A lot of people get enraged over mutual fund fees, and the extreme awfulness of an advisor who recommends a relatively higher MER. But as I’ve often noted, performance doesn’t mean as much in this business as one might think; for retail advisors, simple hand-holding is a very real service:
In the study for financial advisers, Putting a Value on Your Value, released Tuesday by Vanguard Investments Canada Inc., research indicates that “the value proposition of advice is changing. Advisers will have to add value, or alpha, through relationship-oriented services such as providing cogent wealth management via financial planning, discipline, and guidance, rather than by trying to outperform the market.”
…
Vanguard’s new study suggests that advisers who provide clients with more than the basic investment management, and follow a certain set of best practices, has the potential to add approximately 3 per cent in net returns to their clients’ portfolios.Best practices would include: offering low costs funds, re-balancing portfolios, not engaging in market timing, asset allocation and “behavioural coaching” – in other words, helping investors stay the course, says Francis Kinniry, a principal of Vanguard’s investment strategy group.
Vanguard research found the discipline and guidance that an adviser might provide an investor through behavioural coaching could be the largest value-add available – adding 1 per cent to 2 per cent in net return.
We now know why UK Chancellor of the Exchequer got his Lapdog to provide a distraction with the war on banks yesterday:
Britain will start selling its £32-billion stake in Royal Bank of Scotland in the coming months, finance minister George Osborne said on Wednesday, giving up on his previous intention to only sell the shares for a profit.
…
[Investment bank] Rothschild said taxpayers were on course to lose more than 7 billion pounds on the RBS rescue although they would make a profit from the full bailout plan which included other banks.RBS, Britain’s fourth-biggest bank by market value, was saved from collapse by former prime minister Gordon Brown’s Labor government during the 2007-09 financial crisis at a cost of 45.8 billion pounds to taxpayers, leaving the government holding an 80 per cent stake.
The sabre-rattling phase of the Greek debt negotiations has ended and the table-pounding phase has begun:
European Union President Donald Tusk told Greece’s Alexis Tsipras to stop maneuvering and decide whether to accept the conditions on financial aid as the International Monetary Fund’s negotiators left Brussels empty-handed.
The IMF said that its team flew out after failing to make progress on a debt deal that would help Greece avoid default and cement its position within the euro. Tusk accused Greece of playing games with its future and pressed Tsipras to make concessions to escape economic ruin.
There are whispers that the credit quality of junk debt is declining:
While American companies seem to be in good shape based on a historically low default rate, they look a lot less good if you peek under the hood of their balance sheets.
One problematic sign: the least-creditworthy companies have seen pretty much no growth in a basic measure of their earnings, even after stripping out the embattled energy companies, Bank of America Corp. analysts found. Yet these junk-rated corporations are selling debt at a rapid clip to lock in ultra-low borrowing costs, meaning their levels of debt relative to their income are steadily rising.
Another problematic sign: creditors of companies that are going bankrupt are getting less of their money back than you’d expect given the macro landscape of low defaults, a generally growing economy and such low borrowing costs.
“We find this very worrying,” wrote Bank of America analysts Michael Contopoulos, Neha Khoda and Rachna Ramachandran in a June 11 report. “We believe we are seeing the slow unraveling of fixed-income markets,” and debt of speculative-grade companies won’t be able to hide from such fundamental problems, they wrote.
While shouldering the White Man’s Burden of fighting corruption in foreign countries, a US court has discovered how business gets done:
In an attempt to underscore [chief prosecution witness Gregory] Weisman’s ethical sketchiness and desire to shift culpability to his former boss, [defense attorney William] Price questioned the disbarred lawyer about his practice of demanding that PetroTiger’s outside U.S. law firm, Philadelphia-based Duane Morris, provide him with free tickets to expensive professional sports events. Weisman acknowledged that he made these requests during exchanges with Duane Morris over PetroTiger’s past-due bills.
“I was getting tickets to sporting events and things like that, which is typical in the industry at big law firms,” Weisman testified. The defense lawyer, Price, asked about an October 2008 e-mail from Duane Morris partner Sandra Stoneman in which she promised Weisman tickets to the baseball World Series, but only if PetroTiger got current on its bills: “No promises till you get me one million in business[,] big guy. Oh yeah, and pay,” Stoneman said.
Price then read Weisman’s response: ” ‘You’ll get your million after I get my tix,’ et cetera.”
A Bloomberg filler article about millennials had an interesting chart relating mobility to age. It’s not too surprising in broad outline, but it’s nice to see some numbers. The chart is taken from the original paper, Young Adult Migration: 2007–2009 to 2010–2012; note that “migration” appears to be any change of address; a section at the end focusses on “inmovers”, who have changed cities.
Click for Big
It was a poor day overall for the Canadian preferred share market, with PerpetualDiscounts off 28bp, FixedResets down 29bp and DeemedRetractibles gaining 4bp. A very lengthy Performance Highlights table is dominated by losing FixedResets. Volume was below average.
