MAPF Portfolio Composition: September 2012

Turnover was almost non-existent in September, falling to about 2%.

There is extreme segmentation in the marketplace, with OSFI’s NVCC rule changes in February 2011 having had the effect of splitting the formerly relatively homogeneous Straight Perpetual class of preferreds into three parts:

  • Unaffected Straight Perpetuals
  • DeemedRetractibles explicitly subject to the rules (banks)
  • DeemedRetractibles considered by me, but not (yet!) by the market, to be likely to be explicitly subject to the rules in the future (insurers and insurance holding companies)

This segmentation, and the extreme valuation differences between the segments, has cut down markedly on the opportunities for trading. Another trend that hasn’t helped has been the migration of PerpetualDiscounts into PerpetualPremiums (due to price increases) – many of the PerpetualPremiums have negative Yields-to-Worst and those that don’t aren’t particularly thrilling; speaking very generally, PerpetualPremiums are to be avoided, not traded! This effect has caused the first of the three segments noted above to disappear for most practical purposes.

Sectoral distribution of the MAPF portfolio on September 28 was as follows:

MAPF Sectoral Analysis 2012-9-28
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 0% N/A N/A
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 10.1% (+0.1) 5.10% 5.43
Interest Rearing 0% N/A N/A
PerpetualPremium 0.0% (0) N/A N/A
PerpetualDiscount 0.0% (0) N/A N/A
Fixed-Reset 19.8% (-0.1) 2.30% 1.59
Deemed-Retractible 61.8% (+1.2) 5.09% 7.47
Scraps (Various) 8.0% (-0.6) 6.22% 11.54
Cash 0.3% (-0.6) 0.00% 0.00
Total 100% 4.61% 6.40
Totals and changes will not add precisely due to rounding. Bracketted figures represent change from August month-end. Cash is included in totals with duration and yield both equal to zero.
DeemedRetractibles are comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31, in addition to the call schedule explicitly defined. See OSFI Does Not Grandfather Extant Tier 1 Capital, CM.PR.D, CM.PR.E, CM.PR.G: NVCC Status Confirmed and the January, February, March and June, 2011, editions of PrefLetter for the rationale behind this analysis. (all recent editions have a short summary of the argument included in the “DeemedRetractible” section)

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.

Credit distribution is:

MAPF Credit Analysis 2012-9-28
DBRS Rating Weighting
Pfd-1 0 (0)
Pfd-1(low) 54.0% (+0.7)
Pfd-2(high) 27.6% (+0.4)
Pfd-2 0 (0)
Pfd-2(low) 10.1% (+0.1)
Pfd-3(high) 0.3% (-1.2)
Pfd-3 3.1% (+1.0)
Pfd-4(high) 0.6% (0)
Pfd-4 2.6% (0)
Pfd-4(low) 1.4% (0)
Pfd-5(low) 0% (-0.3)
Cash 0.3% (-0.6)
Totals will not add precisely due to rounding. Bracketted figures represent change from August month-end.

Liquidity Distribution is:

MAPF Liquidity Analysis 2012-8-31
Average Daily Trading Weighting
<$50,000 13.7% (+8.4)
$50,000 – $100,000 1.1% (-8.4)
$100,000 – $200,000 49.2% (-3.0)
$200,000 – $300,000 26.2% (+3.0)
>$300,000 9.5% (+0.5)
Cash 0.3% (-0.6)
Totals will not add precisely due to rounding. Bracketted figures represent change from August month-end.

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) or 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, 2011, and published in the October, 2011, PrefLetter. While direct comparisons are difficult due to the introduction of the DeemedRetractible class of preferred share (see above) it is fair to say:

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

Leave a Reply

You must be logged in to post a comment.