PrefBlog

Well, that’s a relief!

After a month’s superb performance – up 4.50% in December –  there is often a pullback. Perhaps some issues were expensive at month-end, for instance, not by enough to trade (or they would have been traded), but by enough so that all holdings were at the top of their range and all had a downward bias for the next time.

Not this month! I’m very pleased to say that Malachite Aggressive Preferred Fund has been valued for January, 2008, month-end; the unit value is $9.1224. Returns over various periods are:

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.

The competition was outpaced: the fund outperformed the closed-end fund (DPS.UN), which returned an estimated -0.97% on the month and an estimated -0.21% on the quarter, as well as the exchange-traded fund (CPD) which returned 0.00% and -0.28% on the month and quarter. Calculation details for these two performances have been posted separately.

 The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

It should be noted that I do not have this calculation audited in any way, so once the audited financials are available you will not be able to see an explicit confirmation of these figures, although you will be able to derive the year end figure for yourselves. Readers should also note that the fund is indifferent to whether investment returns are in the form of capital gains or dividends – portfolio management seeks to maximize total return after tax for a notional high-marginal-rate investor based in Ontario. It should also be noted that this sustainable income figure is not targetted in any manner; it may well go down if, for instance, it is decided that quality is cheap and trades are executed to increase credit quality at the expense of yield.

For all that, though, there is a point to the calculation – it shows that in the recent past, and subject to the usual warning that historical performance is not necessarily indicative of future returns:

• Income expectations are a lot more stable than market prices, and
• the overall trend is upwards

It was another interesting month, in terms of trends. Readers will remember that strength in early December evaporated in the face of tax-loss selling, exacerbated by sudden concerns regarding the credit quality of CIBC. In January, early strength was blown away by the new BNS perpetual issue, which raised fears that the market would reprice itself to reflect the concessionary 5.6% coupon. These fears proved to be unfounded … but not before the market came very close to dipping below its November 30 value – which, for now, remains the month-end marking the market’s low point.

The fund did considerable trading during the month, but most of this trading was simply opportunistic switching between issues with similar characteristics. One trend that was noticable was the build-up of a large position in Royal Bank perpetuals, which seemed very cheap even though a dividend was earned with an ex-dividend date of January 22. This position was largely unwound – profitably! – by the end of the month.

This entry was posted on Tuesday, February 5th, 2008 at 4:53 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.