Best & Worst Monthly Performances : August, 2007

These are total returns, with dividends presumed to have been reinvested at the bid price on the ex-date. The list has been restricted to issues in the HIMIPref™ indices.

Issue Index DBRS Rating Monthly Performance Notes (“Now” means “August 31”)
BAM.PR.M PerpetualDiscount Pfd-2(low) -4.01% Now with a pre-tax bid-YTW of 5.95% based on a bid of 20.35 and a limitMaturity.
BAM.PR.N PerpetualDiscount Pfd-2(low) -3.75% Now with a pre-tax bid-YTW of 5.97% based on a bid of 20.27 and a limitMaturity.
BAM.PR.B Floater Pfd-2(low) -3.64%  
BNA.PR.C SplitShare Pfd-2 (low) -2.22% Backed by BAM.A shares. Now with a pre-tax bid-YTW of 5.59% based on a bid of 22.46 and a hardMaturity 2019-1-10 at 25.00.
BAM.PR.K Floater Pfd-2(low) -2.10%  
RY.PR.A PerpetualDiscount Pfd-1 +2.52% Now with a pre-tax bid-YTW of 4.90% based on a bid of 22.81 and a limitMaturity.
IGM.PR.A OpRet Pfd-2(high) +2.55% Now with a pre-tax bid-YTW of 3.26% based on a bid of 26.98 and a call 2009-7-30 at 26.00.
CU.PR.B PerpetualPremium Pfd-2(high) +2.66% Now with a pre-tax bid-YTW of 5.17% based on a bid of 25.91 and a call 2012-7-1 at 25.00.
BMO.PR.H PerpetualPremium Pfd-1 +3.61% Now with a pre-tax bid-YTW of 4.16% based on a bid of 26.44 and a call 2013-3-27 at 25.00.
MFC.PR.A OpRet Pfd-1(low) +4.22% Now with a pre-tax bid-YTW of 3.74% based on a bid of 25.61 and a softMaturity 2015-12-18 at 25.00.

Not a stellar month for the BAM issues! These issues were discussed in the comments to the August 15 Market Action report; the basic story is that to a certain extent the BAM issues will trade as Pfd-3’s, a notch or two below their actual credit ratings of Pfd-2(low) (DBRS) and P-2 (S&P).

There are various explanations of why they should trade this way:

  • BAM simply has too many issues on the market. There will be some participants who are attracted by the risk/reward profile, but have already bought all the BAM that they’re comfortable with having in the name [Note: This is very often a situation that applies to MAPF]
  • The issue suffers from a conglomerate discount. Not very sensible, perhaps, but who ever told you the markets have to be sensible?
  • Credit Anticipation. Some people believe that BAM is over-rated by the ratings agencies and explicitly trade it as a Pfd-3

Evidence from the world of bonds is available in some indications I have of 5-year CDS levels (see the Primer Links if you don’t know how a Credit Default Swap works). BAM is quoted at 39-44bp, +11 on the month; Enbridge (issuer of ENB.PR.A) is at 48-54bp (+1); Bombardier (BBD.PR.B / C / D) at 162-179 (-62); Alcan (until recently AL.PR.E / F) at 24-28 (+5); TransCanada (TCA.PR.X / Y) at 23-27 (-1); and finally BCE (lots!) at 397-418 (+54). Make of this what you will!

Update: It should be noted that there were a lot of Pfd-3 and other issues that did worse than the BAM issues. The list, as noted above, was restricted to issues included in the HIMIPref™ issues.

3 Responses to “Best & Worst Monthly Performances : August, 2007”

  1. […] Brookfield: I’ve speculated about Brookfield issues before. They have investment-grade credit quality, but often trade as speculatives. Often worthwhile, my fund often holds them. […]

  2. […] Unfortunately, I’m an asset manager and my historical results are an open book. I’ve discussed the BAM issues before and I’ll probably be discussing them many times in the future. For those who are interested, I’ve uploaded a graph of prices and graph of YTW differences for BAM.PR.N and RY.PR.G for the period since the former’s issue on May 9. Note that by “price” in the graph, I mean “flatBidPrice“. […]

  3. […] preferreds have suffered since the credit crunch got rolling last August so … I consider the otherwise routine affirmation of their credit rating by DBRS to be […]

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