, but are willing to pay a few bucks for some reassurance. Eventually I’m quite certain that every comprehensive fund family – and who is more comprehensive than Vanguard? – will have one.

Bond ETF outflows are rising:

Investors in U.S. exchange-traded funds have sold the most bonds in June in 15 months. So far, it’s proving to be a winning bet.

They pulled $2.14 billion out of fixed-income funds since May 31, on course to be the biggest monthly withdrawal since March 2014, according to data compiled by Bloomberg.

With everyone getting ready for the Federal Reserve to raise interest rates, Treasuries have fallen almost 1 percent since the end of May, based on Bloomberg World Bond Indexes. It’s the biggest monthly decline since February.

Tim Kiladze of the Globe notes the current disaffection with FixedResets:

A sudden change of heart from retail investors is making financing decisions much tougher for Canada’s biggest companies.

Until recently, retail investors were happy to buy new issues of rate reset preferred shares from companies such as Royal Bank of Canada, TransCanada Corp. and Husky Energy Inc.

Such a heavy appetite for the product made it easy for these issuers to raise cash. In 2014, $14-billion worth of these securities were gobbled up.

But lately, retail investors are giving rate reset preferred shares the cold shoulder. Burned by poor performing issues, they are much less willing to buy new offerings of these securities.

My comments of June 16 regarding the Brondesbury Group report on Mutual Fund Fee Research commissioned by the OSC attracted some attention from a well-known activist … so I replied with an eMail:

At the risk of putting words in your mouth, I’ll suggest that you’re concerned with the 1-5% (?) of cases in which the salesman-client relationship goes badly wrong.

I am concerned about these cases, but in the same way I’m concerned about murder and burglary. When people clearly do wrong, catch ’em and punish ’em, I say – I do not advocate that we require people to prove that they have no intention of murdering or burglarizing anybody, and to prove that they have adequate supervision to ensure they don’t go astray. Nor do I advocate that police check everybody’s house annually to ensure the locks are up to the latest standards and the ‘safe-room’ is adequately secured against armed marauders, or that the citizen sign a release stating that he does not want these things and file it with the proper authorities.

I am more concerned with the effects on capital markets of a blanket fiduciary standard. Mainly, capital markets do not exist for the purpose of giving Granny a safe investment; giving Granny a good place to put her $50,000 is only a means to an end. Capital markets exist for the purpose of transmitting money from savers to direct investors – companies that need a few billion to build a pipeline, or a factory or whatever. All regulation must not only recognize this, but recognize that all other aspects of capital markets are subordinate to this purpose.

So my major problem with a blanket fiduciary standard is: who’s going to do the selling? Selling is hard work and it’s valuable to the entity whose goods are being sold. So we have new issue commissions, paid directly from the issuer to the salesman, just like happens with the friendly salesman at your local electronics store. So who are these people going to be?

Under a blanket fiduciary standard, it obviously cannot be the fiduciary, so Granny can’t buy a new issue bond and capture (to some extent) the new issue concession. Granny must buy whatever is available on the secondary market and pay a markup that is (proportionately) pretty big. Granny can’t buy a GIC either, because GICs have the profit margin and sales commission (or salary, if it’s a teller doing the work) built in to the offered yield (taken off the top!) and are therefore (according to some) inherently evil.

However, fiduciaries are a valuable part of capital markets. I should know – I’m a fiduciary myself. Fiduciaries allow for a certain amount of trust in a relationship between naive client and big-shot markets guy, thereby encouraging more direct participation by clients in the capital market’s purpose of turning cash under the mattress into new skyscrapers.

So we need fiduciaries and we need salesmen in our idealized capital markets – and guess what? We have that already! There are lots of fiduciaries around for those that want them; there are lots of salesmen around for those who want them, too. There will be lots of individuals who will want relationships with both types of professional; and, I suggest, there will be lots of investors who will maintain accounts with salesmen only when an objective evaluation will suggest a fiduciary. ‘Why should I pay this fiduciary?’ they will ask. ‘Last year he only did two trades and charged me $3,000!’

What we don’t have is strict separation of functions. Given the huge amount of money that’s made from new issue commissions (as I mentioned on June 16, this exceeds mutual fund commission revenue at the major brokerages), it should be clear that strict separation is necessary. Not only should any individual market professional be prohibited from being both a salesman and a fiduciary (even to different clients), but any given corporate group should be prohibited from assuming both roles. If X is a sales channel and Y is a fiduciary channel and Z owns both X and Y … there will be problems, conflicts of interest and leakages. Guaranteed. So all investment professionals and all their employers must be forced to make the choice. Sell Side or Buy Side? Choose!

