PrefBlog

Turnover picked up slightly in October to 28%

Trades were, as ever, triggered by a desire to exploit transient mispricing in the preferred share market (which may be thought of as “selling liquidity”), rather than any particular view being taken on market direction, sectoral performance or credit anticipation.

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.

Prices of PerpetualDiscounts increased during the month, as did implied volatility. The fund increased its position in near-par PerpetualDiscounts over the month.

Following last month’s performance report, analysis of the data using the Straight Perpetual Implied Volatility Calculator produces the following table:

As discussed in the October edition of PrefLetter, the implied volatility calculated for GWO is ludicrously high and implies a ridiculous assessment of the probability distribution of future yields; now it appears that PWF issues are headed that way as well.

Graphs from the Straight Perpetual Volatility Calculator for October 29 are:

The yield pick-up for holding high-coupon Straights is such one should no longer automatically buy the deepest-discount issue in a series!

Credit distribution is:

The decline in holdings of issues rated Pfd-2(high) was due mainly to swaps out of MFC.PR.D:

Liquidity Distribution is:

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 either directly from Hymas Investment Management or through a brokerage account at Odlum Brown Limited. 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 similar portfolio composition analysis has been performed on the Claymore Preferred Share ETF (symbol CPD) as of August 31, 2010, and published in the September, 2010, PrefLetter. When comparing CPD and MAPF:

• MAPF credit quality is better
• MAPF liquidity is a higher
• MAPF Yield is higher
• Weightings in
  • MAPF is much more exposed to PerpetualDiscounts
  • MAPF is much less exposed to Operating Retractibles
  • MAPF is slightly more exposed to SplitShares
  • MAPF is less exposed to FixFloat / Floater / Ratchet
  • MAPF weighting in FixedResets is much lower

This entry was posted on Wednesday, November 3rd, 2010 at 6:44 pm and is filed under MAPF. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.