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5 Responses to “16Q2 TXPR Revision”

1. FletcherLynd says:

   July 7, 2019 at 5:40 am

   James,

   I am wondering if this change makes a meaningful comment on insurance preferred shares by the relative removal? Two insurers out, none going in. Or is it just normal index maintenance with no hidden meaning?

   Thanks,

   Peter

   Results of the Quarterly Review of the S&P/TSX Preferred Share Index

   TORONTO, July 5, 2019 /CNW/ – S&P Dow Jones Indices Canadian Index Operations announces the following index changes as a result of the quarterly S&P/TSX Preferred Share Index Review. These changes will be effective prior to the open of trading on Monday, July 22, 2019.

   S&P/TSX PREFERRED SHARE INDEX – ADDITIONS

   Symbol

   Issue Name (NDIX)

   ALA.PR.G

   ALTAGAS LTD. (ATGFF) 5YR RESET SERIES ‘G’ PR

   BCE.PR.R

   BCE INC. (BCE) 1ST PR SERIES ‘R’

   BEP.PR.G

   BROOKFIELD RENEWABL PART LP CL A SER 7 PR UN

   BMO.PR.F

   BANK OF MONTREAL (BMO) 5-YR RST CL ‘B’ PR SER 46

   CM.PR.Y

   CANADIAN IMPERIAL BANK SERIES ’51’ PR

   CPX.PR.K

   CAPITAL POWER CORPORATION SERIES ’11’ PR

   CU.PR.D

   CANADIAN UTILITIES LIMITED (CDUAF) 2ND PR SER ‘AA’

   L.PR.B

   LOBLAWS COMPANIES LIMITED 2ND PR SERIES ‘B’

   PPL.PR.S

   PEMBINA PIPELINE CORPORATION CL ‘A’ PR SER 19

   RY.PR.F

   ROYAL BANK OF CANADA (RY) 1ST PR NON-CUM SER ‘AF’

   TD.PF.M

   TORONTO-DOMINION BANK(THE) 5-YR RST PR SER 24

   S&P/TSX PREFERRED SHARE INDEX – DELETIONS

   Symbol

   Issue Name

   AQN.PR.A

   ALGONQUIN POWER & UTILITIES CORP. SER ‘A’ PR

   BCE.PR.F

   BCE INC. 1ST PR SERIES ‘AF’

   MFC.PR.F

   MANULIFE FINANCIAL CORP. CL 1 PR SER ‘3’

   SLF.PR.G

   SUN LIFE FINANCIAL INC. CLASS ‘A’ PR SER 8R

   TA.PR.D

   TRANSALTA CORPORATION 1ST PR SER ‘A’

   TA.PR.F

   TRANSALTA CORPORATION 1ST PR SER ‘C’

   TA.PR.H

   TRANSALTA CORPORATION 1ST PR SER ‘E’

   TA.PR.J

   TRANSALTA CORPORATION 1ST PR SER ‘G’

   TRI.PR.B

   THOMSON REUTERS CORPORATION FLTG RATE PR II

2. skeptical says:

   July 7, 2019 at 12:13 pm

   Looks like addition of higher spread resets and perpetuals. And deletions of low spread insurance issues (SLF.PR.G and MFC.PR.F). Or it could be a mere rebalancing based on issuer ceiling reached in the portfolio and they trimmed the least desirable issues from within that.

3. jiHymas says:

   July 7, 2019 at 12:15 pm

   I am wondering if this change makes a meaningful comment on insurance preferred shares by the relative removal? Two insurers out, none going in. Or is it just normal index maintenance with no hidden meaning?

   Normal maintenance, I’m sure – too many people would be getting too upset if S&P started editorializing in their index selections.

   From the Methodology, available from the index description page:
   

   Volume. Preferred shares with a minimum trailing three-month average daily value traded of less than C$100,000, as of the rebalancing reference date, are excluded from the index. No issue is removed from the index solely for the violation of liquidity requirement for 12 months following its addition effective date.

   I show SLF.PR.G with an Average Daily Trading Value of about $56,000, while SLF.PR.J has about $65,000, but note that my calculation is not the usual simple moving average and will usually be lower. However, at a price of $15, the issue would need to trade an average of 6,700 shares daily to make the cut, and a glance at the history of the past 30 days supports the idea that this is the reason.

   One reason for low volume is that the original issue is now split into SLF.PR.G & SLF.PR.J, on about a 50-50 basis. However, the implications are interesting anyway: The consistently low volume suggests no block trading, and even then the volume is low.

   Could it be that a significant part of this issue has been squirreled away, due to both its low spread and in hope of NVCC rules, that there simply isn’t a normal float available? The same rationale could apply to MFC.PR.F and its counterpart, MFC.PR.P.

4. FletcherLynd says:

   July 10, 2019 at 6:14 am

   Thanks James.

   I hadn’t thought about the index side effects of rate resets converting into fixed and floating issues. As the shares outstanding drops for the original index component, it imakes sense that it is more likely to be pulled by the volume rules in the methodology.

   Wouldn’t it make more sense to put both of the issues, SLF.PR.G and SLF.PR.J , into the index using the conversion ratio to reflect the marketplace?

5. jiHymas says:

   July 11, 2019 at 3:48 pm

   Wouldn’t it make more sense to put both of the issues, SLF.PR.G and SLF.PR.J , into the index using the conversion ratio to reflect the marketplace?

   That gets complicated for two reasons:

   i) First, indices should be simple, which means as few rules as possible. Once you start to allow issues that are convertible into other issues to thereby qualify for inclusion, there will be an army of corporate finance guys looking for a way to exploit the rules for their own advantage.

   ii) One important thing about a ‘good index’ is that it be investible. As I quoted in the article OSFI and the Bond Indices
   

   A good index has
   three Purposes:

   • To act as performance standards for active managers.
   • To serve as proxies for asset allocation purposes.
   • To become purchasable and replicable vehicles for passive investment strategies.

   Source: Russell Investments

   If the index has a lot of little components that qualify only because they add up to meet the qualifications, its ‘investibility’ will suffer.