It won’t happen. There are a lot of very large corporate interests that make very good money by being all things to all people and there are lots of regulators and politicians who want to work for these large corporations in their futures at double the paycheque. So we’ll keep muddling along, true to the ideal that we can all achieve moral perfection as long as there are enough rules and enough people to enforce them and enough money spent on compliance instead of laying bricks for the new factory.

Actually, this eMail turned out rather longer than I expected and I like it. So I’m going to publish it on my blog tonight (your name will not be mentioned).

By the way, I have a small and nascent sideline providing expert witness reports for negligence and misconduct cases involving preferred shares; it’s something I think can grow, since I have the belief that the guys in the big firms won’t work for plaintiffs. You might want to keep me in mind when one of the 1-5% (?) of relationships crosses your desk.

Sincerely,

Actually, I should have also pointed out that the typical problem I see when reviewing portfolios is not that investors have too much equity, but that they have too little. Not only are they grossly overweighted in fixed-income, but that fixed income is short term, and not only is it short term, but it’s federal debt. If anything, commissions on selling equities should be increased because people simply aren’t holding enough of them.

On cue, Rob Carrick writes a piece in the Globe about fee based accounts:

Fee-based advice is where the momentum is in the investment industry today. PriceMetrix says the percentage of fee-based assets rose to 35 per cent in 2014 from 31 per cent in 2013, while the percentage of total fee revenue from fee-based accounts rose to 53 per cent from 47 per cent. “More and more advisers are realizing that operating on a fee-for-service basis is simply a more productive way to grow your business,” said Patrick Kennedy, co-founder and chief customer officer at Toronto-based PriceMetrix.
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The general unavailability of fee information is a problem, though. Try this: Google the name of an investment firm you know and see if there’s a “fees” or “pricing” tab on their website. Outside of some online robo-adviser firms, I couldn’t find a single example of a company doing this.
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Fee secrecy is good for business. Clients are told what the costs are and they have no context to judge them. They can negotiate, but without the knowledge that there may be other firms doing the same kind of work for half a percentage point less. On a $500,000 portfolio, that difference amounts to $2,500 per year.

It’s not just fee information that is hard to get (I publish my fees!) but, more critically, it is performance information that is very difficult to get. I didn’t mention it in my long eMail, above, but I think anybody charging a fee for discretionary asset management should be required to publish a comprehensive performance report, going back to inception. Composites can be created either by asset type or account characteristics (or both!), I don’t care, but performance must be published! What’s more, returns should be reported using Time-Weighted returns, not the Dollar-Weighted returns so beloved of regulators and morons (see November 26, 2012 for the initial fluttering of eyelashes; the eventual decision to mandate dollar-weighted returns was discussed in greater detail in PrefLetter).

John Heinzl in the Globe gave a sensible response to a small investor wailing about preferred share prices:

A few years ago I started accounts worth $5,000 for each of two grandchildren, and invested all of the money in BCE preferred shares (BCE.PR.K). The value of these accounts has since fallen to about $3,900, but my adviser recommends we leave them as is. The funds will not be needed for the grandchildren until about 15 years from now. I have thought about dumping the shares but feel the capital loss at this point would be significant, and perhaps the shares will pick up in the years to come?
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Two other factors to consider are the time horizon and diversification. If the money will not be needed for 15 years, you might wish to consider investing in something that provides more growth potential (preferred shares are usually purchased for income, not growth). Investing the entire account in a single stock is probably not a good idea, however, because it entails too much risk; a low-cost index exchange-traded fund or mutual fund – particularly one that allows full reinvestment of dividends to maximize compounding – will give you both growth potential and diversification.

Fifteen year time horizon? For the kids? There are only two legitimate choices:

• Canadian equity ETF
• One, maybe two, single stocks

I’ll also note that ‘selling things because they’ve gone down’ is as common as it is silly; it’s probably a factor in the current very long stretch of drip-drip-drip losses.

One of the best investments I ever made (well, it was made on my behalf, but never mind that) was 100 shares (or so) of Irwin Toy when I was about ten years old. Investment returns were no great shakes, and I’m not even sure if I got dividend cheques, but it was a company whose products I was familiar with AND I could watch the stock price AND I could read a little bit of the quarterly reports (although I found them pretty boring – I was only ten!) AND, best of all, Irwin Toy had a Junior Shareholders Club, and if we went to the annual meeting we got a present. I still wonder, from time to time, whether there were a few boys from Marketting in attendance, making notes about kids reactions to the game or toy they received.

