Click for Big
I was discussing investment planning recently and after that discussion became interested in a casual check of Shen’s paper published by the Kansas City Fed, which I highlighted long ago.
I was particularly interested in checking the 20-year return differential between stocks and bonds in the light of his Chart 4, which basically shows that if you’re looking at a twenty-year holding period, then 100% stocks is the way to go.
Click for Big
So, I got to wondering … how about the last twenty years? I mean, sure the market’s done very well over the past few years, but since 1998 we’ve had both the Tech Wreck and the Credit Crunch … so did the rule of thumb triumph or fail?
Looking for long-term results on the web can be a hellish experience, but I found what looks to be a good source … there’s a blog called DQYDJ (Don’t Quit Your Day Job) that has an S&P 500 calculator that knows about dividends, as well as a (ten year) Treasury calculator
Results? S&P 500, +6.104% annualized with dividends reinvested. 10-Year Treasury, +3.640% annualized with coupons reinvested. So equities – and the rule of thumb – win. I just wish someone would do this for Canada …
The penny-wise, pound-foolish, unaffordable premier of Ontario has done it again … S&P has put Hydro One on Outlook Negative:
- •The Washington Utilities and Transportation Commission (WUTC) has denied the merger petition between Hydro One Ltd. (HOL) and Avista Corp.
- •The WUTC’s decision, in our view, significantly increases the likelihood that the transaction will not close as expected, reducing the possibility of an imminent ratings downgrade on HOL.
- •However, in our assessment, the WUTC’s decision weakens HOL’s ability to track, adjust, and control the execution of its strategy, and raises broader concerns regarding HOL’s governance and strategic direction as it seeks a permanent CEO.
- •S&P Global Ratings affirmed its ‘A-‘ issuer credit ratings on HOL and subsidiary Hydro One Inc. (HOI) and removed the ratings from CreditWatch, where they were placed with negative implications on June 15, 2018. The outlook on both entities is negative.
- •We also affirmed our issue-level ratings on HOI, including the ‘A-‘ rating on its senior unsecured debt, and the ‘A-2’ global and ‘A-1 (LOW)’ Canadian National Scale ratings on its commercial paper program. We removed the ratings from CreditWatch with negative implications.
- •The negative outlooks reflect uncertainty about HOL’s ability to convert its strategy into constructive actions that support the company’s financial performance. In addition, the negative outlook incorporates broader concerns related to HOL’s governance, uncertainty regarding the company’s strategic direction, and our revised base-case assumption that the Avista transaction is unlikely to close as expected, the effect of which results in weaker stand-alone financial measures for HOL through 2019.
How did my party, the party of quiet businesslike competence, the party of Bill Davis, get taken over by buffoons, careerists and fearful bigots? And, more importantly, why are these turds costing me so much money?
Speaking of losing money, the Canadian Preferred Share market got hammered again today.
TXPR closed at 618.77, down 1.07% from Friday‘s close, but still comfortably above the 52-week low of 609.77 set on December 6. Volume was on the high side, but nothing extraordinary in the context of the last thirty days. Mind you, there was a huge number of issues trading more than 10,000 shares – the two observations taken together suggest to me that there is a lot of retail action but not much institutional.
CPD closed at 12.42, down 0.64% from Friday’s close, but still above the 52-week low of 12.11 touched on December 6. Volume of 204,412 was nothing special in the context of the past thirty days.
ZPR closed at 10.06, down 1.08% since Friday, but still well above the 52-week low of 9.80 reached on December 6. Volume of 389,094 was high but not out of line with the past thirty days.