For as long as the FixedReset market is so violently unsettled, I’ll keep publishing updates of the more interesting and meaningful series of FixedResets’ Implied Volatilities. This doesn’t include Enbridge because although Enbridge has a large number of issues outstanding, all of which are quite liquid, the range of Issue Reset Spreads is too small for decent conclusions. The low is 212bp (ENB.PR.H; second-lowest is ENB.PR.D at 237bp) and the high is a mere 268 for ENB.PF.G.
Remember that all rich /cheap assessments are:
» based on Implied Volatility Theory only
» are relative only to other FixedResets from the same issuer
» assume constant GOC-5 yield
» assume constant Implied Volatility
» assume constant spread
Here’s TRP:
Click for Big
TRP.PR.E, which resets 2019-10-30 at +235, is bid at 23.40 to be $1.14 rich, while TRP.PR.B, which will reset June 30 at 2.152% (+128), is $0.76 cheap at its bid price of 14.55
Click for Big
Another excellent fit, but the numbers are perplexing. Implied Volatility for MFC continues to be a conundrum. It is still too high if we consider that NVCC rules will never apply to these issues; it is still too low if we consider them to be NVCC non-compliant issues (and therefore with Deemed Maturities in the call schedule). It is clear that the lowest spread issue, MFC.PR.F, is off the relationship defined by the other issues, but this doesn’t resolve the conundrum – it just makes it more conundrous.
Most expensive is MFC.PR.L, resetting at +216bp on 2019-6-19, bid at 23.03 to be $0.52 rich, while MFC.PR.H, resetting at +313bp on 2017-3-19, is bid at 25.46 to be $0.49 cheap.
Click for Big
The cheapest issue relative to its peers is BAM.PF.B, resetting at +263bp on 2019-3-31, bid at 22.06 to be $0.62 cheap. BAM.PF.G, resetting at +284bp 2020-6-30 is bid at 24.37 and appears to be $0.54 rich.
Click for Big
FTS.PR.H, with a spread of +145bp, and bid at 16.30, looks $0.69 cheap and resets 2020-6-1. FTS.PR.G, with a spread of +213bp and resetting 2018-9-1, is bid at 22.00 and is $0.31 rich.
Click for Big
Investment-grade pairs predict an average three-month bill yield over the next five-odd years of about 0.50%, with no ridiculous outliers. On the junk side, four out of the six pairs are outside the range of the graph: FFH.PR.E / FFH.PR.F at -1.23%; AIM.PR.A / AIM.PR.B at -0.09%; BRF.PR.A / BRF.PR.B at -0.48%; and DC.PR.B / DC.PR.D at -1.37%.
Click for Big
Shall we just say that this exhibits a high level of confidence in the continued rapacity of Canadian banks?
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 2.1796 % | 2,245.3 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 2.1796 % | 3,925.9 |
| Floater | 3.45 % | 3.45 % | 60,631 | 18.65 | 3 | 2.1796 % | 2,386.9 |
| OpRet | 4.44 % | -12.29 % | 27,540 | 0.08 | 2 | 0.0000 % | 2,782.9 |
| SplitShare | 4.59 % | 4.83 % | 71,388 | 3.30 | 3 | 0.2552 % | 3,249.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,544.7 |
| Perpetual-Premium | 5.46 % | 4.86 % | 62,201 | 1.47 | 19 | 0.0021 % | 2,513.4 |
| Perpetual-Discount | 5.10 % | 5.11 % | 108,795 | 15.25 | 15 | -0.2833 % | 2,754.2 |
| FixedReset | 4.49 % | 3.88 % | 244,666 | 16.44 | 87 | -0.2887 % | 2,359.6 |
| Deemed-Retractible | 5.01 % | 3.08 % | 111,945 | 0.69 | 34 | 0.0360 % | 2,621.3 |
| FloatingReset | 2.51 % | 2.89 % | 56,773 | 6.13 | 9 | -0.3190 % | 2,333.9 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| FTS.PR.I | FloatingReset | -3.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 15.52 Evaluated at bid price : 15.52 Bid-YTW : 3.32 % |
| MFC.PR.K | FixedReset | -1.91 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.56 Bid-YTW : 4.73 % |
| HSE.PR.A | FixedReset | -1.83 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 16.10 Evaluated at bid price : 16.10 Bid-YTW : 4.41 % |
| BAM.PF.B | FixedReset | -1.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 21.74 Evaluated at bid price : 22.06 Bid-YTW : 4.25 % |
| RY.PR.H | FixedReset | -1.70 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 22.38 Evaluated at bid price : 23.10 Bid-YTW : 3.66 % |
| SLF.PR.H | FixedReset | -1.59 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 21.06 Bid-YTW : 5.40 % |
| ENB.PR.N | FixedReset | -1.49 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 19.20 Evaluated at bid price : 19.20 Bid-YTW : 4.90 % |
| ENB.PR.T | FixedReset | -1.41 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 18.83 Evaluated at bid price : 18.83 Bid-YTW : 4.85 % |
| BAM.PR.X | FixedReset | -1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 17.75 Evaluated at bid price : 17.75 Bid-YTW : 4.24 % |
| SLF.PR.G | FixedReset | -1.30 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.90 Bid-YTW : 7.91 % |