Anyway, it was a superb introduction to the concept of stocks. So while the investor didn’t say anything about his personal circumstances, I suggest that those with a little bit of breathing room in their finances would be well advised to buy their kids a few shares (not necessarily a board lot, but worth enough that a ten year old will consider it a significant investment) in something like Walt Disney common. Or Apple. Or Loblaw. Or Cineplex. Or Hudson’s Bay Company. Or Restaurant Brands. Are these good investments, by the standards of my very astute Assiduous Readers? I don’t know. Who cares?

Getting back to economics for a moment, numbers released today were soft:

Canada’s consumer prices advanced 0.9 per cent in May from a year earlier while retail sales for April posted a surprise decline, signs the second-quarter recovery the central bank is counting on remains in doubt.

Core inflation, which excludes eight volatile products, slowed to 2.2 per cent from 2.3 per cent in April, Statistics Canada said Friday from Ottawa. April retail sales fell 0.1 per cent on declines in food and electronics. Economists had expected sales to rise 0.7 per cent, according to the median forecast in a Bloomberg News survey.

Total inflation, while exceeding April’s 0.8 per cent pace, is still outside the Bank of Canada’s 1 per cent to 3 per cent target range. The 0.1 per cent April decline in retail sales exceeded even the most bearish economist forecast, suggesting economic weakness in the first quarter from lower crude oil prices is lingering into the second.

And, just to cap the week, Barrie McKenna wrote about one of our favourite off-topics:

At the moment, demand is growing for butter and cream, but it’s flat for fluid milk. The excess skim milk is turned into powder for baby formula, used as animal feed, or thrown away.

Trade is generally not an option. Canada is severally limited in what it can export because the World Trade Organization deems the fixed domestic milk prices a subsidy.
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Imports have been growing rapidly, and will continue to rise when the free-trade deal with Europe is put in place. If Canada eventually joins the Trans-Pacific Partnership, experts say even more imported dairy products will pour into the country.

Canada’s trade deficit in dairy products has more than doubled since 2006. In 2014, dairy imports reached $900-million versus exports of $281-million, and the trend has accelerated in the first three months of this year. Exports were lower in 2014 than they were in 2006.

“Canada’s dairy sector is being seriously squeezed and faces a growing trade deficit,” according to a report slated to be released Monday by the Canadian Agri-Food Policy Institute. “This is hardly a growth formula for one of Canada’s largest agri-food sectors, but more importantly, a significant threat to the current system.”

The dairy industry is a great example of the long-term evils of trade protectionism.

It was another bad day for the Canadian preferred share market, with PerpetualDiscounts and FixedResets both down 30bp and DeemedRetractibles off 10bp. FixedResets dominated the bad part of the Performance Highlights table; the good part wasn’t big enough to be worth noticing. Volume was below average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

Click for Big

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.20 to be $0.84 rich, while TRP.PR.C, resetting 2016-1-30 at +154, is $0.51 cheap at its bid price of 16.27.

Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.J, resetting at +261bp on 2018-3-19, bid at 24.69 to be $0.49 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.70 to be $0.23 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.50 to be $0.92 cheap. BAM.PF.E, resetting at +255bp 2020-3-31 is bid at 22.70 and appears to be $0.69 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.39, looks $0.32 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.15 and is $0.19 rich.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.45%, including the outliers TRP.PR.A / TRP.PR.F at -0.34% and FTS.PR.H / FTS.PR.I at +1.17%. On the junk side there are two outliers: FFH.PR.E / FFH.PR.F at -0.87% and DC.PR.B / DC.PR.D at -0.46%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

The Greek tragedy is approaching a climax:

The European Central Bank plans to hold an emergency session of its Governing Council on Friday to discuss the deteriorating liquidity situation of Greek banks, three people familiar with the matter said.

The call is scheduled for noon Frankfurt time on Friday, and the officials will consider a Bank of Greece request for an increase of more than 3 billion euros in Emergency Liquidity Assistance, one of the people said. All three asked not to be identified as the plans aren’t public. An ECB spokesman declined to comment.

The request comes just a day after Greece received an increase in its liquidity line of 1.1. billion euros ($1.25 billion), which raised the limit to 84.1 billion euros.