| 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 | -0.6423 % | 2,470.0 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.6423 % | 4,532.4 |
| Floater | 4.70 % | 5.03 % | 40,508 | 15.35 | 4 | -0.6423 % | 2,612.0 |
| OpRet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0352 % | 3,150.2 |
| SplitShare | 4.67 % | 5.49 % | 89,394 | 4.61 | 7 | 0.0352 % | 3,762.0 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0352 % | 2,935.3 |
| Perpetual-Premium | 5.59 % | 6.04 % | 140,597 | 13.78 | 2 | -0.3963 % | 2,858.2 |
| Perpetual-Discount | 5.75 % | 5.94 % | 72,534 | 13.90 | 33 | 0.0605 % | 2,865.6 |
| FixedReset Disc | 5.17 % | 5.76 % | 189,405 | 14.39 | 66 | -1.2075 % | 2,167.1 |
| Deemed-Retractible | 5.53 % | 7.61 % | 98,744 | 5.15 | 27 | 0.0267 % | 2,859.6 |
| FloatingReset | 4.09 % | 4.92 % | 39,404 | 2.98 | 7 | -0.9836 % | 2,464.5 |
| FixedReset Prem | 5.20 % | 4.70 % | 294,738 | 2.30 | 14 | -0.4006 % | 2,486.7 |
| FixedReset Bank Non | 3.00 % | 4.43 % | 134,113 | 2.94 | 6 | -0.2143 % | 2,550.9 |
| FixedReset Ins Non | 5.05 % | 8.53 % | 137,592 | 5.21 | 22 | -0.9425 % | 2,208.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| EMA.PR.H | FixedReset Disc | -3.62 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 22.52 Evaluated at bid price : 23.42 Bid-YTW : 5.23 % |
| TD.PF.I | FixedReset Disc | -3.47 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 21.88 Evaluated at bid price : 22.26 Bid-YTW : 5.55 % |
| SLF.PR.G | FixedReset Ins Non | -3.23 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.59 Bid-YTW : 11.91 % |
| BAM.PF.G | FixedReset Disc | -2.98 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 18.89 Evaluated at bid price : 18.89 Bid-YTW : 6.50 % |
| MFC.PR.F | FixedReset Ins Non | -2.93 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 14.60 Bid-YTW : 12.86 % |
| SLF.PR.J | FloatingReset | -2.92 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.63 Bid-YTW : 11.76 % |
| PWF.PR.Q | FloatingReset | -2.82 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 16.91 Evaluated at bid price : 16.91 Bid-YTW : 4.84 % |
| PWF.PR.A | Floater | -2.73 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 17.45 Evaluated at bid price : 17.45 Bid-YTW : 3.99 % |
| IFC.PR.G | FixedReset Ins Non | -2.67 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.44 Bid-YTW : 9.00 % |
| BIP.PR.B | FixedReset Disc | -2.39 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2020-12-31 Maturity Price : 25.00 Evaluated at bid price : 24.55 Bid-YTW : 6.32 % |
| BAM.PR.C | Floater | -2.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 13.47 Evaluated at bid price : 13.47 Bid-YTW : 5.22 % |
| BAM.PR.X | FixedReset Disc | -2.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 14.90 Evaluated at bid price : 14.90 Bid-YTW : 6.09 % |
| GWO.PR.N | FixedReset Ins Non | -2.28 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 15.00 Bid-YTW : 12.37 % |
| BIP.PR.E | FixedReset Disc | -2.26 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 20.33 Evaluated at bid price : 20.33 Bid-YTW : 6.17 % |
| MFC.PR.Q | FixedReset Ins Non | -2.16 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.95 Bid-YTW : 9.05 % |
| BMO.PR.Y | FixedReset Disc | -2.15 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 20.45 Evaluated at bid price : 20.45 Bid-YTW : 5.70 % |
| NA.PR.S | FixedReset Disc | -2.14 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.25 Evaluated at bid price : 19.25 Bid-YTW : 5.77 % |
| NA.PR.W | FixedReset Disc | -2.13 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 18.35 Evaluated at bid price : 18.35 Bid-YTW : 5.83 % |
| BIP.PR.F | FixedReset Disc | -2.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 21.26 Evaluated at bid price : 21.26 Bid-YTW : 6.02 % |
| TRP.PR.C | FixedReset Disc | -2.02 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 13.58 Evaluated at bid price : 13.58 Bid-YTW : 6.29 % |
| NA.PR.G | FixedReset Disc | -2.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 21.64 Evaluated at bid price : 22.00 Bid-YTW : 5.52 % |
| EMA.PR.F | FixedReset Disc | -1.94 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 18.20 Evaluated at bid price : 18.20 Bid-YTW : 6.40 % |
