DPS.UN: Retraction Season!

Assiduous Readers will remember that I laid at least part of the blame for preferred shares’ appalling performance in October 2007 on forced-sales to meet retractions by DPS.UN:

Diversified Preferred Share Trust (fully described at www.sentryselect.com) is a closed-end preferred share fund trading on the Toronto Stock Exchange. In October, many of its shareholders decided that they’d had enough bad news for one year, thank you very much, and exercised their retraction rights over one-sixth of the portfolio holdings. And therefore, preferred shares worth $40-million hit the market on a “must-sell” basis.

Well … it’s October again! (very nearly)

On September 24, DPS.UN had a NAVPS of 19.64 and has gone ex-Dividend for $0.30.

We can estimate a total return for the intervening period of -1.24%, using figures for CPD ($16.63 on Sep 24, $16.21 on Sep 30, ex-Dividend of $0.2135).

With this in hand, we may estimate a NAVPS of $19.10 for DPS.UN as of the close Sep. 30. The market was 18.67-75, 10×8, last 18.67. At the bid, therefore, we can estimate a discount of 2.2%.

This is in the same region as the discount at this time last year … the discount later changed to around 4.5% at around October 10/11 and there were mass redemptions which – regardless of the actual effect on the market – created selling pressure in issues held by DPS.UN.

So … what’s going to happen this time? I don’t have any fearless predictions … does anybody?

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