The short interval may be a signal that deposit flight is accelerating as the latest bailout talks ended without progress on Thursday.

Frankly, I’m surprised that there’s any money left in the Greek banking system to take flight.

And it looks like there’s a lot of internal politicking in Athens:

Prime Minister Alexis Tsipras’s government said there was an effort under way to spur capital flight, with Finance Minister Yanis Varoufakis later accusing the central bank of stoking fears.

The scaremongering seeks to undermine the financial system and strengthen the position of the country’s creditors, a Greek government official said in an e-mail to reporters.

“These tactics facilitate creditors who want to further blackmail the Greek government,” the official said in the statement. “Greece won’t be blackmailed.”

Further to the discussion of the OSC’s Brondesbury Report on June 16, today saw the publication of the Kenmar Commentary on CSA Fund Fee Report. This polemic does not address the question of new issue commissions, proxy solicitation fees, the willingness of small investors to pay advisors directly or the effects on capital markets of a change in fee schedules; changes are advocated as a method of smuggling in the concept of fiduciary duty.

On a related note, Michael P Regan of Bloomberg passes on a very bullish prediction on robo-advice:

Their popularity is going to explode even more, if new projections from consulting firm A.T. Kearney are in the right ballpark. Assets under management by robo advisers are estimated to increase 68 percent annually to about $2.2 trillion in five years, according to a forecast from the firm. About half of that is expected to come from money that’s already invested and the rest from non-invested assets.

As far as I can tell, Bloomberg just got a review copy of the paper; while the A.T. Kearney website features a front page link to the Bloomberg piece, the paper itself does not appear to be on the site.

I can’t resist passing on another shot at supply management:

Faced with a stagnant domestic market, Montreal-based Saputo Inc. and other major Canadian dairy producers have been investing heavily outside the country, where growth opportunities are better. This has exacerbated the skim milk surplus because dairies aren’t expanding their Canadian production of butter, cream or milk powder.

Martha Hall Findlay, a former Liberal MP and fellow at the University of Calgary School of Public Policy, said the real victims of the wastage are low-income Canadians, who aren’t getting the benefit of lower prices.

In a free market, surpluses would typically lead to lower consumer prices, but that isn’t the case in Canada because prices are fixed, she pointed out. “The system can’t accommodate fluctuations in demand,” said Ms. Findlay, who has written a series of reports advocating the dismantling of the supply management system.

It was another negative day for the Canadian preferred share market, with PerpetualDiscounts losing 59bp, FixedResets off 5bp and DeemedRetractibles down 14bp. PerpetualDiscounts are, predictably, overweighted in the bad part of the Performance Highlights table, while FixedResets are conspicuous on both sides. Volume was slightly above average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

Click for Big

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.36 to be $0.73 rich, while TRP.PR.B, which will reset June 30 at 2.152% (+128), is $0.49 cheap at its bid price of 14.78

Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule). Note that the lowest spread issue, MFC.PR.F, is again clearly off the line defined by the other issues.

Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 22.70 to be $0.53 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.40 to be $0.44 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.53 to be $0.94 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.50 and appears to be $0.65 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.60, looks $0.40 cheap and resets 2020-6-1. FTS.PR.K, with a spread of +205bp and resetting 2019-3-1, is bid at 21.50 and is $0.25 rich.

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Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.35%, including the outliers TRP.PR.A / TRP.PR.F at -0.54% and FTS.PR.H / FTS.PR.I at +0.95%. On the junk side there’s only one outlier: FFH.PR.E / FFH.PR.F at -0.93%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

The big news of the day was the FOMC statement:

Information received since the Federal Open Market Committee met in April suggests that economic activity has been expanding moderately after having changed little during the first quarter. The pace of job gains picked up while the unemployment rate remained steady. On balance, a range of labor market indicators suggests that underutilization of labor resources diminished somewhat. Growth in household spending has been moderate and the housing sector has shown some improvement; however, business fixed investment and net exports stayed soft. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports; energy prices appear to have stabilized. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.
…
To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress–both realized and expected–toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

There were no dissents. Other information released indicates that the committee is dovish:

For Federal Reserve officials, the U.S. economy is a glass house where aggressive moves could break something.

While the median forecast of policy makers still calls for two interest-rate increases by year-end, more officials say just one would be enough in 2015. Still more advocate a go-slow approach to further tightening in 2016.