| BAM.PF.A | FixedReset Disc | -1.92 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.96 Evaluated at bid price : 19.96 Bid-YTW : 6.34 % |
| MFC.PR.R | FixedReset Ins Non | -1.90 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.70 Bid-YTW : 6.34 % |
| TRP.PR.A | FixedReset Disc | -1.90 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 15.46 Evaluated at bid price : 15.46 Bid-YTW : 6.30 % |
| PWF.PR.T | FixedReset Disc | -1.81 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 20.62 Evaluated at bid price : 20.62 Bid-YTW : 5.37 % |
| BMO.PR.S | FixedReset Disc | -1.79 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.77 Evaluated at bid price : 19.77 Bid-YTW : 5.52 % |
| NA.PR.E | FixedReset Disc | -1.78 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.84 Evaluated at bid price : 19.84 Bid-YTW : 5.85 % |
| TD.PF.C | FixedReset Disc | -1.77 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.45 Evaluated at bid price : 19.45 Bid-YTW : 5.50 % |
| BMO.PR.T | FixedReset Disc | -1.61 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.50 Evaluated at bid price : 19.50 Bid-YTW : 5.47 % |
| TRP.PR.E | FixedReset Disc | -1.58 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 17.39 Evaluated at bid price : 17.39 Bid-YTW : 6.34 % |
| BIP.PR.C | FixedReset Disc | -1.57 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2021-09-30 Maturity Price : 25.00 Evaluated at bid price : 24.41 Bid-YTW : 6.20 % |
| PWF.PR.F | Perpetual-Discount | -1.57 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 21.76 Evaluated at bid price : 22.01 Bid-YTW : 6.04 % |
| BMO.PR.E | FixedReset Disc | -1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 21.98 Evaluated at bid price : 22.50 Bid-YTW : 5.34 % |
| HSE.PR.C | FixedReset Disc | -1.53 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.32 Evaluated at bid price : 19.32 Bid-YTW : 6.60 % |
| MFC.PR.G | FixedReset Ins Non | -1.52 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 20.13 Bid-YTW : 8.53 % |
| PWF.PR.P | FixedReset Disc | -1.44 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 15.10 Evaluated at bid price : 15.10 Bid-YTW : 5.76 % |
| TRP.PR.D | FixedReset Disc | -1.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 17.20 Evaluated at bid price : 17.20 Bid-YTW : 6.46 % |
| W.PR.J | Perpetual-Discount | -1.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 23.48 Evaluated at bid price : 23.75 Bid-YTW : 5.99 % |
| CM.PR.O | FixedReset Disc | -1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.36 Evaluated at bid price : 19.36 Bid-YTW : 5.63 % |
| TRP.PR.F | FloatingReset | -1.32 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 15.75 Evaluated at bid price : 15.75 Bid-YTW : 5.65 % |
| BMO.PR.W | FixedReset Disc | -1.31 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.59 Evaluated at bid price : 19.59 Bid-YTW : 5.41 % |
| MFC.PR.N | FixedReset Ins Non | -1.27 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.61 Bid-YTW : 9.87 % |
| BMO.PR.D | FixedReset Disc | -1.27 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 22.12 Evaluated at bid price : 22.61 Bid-YTW : 5.56 % |
| VNR.PR.A | FixedReset Disc | -1.24 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 20.75 Evaluated at bid price : 20.75 Bid-YTW : 5.84 % |
| TD.PF.E | FixedReset Disc | -1.19 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 21.35 Evaluated at bid price : 21.66 Bid-YTW : 5.53 % |
| RY.PR.S | FixedReset Disc | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 21.45 Evaluated at bid price : 21.75 Bid-YTW : 5.23 % |
| BAM.PF.B | FixedReset Disc | -1.18 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 18.50 Evaluated at bid price : 18.50 Bid-YTW : 6.38 % |
| TRP.PR.B | FixedReset Disc | -1.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 12.75 Evaluated at bid price : 12.75 Bid-YTW : 6.25 % |
| RY.PR.J | FixedReset Disc | -1.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 21.30 Evaluated at bid price : 21.30 Bid-YTW : 5.51 % |
| TD.PF.B | FixedReset Disc | -1.16 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.66 Evaluated at bid price : 19.66 Bid-YTW : 5.49 % |