| BAM.PR.R | FixedReset | -1.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 20.31 Evaluated at bid price : 20.31 Bid-YTW : 4.21 % |
| FTS.PR.F | Perpetual-Discount | -1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 23.60 Evaluated at bid price : 23.90 Bid-YTW : 5.15 % |
| ENB.PR.P | FixedReset | -1.21 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 18.82 Evaluated at bid price : 18.82 Bid-YTW : 4.84 % |
| IFC.PR.A | FixedReset | -1.19 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.30 Bid-YTW : 5.78 % |
| TRP.PR.D | FixedReset | -1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 22.05 Evaluated at bid price : 22.51 Bid-YTW : 3.92 % |
| ENB.PR.B | FixedReset | -1.09 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 18.11 Evaluated at bid price : 18.11 Bid-YTW : 4.84 % |
| HSE.PR.C | FixedReset | -1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 22.84 Evaluated at bid price : 24.07 Bid-YTW : 4.32 % |
| TRP.PR.F | FloatingReset | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 18.80 Evaluated at bid price : 18.80 Bid-YTW : 3.34 % |
| MFC.PR.L | FixedReset | -1.03 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.03 Bid-YTW : 4.53 % |
| FTS.PR.J | Perpetual-Discount | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 23.61 Evaluated at bid price : 24.00 Bid-YTW : 4.96 % |
| ENB.PF.A | FixedReset | 1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 20.21 Evaluated at bid price : 20.21 Bid-YTW : 4.80 % |
| BAM.PR.C | Floater | 1.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 14.35 Evaluated at bid price : 14.35 Bid-YTW : 3.47 % |
| VNR.PR.A | FixedReset | 1.86 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 23.16 Evaluated at bid price : 24.15 Bid-YTW : 4.02 % |
| BAM.PR.K | Floater | 4.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 14.41 Evaluated at bid price : 14.41 Bid-YTW : 3.45 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| ENB.PR.T | FixedReset | 118,700 | TD crossed 110,000 at 19.10. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 18.83 Evaluated at bid price : 18.83 Bid-YTW : 4.85 % |
| RY.PR.A | Deemed-Retractible | 83,552 | TD crossed 20,000 at 25.27. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-11 Maturity Price : 25.00 Evaluated at bid price : 25.16 Bid-YTW : -0.67 % |
| RY.PR.L | FixedReset | 80,550 | TD crossed 50,000 at 25.95; RBC crossed 29,800 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2019-02-24 Maturity Price : 25.00 Evaluated at bid price : 25.94 Bid-YTW : 3.25 % |
| RY.PR.N | Perpetual-Discount | 77,415 | Recent new issue. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2045-06-11 Maturity Price : 24.67 Evaluated at bid price : 25.06 Bid-YTW : 4.90 % |
| HSB.PR.D | Deemed-Retractible | 54,635 | TD crossed 52,000 at 25.10. YTW SCENARIO Maturity Type : Call Maturity Date : 2015-07-11 Maturity Price : 25.00 Evaluated at bid price : 25.06 Bid-YTW : -1.08 % |
| MFC.PR.F | FixedReset | 53,739 | Scotia bought 48,000 from Nesbitt at 18.10. YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.00 Bid-YTW : 6.61 % |
| There were 25 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| CIU.PR.C | FixedReset | Quote: 15.93 – 16.91 Spot Rate : 0.9800 Average : 0.7983 YTW SCENARIO |
| RY.PR.H | FixedReset | Quote: 23.10 – 23.54 Spot Rate : 0.4400 Average : 0.2892 YTW SCENARIO |
| PWF.PR.P | FixedReset | Quote: 18.33 – 18.71 Spot Rate : 0.3800 Average : 0.2336 YTW SCENARIO |
| FTS.PR.I | FloatingReset | Quote: 15.52 – 16.10 Spot Rate : 0.5800 Average : 0.4505 YTW SCENARIO |
| GWO.PR.H | Deemed-Retractible | Quote: 23.69 – 24.19 Spot Rate : 0.5000 Average : 0.3773 YTW SCENARIO |
| TRP.PR.D | FixedReset | Quote: 22.51 – 22.78 Spot Rate : 0.2700 Average : 0.1751 YTW SCENARIO |
For anyone considering mutual funds spend time reading Prefblog , thats the standard to measure all other mututal fund communications, analysis and trasnparency. You will not find any mf company or individual who spend the amount of time and effort DAILY to communicating with clients or the public. THe fact that Prefblog is not a subscription based site is testemant to the commitement. If you want to go deeper than PreLetter is a wonderful option. I have been an ardant reader of Preflbog for years and the insights have given me some very good ideas and investments that have provided real benefits. No James has not paid me to write this BUT I felt complelled to write the note as a result of the article today and as an opportunity to give James a well deserved shut out for unselfish , detailed daily commentary.
Well! That’s an awfully nice surprise! Thank you!