Projections from the Federal Open Market Committee published Wednesday showed that five officials foresee one increase in the federal funds rate this year, up from just a single policy maker who said so in March. And while policy makers said the economy has picked up after a first-quarter slump, Fed Chair Janet Yellen said she still wants to see more “decisive” evidence of a lasting turnaround.
…
At her press conference following the FOMC meeting, Yellen cited signs of “cyclical weakness” in the labor market, and noted wage growth remains “subdued.”

“Although progress clearly has been achieved, room for further improvement remains,” Yellen said. “Economic conditions are currently anticipated to evolve in a manner that will warrant only gradual increases in the target federal funds rate.”

As a result:

Treasuries climbed and the dollar weakened against the euro after the Federal Reserve revised down its outlook for interest rates amid fragile economic conditions.
…
Yields on 10-year U.S. notes fell four basis points to 2.28 percent by 11:05 a.m. in Tokyo, with rates on Japanese and Australian debt also down. The greenback weakened to $1.1362 per euro and slipped 0.2 percent versus the yen.

Back in April, Natixis Global Asset Management (parent of NexGen Financial) released the results of a poll of Canadian investors:

The majority of those surveyed (54%) say they fear future oil price drops, 61 percent admit they are not willing to take more investment risk compared to a year ago and 59 percent said they feel vulnerable when it comes to protecting their portfolios from market shocks.
…
Besides oil prices, investors’ other concerns include a worldwide economic slowdown (cited by 54%), slower global growth (39%) and higher interest rates (37%).

Despite the economic challenges, 88 percent of Canadian investors believe their current approach will enable them to have a steady income when they retire. To get there, investors say their portfolio needs to gain an average of 9.3 percent annually, over and above inflation, the survey found. Eighty percent of investors think their target is realistic.
…
Retirement remains the top financial priority, and most investors (57%) say the responsibility of funding retirement is falling increasingly to individuals and away from government- and employer-sponsored schemes.

They anticipate 50 percent of their retirement income will come from their own efforts – saving, investing, selling their home or business or picking up a job after retiring. Of the rest of their retirement income, 26 percent would come from an employer pension, 18 percent from government support and 6 percent from other sources (including support from children).
…
Natixis surveyed 250 individual investors across Canada with a minimum of C$256,460 (US$205,230) in investable assets. The online survey was conducted in February 2015 and is part of a larger global study of 7,000 investors in 17 countries from Europe, the Americas and the Middle East. The findings are published in a new whitepaper, “Close enough isn’t good enough.” For more information, visit durableportfolios.com.

9.3% annual returns, over and above inflation? Good luck with that!

The global summary has an amusing section on retirement expectations:

When asked at what age they would like to retire, younger investors are clearly focused on early retirement: Millennials say age 58, while Generation X say 62. When asked when they think they will actually retire, their aspirations moderate only slightly at age 60 and age 63 respectively.

Asked the same questions, Baby Boomers say age 68 on both counts. Pre-Boomers respond with 73 on both counts. In reality, for members of those generations who are already retired, the day came much earlier at age 59 and 63 respectively.

… but respondents have a Plan B:

Should they fall short on their retirement savings, investors have clear plans on how they will make up the difference. The largest number (45%) say employment will be the answer, followed by support from their spouse or significant other (36%), government programs (35%), and family (23%).

And finally, there’s a little section on the value of advice:

Click for Big

Now, this study is hardly up to academic standards – it’s in Natixis’ best interests to convince everybody (particularly those with over $200,000 in investible assets) that they need an advisor and they need alternative investments. But I suspect that meticulously unbiased research would give similar results.

And it is, perhaps, these unrealistic expectations and the expectation of government support that is driving the trend towards enhanced public pension plans, both in Ontario (as discussed May 1, 2014; also see the official ORPP website) and in the States:

The U.S. retirement system is a failure, in at least one respect: Half of private-sector workers have no access to a 401(k) or a pension plan on the job, so millions of Americans have scant retirement savings or none at all. To retire, they’ll need to rely on programs such as Social Security and Medicaid.

The federal government has done little to get more Americans saving for retirement. In December the White House launched a pilot program called myRA (My Retirement Account), an individual retirement account (or IRA) set up through an employer’s payroll system and aimed at low-income workers. But participation is voluntary, and Congress has gotten nowhere with bills proposed to encourage workplace retirement plans.

So the states are stepping up. This month, an Illinois law went into effect that would give a state-run IRA to all employees of companies with at least 25 people on staff who don’t have their own retirement plan. Workers would automatically be signed up to contribute 3 percent of their salary to the IRA and could opt out or adjust their contribution. The system is scheduled to be up and running by June 2017.