| TD.PF.K | FixedReset Disc | -1.12 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 21.75 Evaluated at bid price : 22.15 Bid-YTW : 5.33 % |
| HSE.PR.G | FixedReset Disc | -1.07 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 20.43 Evaluated at bid price : 20.43 Bid-YTW : 6.68 % |
| HSE.PR.A | FixedReset Disc | -1.06 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 13.08 Evaluated at bid price : 13.08 Bid-YTW : 6.79 % |
| TRP.PR.G | FixedReset Disc | -1.05 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 18.91 Evaluated at bid price : 18.91 Bid-YTW : 6.43 % |
| CM.PR.Q | FixedReset Disc | -1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 20.91 Evaluated at bid price : 20.91 Bid-YTW : 5.64 % |
| BAM.PF.F | FixedReset Disc | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.30 Evaluated at bid price : 19.30 Bid-YTW : 6.41 % |
| MFC.PR.L | FixedReset Ins Non | -1.03 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 18.34 Bid-YTW : 10.10 % |
| BIP.PR.A | FixedReset Disc | -1.00 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.80 Evaluated at bid price : 19.80 Bid-YTW : 6.92 % |
| W.PR.H | Perpetual-Discount | 1.01 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 23.87 Evaluated at bid price : 24.12 Bid-YTW : 5.79 % |
| BMO.PR.Z | Perpetual-Discount | 1.10 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 24.26 Evaluated at bid price : 24.75 Bid-YTW : 5.07 % |
| CU.PR.D | Perpetual-Discount | 1.30 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 21.80 Evaluated at bid price : 21.80 Bid-YTW : 5.67 % |
| CU.PR.G | Perpetual-Discount | 1.39 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.75 Evaluated at bid price : 19.75 Bid-YTW : 5.75 % |
| IFC.PR.E | Deemed-Retractible | 1.79 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 22.75 Bid-YTW : 7.29 % |
| BAM.PR.K | Floater | 2.43 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 13.90 Evaluated at bid price : 13.90 Bid-YTW : 5.05 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BMO.PR.S | FixedReset Disc | 97,900 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.77 Evaluated at bid price : 19.77 Bid-YTW : 5.52 % |
| BIP.PR.A | FixedReset Disc | 46,950 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 19.80 Evaluated at bid price : 19.80 Bid-YTW : 6.92 % |
| PVS.PR.D | SplitShare | 45,940 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2021-10-08 Maturity Price : 25.00 Evaluated at bid price : 24.13 Bid-YTW : 5.90 % |
| BAM.PR.R | FixedReset Disc | 44,458 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2048-12-10 Maturity Price : 16.46 Evaluated at bid price : 16.46 Bid-YTW : 6.33 % |
| MFC.PR.Q | FixedReset Ins Non | 38,885 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 19.95 Bid-YTW : 9.05 % |
| MFC.PR.R | FixedReset Ins Non | 38,125 | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2025-01-31 Maturity Price : 25.00 Evaluated at bid price : 23.70 Bid-YTW : 6.34 % |
| There were 70 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| MFC.PR.O | FixedReset Ins Non | Quote: 25.43 – 25.97 Spot Rate : 0.5400 Average : 0.3393 YTW SCENARIO |
| BIP.PR.B | FixedReset Disc | Quote: 24.55 – 25.02 Spot Rate : 0.4700 Average : 0.2754 YTW SCENARIO |
| TD.PF.C | FixedReset Disc | Quote: 19.45 – 20.00 Spot Rate : 0.5500 Average : 0.4384 YTW SCENARIO |
| TRP.PR.E | FixedReset Disc | Quote: 17.39 – 17.87 Spot Rate : 0.4800 Average : 0.3810 YTW SCENARIO |
| PWF.PR.F | Perpetual-Discount | Quote: 22.01 – 22.31 Spot Rate : 0.3000 Average : 0.2188 YTW SCENARIO |
| BAM.PR.N | Perpetual-Discount | Quote: 19.23 – 19.60 Spot Rate : 0.3700 Average : 0.3015 YTW SCENARIO |
Considering that stocks have very long duration(like our perpetuals), why are stocks compared to only 10 year bonds that have significantly less duration?
Wouldn’t an apt comparison be against the long bond?
If someone bought 30 year US Treasuries in 1998 or even 1990, as indicated in this comparison, they’d be at least comparable to S&P 500….without significant drawdowns and almost zero credit risk.
So why not mention long bonds at all?
Try your exercise for Japan over the last 30 years.
