Strathbridge Asset Management Inc. has announced (on May 28):
World Financial Split Corp. (the “Company”) is pleased to announce that the board of directors has approved an extension of the maturity date of the Class A and Preferred shares of the Company for an additional seven year period beyond June 30, 2018 to June 30, 2025 as provided for in its articles of incorporation.
The term extension allows holders of Class A shares to continue to receive ongoing leveraged exposure to a high-quality portfolio consisting principally of common equity securities selected from the ten largest (by market capitalization) financial services companies in each of Canada, the United States and the rest of the world. Holders of the preferred shares are expected to continue to benefit from fixed cumulative preferential quarterly distributions in the amount of $0.13125 ($0.525 per annum) per preferred share representing a yield of 5.25% on the original issue price of $10.00. Since the inception to April 30, 2018, the Preferred shareholders have received cash distributions of $7.41 per share.
In connection with the extension of the term, holders of class A shares and preferred shares have a special retraction right (“Special Retraction Right”) on June 30, 2018. In order to exercise the Special Retraction Right, the shares must be surrendered for retraction on or prior to 5:00 p.m. (Toronto time) on June 15, 2018.
There was shareholder approval for the previous extension in 2011, but a change of terms means that the directors have discretion now. The 2011 extension was met with massive exercise of the Special Retraction Right.
Time has been good to the fund and the NAVPU is 14.36 as of June 7, compared to a mere 10.58 in June 2011, so the decision on whether or not to retract is more difficult than it was then.
Historical performance of the fund, as reported by management in the 2017 Annual Report isn’t anything to write home about:
| (In Canadian Dollars unless otherwise noted) | One Year | Three Years | Five Years | Ten Years |
| World Financial Split Corp. | 12.12 % | 6.21 % | 10.45 % | 1.50 % |
| World Financial Split Corp. – Preferred Share | 5.35 % | 5.35 % | 5.35 % | 5.36 % |
| World Financial Split Corp. – Class A | 29.65 % | 7.32 % | 36.46 % | (10.16)% |
| MSCI World/Financials Index(1) | 14.94 % | 13.53 % | 17.77 % | 4.53 % |
| MSCI World/Financials Index(1) (US$) | 23.41 % | 10.70 % | 12.47 % | 2.11 % |
| (1) The MSCI World/Financials Index is a capitalization-weighted index that monitors the performance of financial stocks from around the world. | ||||
On the one hand, the NAVPU of 14.36 isn’t very good; it’s below the Asset Coverage of 1.5:1 that I like to see when making recommendations and the volatility of global financial common shares also dampens my enthusiasm. All in all, I’d say investors can do better elsewhere in the endless struggle between risk and return – given that the issue is trading very close to par, the decision regarding whether to sell on the market or retract will be dependent upon convenience, transaction charges at your brokerage, market depth and settlement details. Don’t forget the final dividend in your calculations!
[…] was last extended in 2018. The 2011 extension resulted in a massive […]