California is working on a similar plan, and on Tuesday the Oregon State Senate sent the governor a bill requiring automatic IRAs at private employers by July 2017. By early next year, Connecticut officials must finish a study, mandated by the state legislature, of how feasible a state-run retirement plan would be there. There are advocates for similar plans in at least a dozen other state legislatures.

Separately, we are told that employees are idiots:

Canadians are missing out on billions of dollars of potential retirement savings every year by not taking full advantage of matching contributions by their employers in group RRSP and defined contribution retirement plans.

Tom Reid of Sun Life Financial estimates more than $3-billion a year of potential company contributions go unmade because employees don’t make the required matching contributions to obtain them.
…
A survey by Great-West Life found significant numbers of respondents weren’t taking advantage of voluntary plans. It found a 79 per cent participation rate for voluntary DC plans and just 51 per cent for voluntary group RRSPs in 2014.

Meanwhile there is a call to eliminate Canada Savings Bonds:

The private sector already offers various savings products, backed by deposit insurance, according to a report prepared by KPMG LLP for the Canadian Finance Department. Canadian households appear to like those options better, as the stock of retail debt outstanding in the Canada Savings Bond program plummeted to just under 8 billion Canadian dollars ($6.5 billion) in 2013 from a 1987 level of C$55 billion. That’s an average decline of C$1.8 billion a year.
…
“There is currently no valid economic rationale for the retail debt program,” KPMG said. “Outstanding stock is expected to reach a level where, despite all the recent accomplishments in cost reduction, it will be difficult to justify the existence of the program either on economic grounds, on participation levels, or as a share of retail debt outstanding to market debt.”

A spokeswoman for Canada’s Finance Department said the Canada Savings Bonds Program would be maintained in its current format, while officials would look at potential ways to reduce the scheme’s costs. The spokeswoman said more than a million Canadians still purchase securities from the program, “demonstrating their continuing interest” in the program.

The U.S. and Germany have essentially terminated their retail debt programs, which like the Canadian one were created to provide citizens with a guaranteed savings instrument in an era when the retail banking sector was underdeveloped, and there was no such mechanism as deposit insurance. In Germany’s case, it concluded it could no longer issue a cost-effective rate that would attract retail investor interest.

I love the official response. It must be nice to be in government and never have to show any intellectual integrity at all!

The actual report includes a fascinating graph:

Click for Big

In terms of spread:

We notice that the CPB rate is tracking closely the 3-year benchmark Government of Canada bond since 2008 with a spread ranging between minus 20 to plus 60 basis points (bps) leaving little or no margin to offset unit administration and option costs (see Chart 6). Likewise, the CSB rate, even with spreads ranging from 10 to 70 bps compared to the 1 year treasury bill rate since 2009 does not leave enough margin to cover unit administration and option costs.

In terms of cost:

Today, the operating costs of the Retail Debt Program at $58 million are equivalent to the yearly interest costs (approx. $58 million) on the outstanding stock of retail debt (see Chart 7). Of course this relation may change in the future, based on the evolution of interest rates and changes in the cost structure. It is nevertheless an interesting snapshot putting the overall costs of the Retail Debt Program in perspective.

The largest component of the operating costs for the Retail Debt Program is the HP back-office operations which stand at $36 million or 62% of the expenses.

Given all the recent fuss, one wonders whether some aspects of the programme will be changed …

Introduced in 1997 by Canada Investment and Savings Agency (CI&S), trailer fees were discontinued in the fall of 2010 and replaced by an up-front 35 bps commission. This proved a significant cost reduction measure. Beforehand, financial institutions benefitted from annual trailer fees of 23 bps until maturity. In 2009 trailer fees accounted for 93% of total commissions to financial institutions.

Based on the pre-2000 issues still outstanding and on the estimated pace of redemptions, trailer fees are expected to end in 2019-2020. We estimate that in 2012-2013 they still represent approximately 92% of the commission expense as this would be consistent with $3.5 billion of outstanding debt still being subject to the 23 bps trailer fee (see Table 4).

KPMG makes one recommendation I really like … but it comes with a warning label!

Consider making the Retail Debt Program totally internet-based, with no intermediaries: This is the current US model, and the phase-in would likely be very expensive. With respect to the US example, it should be noted that the infrastructure they built behind their Treasury Direct website is mostly used for individuals purchasing retail sizes of wholesale US Treasury securities.

