PrefBlog

Turnover increased in October to 14%.

The fund’s trading will probably be higher in the future than has been normal for the past several years, since the extreme segmentation in the marketplace that I complained about for so long is now effectively ended. Low-Reset insurance issues were considered so cheap relative to their peers that a large portion of the fund’s holdings were effectively frozen. However, this differentiating factor is no longer considered applicable.

I am no longer making any adjustments for special qualities of insurance issues but note that this policy may change again in the future – a requirement for a Principal Loss Absorbency Mechanism (PLAM), whereby any security included in Tier 1 Capital will be wiped out prior to a government bail-out, even if technical bankruptcy is avoided, remains good public policy; it is a disgrace that the IAIS has rejected this principle and even worse that OSFI argued strenuously against it. I will continue to read notifications from these two entities with great interest, but while it is within the realm of possibility that ICS 2.0 will be revised following the expiry of the current five-year testing period, I can’t say I have any great confidence in the wisdom of the bureaucrats. However, it is a positive move that the increase in the limit for preferred share issuance was increased from 10% of the capital requirement to 15%; but this increase may only be met with issues having a PLAM.

Sectoral distribution of the MAPF portfolio on October 30 was as follows:

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.

An additional wrinkle to the division into sub-indices is the fact that some issues are classed here as FixedResets, even though for analytical purposes they are classified as Straights – this is due to the fact that these particular issues reset with a floor rate which is (given the current level of the GOC 5-Year bond) currently expected to be effective.

For MAPF, these issues are BIP.PR.D, BIP.PR.E, BIP.PR.F and ECN.PR.C, with a combined portfolio weight of 4.6%. The total portfolio is therefore 78.3% “Floating”, which means the rates will reset periodically based upon the GOC-5, T-Bill or Canada Prime levels.

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.