MAPF Portfolio Composition: June, 2008

Trading started off slowly in June, but two bursts of activity from June 10-13 (when spreads started widening) and June 27-30 brought portfolio turnover up to about 65%.

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

MAPF Sectoral Analysis 2008-6-30
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 0.9% (0) 5.02% 4.48
Interest Rearing 0% N/A N/A
PerpetualPremium 0.3% (0) 5.54% 2.38
PerpetualDiscount 94.4% (-4.4) 6.35% 13.43
Scraps 0% N/A N/A
Cash 4.8% (+4.4) 0.00% 0.00
Total 100% 6.03% 12.67
Totals and changes will not add precisely due to rounding. Bracketted figures represent change from May month-end.

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 2008-6-30
DBRS Rating Weighting
Pfd-1 36.6% (-40.2)
Pfd-1(low) 40.2% (+29.0)
Pfd-2(high) 7.9% (+7.0)
Pfd-2 0.4% (0)
Pfd-2(low) 10.3% (-0.2)
Cash 4.8% (+4.4)
Totals will not add precisely due to rounding. Bracketted figures represent change from May month-end.

The fund does not set any targets for overall credit quality; trades are executed one by one. Variances in overall credit will be constant as opportunistic trades are executed.

The slight decline in credit quality is the result of a move from banks to insurers; in overall terms that do not reflect specific trades, a May month-end position of 7% BMO and 32% RY issues became 8% POW (Pfd-2(high)), 11% GWO (Pfd-1(low)) and 18% PWF (Pfd-1(low)).

The first trade I will examine comprises the largest single piece of the series of trades – unfortunately, it would have been better to delay:

Post Mortem: sale RY.PR.C, purchase GWO.PR.G
May 30
(yield: 5.65%)
(yield: 5.58%)
Trade, 6/18
$19.33 $21.31
June 30
(yield: 5.95%)
(yield: 6.20%)

Unfortunately, sometimes you’re just going to be too soon – particularly when you are trading on random noise … sometimes the random noise gets louder than usual, sometimes (in the worst case scenario) the so-called noise turns out to be a trend. HIMIPref™ simply plays the odds: with enough trades, actual results will reflect the statistics. At time of writing, RY.PR.C is bid at $19.05, while GWO.PR.G is bid at $20.84, so the trade results have improved since month-end – although it’s still underwater.

Liquidity Distribution is:

MAPF Liquidity Analysis 2008-6-30
Average Daily Trading Weighting
<$50,000 0.5% (-0.3)
$50,000 – $100,000 0.7% (-10.8)
$100,000 – $200,000 47.2% (+19.1)
$200,000 – $300,000 29.0% (+5.9)
>$300,000 18.0% (-18.3)
Cash 4.4% (+4.4)
Totals will not add precisely due to rounding. Bracketted figures represent change from May 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. 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 CPD as of May month end. It is interesting to note:

  • MAPF credit quality is superior
  • MAPF liquidity is superior
  • MAPF Yield is higher
  • But … MAPF is more exposed to PerpetualDiscounts

This last factor hurt performance in June and will be discussed when the performance is posted.

One Response to “MAPF Portfolio Composition: June, 2008”

  1. […] fund was invested almost entirely in PerpetualDiscounts; this overall analysis is unchanged in the portfolio composition for June. Given the sharp decline in the market in June, it should therefore come as no surprise that the […]

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