It’s surprisingly difficult to find information on the size of the Treasury Direct retail programme; if anybody knows where I can get this information, let me know!

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 21bp, FixedResets off 8bp and DeemedRetractibles gaining 6bp. FixedResets continue to dominate the Performance Highlights table at both ends. Volume was average.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

Click for Big

TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.00 to be $0.87 rich, while TRP.PR.B, which will reset June 30 at 2.152% (+128), is $0.63 cheap at its bid price of 14.58

Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.J, resetting at +261bp on 2018-3-19, bid at 24.60 to be $0.44 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.50 to be $0.41 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.41 to be $0.94 cheap. BAM.PR.X, resetting at +180bp 2017-6-30 is bid at 17.82 and appears to be $0.61 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.52, looks $0.43 cheap and resets 2020-6-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 21.95 and is $0.16 rich.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.40%, including the outlier TRP.PR.A / TRP.PR.F at -0.37%. On the junk side, three of the six currently extant pairs are outside the range of the graph: DC.PR.B / DC.PR.D at -0.22%; AZP.PR.B / AZP.PR.C at +1.01%; and FFH.PR.E / FFH.PR.F at -0.86%.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?

After a very brief review of the recently released OSC-commissioned report Mutual Fund Fee Research, I have seen the future and it is Spanish:

First, credit institutions heavily dominate the Spanish mutual fund industry: banks and savings banks6. In fact, 91% of mutual funds are distributed through banks (63%) and savings banks (28%), and 91% of mutual fund assets are managed by companies belonging to banks (66%) and savings banks (25%). The reason for this predominance is perhaps the traditional universal banking model, which has provided credit institutions with a vast base of clients for their mutual funds. In fact, the business of mutual fund management accounts for a non-negligible part of Spanish banks’ revenues. If we take only the three most important management companies (belonging to credit institutions) that manage 52% of all assets (as of December 2001), we find that their sales revenues contribute to 1.71% (the largest company), 2.15% (the second largest), and 3.22% (the smallest) of their respective group’s total ordinary revenues. Clearly, this situation gives rise to a number of potential conflicts of interest. For instance, bank customers are more vulnerable to marketing or advice from their bank and therefore more likely to invest in bank-managed mutual funds than to shop for better quality or cheaper funds. Also, fund managers could be biased towards investing in financial assets issued by companies belonging to their own financial group. Finally, the fact that only credit institutions can become custodial institutions of the assets held by the mutual funds gives banks and savings banks an advantage over independent management companies. The extent to which such potential conflicts of interest translate into agency costs in delegated portfolio management remains an open empirical question.

As far as total returns go (according to the OSC’s report):

Where regulation has been changed to ban or limit commission,there is evidence that this change impacted investor outcomes.

• In the absence of embedded compensation, advisors recommend lower cost products. These typically have better returns because of lower expenses.
• While removing commission lowers product cost, advisory fees may rise as a means of paying for the cost of service. There may also be new or increased administrative fees, higher costs on margin accounts and lower payments on cash balances.
• It is not yet clear whether moving from commission-based to asset-based compensation will result in a net improvement in the overall return to the investor.

…
Based on the research cited, we can formulate some high level conclusions that are backed by substantial evidence. In addition to compensation, we identify some related issues that affect investor outcomes.

• …
• In jurisdictions that have moved to fee-based compensation, people with less wealth and less income find it harder to get advisory service than others. We do not know whether it is more difficult with fee-based compensation than it was before the change in compensation regime. Alternative advisor methods (e.g., robo-advisors) are developing to fill the advisory gap.

So we all know how this movie is going to turn out, assuming the regulators get their way. Regulators were created for the purpose of insulating politicians from public opprobrium following scandals. The fewer scandals, the better they’ve done their job and the sooner they can start working in the compliance department of a bank. So the ideal is a plain vanilla portfolio for everybody, preferably provided by one of the regulators’ future employers. If a hundred people get put into ridiculously risky portfolios by a some commission driven salesmen … that’s a scandal. If a hundred thousand people retire with significantly less money than they should have, due to a long-term emphasis on short-term (bank issued) fixed income (including GICs) … that’s a statistic.