I think skeptical has a good point. Also, I think of preferreds, especially the deeply discounted ones, as having an equity component i.e. they are hybrid securities. Some of that equity is liquidated every year in the form of a higher coupon, a spread, over a company’s senior bonds. And preferreds go up and down more versus senior bonds, in tandem with the common stock.
Wouldn’t an apt comparison be against the long bond?
It’s a valid point. The reason I didn’t use 30-year bonds was because that data wasn’t available.
There are also some conceptual problems: do you liquidate your bond portfolio every year and reinvest it in the new thirty-year? Or do you buy that long-bond and sit on it until maturity?
In general, I’d say a 10-year bond represents “the bond market” better than a 30-year. But, of course, whenever somebody asks me about bonds, I have to ask “which bonds?”.
With respect to the specific example I used, though, it is well to remember two things:
I) During the time frame, thirty-year treasury yields exceeded 6% for a very few months around the turn of the century. In November 1998, they were yielding only 5.25%.
ii) reinvestment of the coupon would have worked against you in a big way over the past twenty years so the realized yield would – if calculated precisely – have been significantly less than the headline figure.
All good points as usual.
I’m somewhat skeptical that the stock as a whole can continue to outperform the broader economy forever. Japan is an example. Yesterday I was reading that the UK’s FTSE has achieved exactly zero returns in the last twenty years(excluding dividends). Bonds would have outperformed then.
Low bond yields typically represent weak economic growth. Stocks need strong economic growth over the long term to perform well.
Closer home, TSX has gone nowhere in the last 10 years, excluding dividends.
In these contexts, the perpetual discounts seem very enticing. Anywhere between 5.5 to 6 per cent yield by Canada’s blue chips is a very enticing proposition. There are risks, but as compared to GIC it’s almost 2 to 2.5x the return on tax efficiency basis.
At this rate, on a tax efficient basis, with dividends reinvested at same or similar rates, you double your money in around a decade . That is absolutely wonderful!
IMHO, the perpetual discounts represent an exceptional value preposition at this point. Clearly, not many people see it, which is why this value exists…
That chart is an interesting way to demonstrate the relative potential of stocks versus bonds. I do have easy access to all of this data. Figures for Canada over the last 20 years (all dividends reinvested, returns annualized), to yesterday’s close:
S&P/TSX: 6.9%
Canada Corporate Bonds: 5.4%
Canada 7-10 yr Bond: 5.1%
Canada 15yr+: 6.1%
US 30 year over the last 20 years: 5.2%
(incidentally your 10 year number looks like the income return only, the total return of the on the run 10 year is 4.1%, but maybe also different starting and finishing dates)
I’d post the comparative chart but can’t! If I created that chart from your post with this data I’d guess the results would be pretty similar.
The long bond index is the only Canadian index competitive with the equity index, meeting or exceeding it’s return on about 4 occasions during that time(2003, 2008-2009, 2011-2013, 2015-2016. The 10 year only competes during the financial crisis.
Dividends are a pretty significant contributor to the TSX return so it’s dangerous to exclude them (unlike the us). Over the last 10 years, to yesterday the TSX is up 8.6%/yr, or 5.5% without dividends. Not too shabby, until you compare the S&P up 13.8% in USD and 14.5% in CAD over the same period.
Thanks for the data Ash. I think the general point was TSX has been essentially flat excluding dividends if we exclude the Financial Crisis dip.
If we go back to 2006, TSX excluding dividends has grown by less than 2% year. And this is during the best years of commodity price growth in the last 40 years or so. The biggest housing boom in similar time frame. And massive corporate tax cuts (from 27% to 15%) during the time frame.
So very dismal returns as a whole for the TSX.
S&P is yet to see a correction, but trees don’t grow to sky. We will witness a significant correction to these numbers in the US in the coming years.
That chart is an interesting way to demonstrate the relative potential of stocks versus bonds.
I love that chart. I can’t even begin to count how many times I’ve passed it on.
I’d post the comparative chart but can’t!
If you eMail me the chart … well, I won’t absolutely guarantee I’ll publish it, but … almost certainly!
The long bond index is the only Canadian index competitive with the equity index, meeting or exceeding it’s return on about 4 occasions during that time(2003, 2008-2009, 2011-2013, 2015-2016.
I’m not sure I understand. The return is exceeded over how long a period?