As I have come to expect, there is nothing in the OSC report that covers new issue commission and proxy solicitation fees; the former form of compensation has been alleged to have played a role in some preferred share complaints I have seen. Admittedly, these forms of compensation were not in the report’s mandate; golly, I wonder why. According to the IIAC, the “Firms that are national in scope and have extensive retail and institutional operations; includes dealers of the six major chartered banks” had investment banking revenue that exceeded their mutual fund commission revenue.

Central GoldTrust is fighting an exchange offer from Sprott Asset Management Gold Bid LP to exchange units of Central GoldTrust for units of Sprott Physical Gold Trust, and its Trustee’s Circular contains an entertaining attack on Sprott’s competence:

A large number of Sprott Inc. actively managed funds also suffer from chronic underperformance, while Sprott Inc. continues to generate very significant management fees from these funds. The table below shows that over the past three years the selected group of poorly performing Sprott funds underperformed by approximately 13% on average against their respective Sprott-selected benchmark indices, while Sprott Inc. and SAM have collected over approximately $110 million in management fees from these funds over the same three year period.
…
When looking at the broader group of Sprott funds where information is publicly available, similarly poor returns were observed relative to their respective benchmarks. As shown below, these funds over the past three years have underperformed, on average, 11% below their respective benchmarks.

I don’t see a response from Sprott Physical Bullion; Sprott’s response did not address the charges.

I keep reading a lot about how entrepreneurial millennials are:

Call it entitlement, call it independence: Millennials want to be a generation of entrepreneurs.

Roughly two in every three Gen Y-ers have aspirations of going into business for themselves. About 18% of them are actually doing it, according to a new report from Babson College that found entrepreneurship across all ages is on the incline. (Meanwhile, just 13% of millennials are interested in climbing the corporate ladder.)

Millennials fit into the role of a self-starter easily for a number of reasons; we’re digital natives, with heady career dreams and a job market that has taught us to think outside the box — because we might not be hired within it very quickly.

… which always makes me wonder why there aren’t more plumbers, electricians and computer repair shops. And I wonder how many entrepreneurs get driven to work by their moms. And I wonder how many of them are entrepreneurial and how many just dream of being a big-shot. I wonder why virtually every stranger who knocks on my door is begging for a hand-out (for charity, or to participate in sports tournament, or whatever) and why so few of them are trying to sell me a product or service (and why those that do try to sell me something are always so careful to emphasize that it’s ‘for school’). I wonder a lot of things, and wasn’t too surprised at this rebuttal:

When she started her research, “I thought that I was doing a next-generation-of-leadership focus; I thought that the criteria was age specific,” [author of The Creator’s Code: The Six Essential Skills of Extraordinary Entrepreneurs, Amy] Wilkinson said. But her research led her to a different place—it turns out that fewer millennials are starting businesses than the generations preceding them. “The most interesting and problematic thing I learned is that millennials aren’t starting companies the way previous generations did—all the research confirms this,” she said, pointing to research by the Kansas City-based Kauffman Foundation and the Brookings Institute, among others. And research that just came out this week from Kauffman only helps confirm this: for example, new entrepreneurs ages 20 to 34 fell to 24.7% last year, compared to the 34.3% of people who were in the same age demographic in 1996 when they started businesses.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts off 24bp, FixedResets gaining 1bp and DeemedRetractibles up 2bp. FixedResets dominated both sides of the Performance Highlights table, with a notable preponderance of winners. Volume was extremely high.

For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.

Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread

Here’s TRP:

Click for Big

TRP.PR.A, which resets 2019-12-31 at +192, is bid at 20.26 to be $0.71 rich, while TRP.PR.B, which will reset June 30 at 2.152% (+128), is $0.51 cheap at its bid price of 14.67

Click for Big

Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule).

Most expensive is MFC.PR.J, resetting at +261bp on 2018-3-19, bid at 24.60 to be $0.45 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.50 to be $0.30 cheap.

Click for Big

The cheapest issue relative to its peers is BAM.PR.R, resetting at +230bp on 2016-6-30, bid at 19.63 to be $0.81 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.16 and appears to be $0.41 rich.

Click for Big

FTS.PR.H, with a spread of +145bp, and bid at 16.40, looks $0.36 cheap and resets 2020-6-1. FTS.PR.M, with a spread of +248bp and resetting 2019-12-1, is bid at 24.18 and is $0.17 rich.

Click for Big

Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.40%, including the outliers TRP.PR.A / TRP.PR.F at -0.33% and FTS.PR.H / FTS.PR.I at +1.00%. On the junk side, only one of the six currently extant pairs is within the range of the graph.

Click for Big

Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?