All indices were assigned a value of 1000.0 as of December 31, 1993.
| HIMI Index Values 1996-09-30 | |||||||
| Index | Closing Value (Total Return) | Issues | Mean Credit Quality | Median YTW | Median DTW | Median Daily Trading | Mean Current Yield |
| Ratchet | 1,407.9 | 0 | 0 | 0 | 0 | 0 | 0 |
| FixedFloater | 1,405.0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Floater | 1,325.7 | 6 | 1.65 | 4.36% | 16.4 | 76M | 4.81% |
| OpRet | 1,202.9 | 24 | 1.28 | 5.43% | 5.1 | 80M | 6.74% |
| SplitShare | 1,202.9 | 0 | 0 | 0 | 0 | 0 | 0 |
| Interest-Bearing | 1,202.9 | 0 | 0 | 0 | 0 | 0 | 0 |
| Perpetual-Premium | 1,167.7 | 5 | 1.00 | 4.41% | 1.6 | 110M | 8.01% |
| Perpetual-Discount | 1,114.8 | 0 | 0 | 0 | 0 | 0 | 0 |
Your indices perplex me. Two examples of my confusion will suffice:
1. I don’t understand, for instance, why the index values as of September 1996 are relevant.
2. I don’t understand why, for instance, the index value for perpetual-discount as of September 30, 1996 appears to be higher than the value for the same index as of yesterday (1114 versus 1060).
I have clearly misinterpreted the information you intend to convey. Could you please clarify in terms that the numerically challenged will understand. Thanks.
No worries!
1. This is a long-term project – as you can tell by the fact that it’s taken me over two months to do not quite three years from the thirteen I need to catch up to myself. Geez, at this rate I’m not going to be done by fall!
There are two reasons for undertaking this project – although there will probably be more once all the data is nicely organized and accessible, there always are.
The first reason is so that I can talk grandly about “the market” and “what the market did this month”. The BMO-Nesbitt Burns-50 Index is the only Canadian preferred share index I know; it’s proprietary to BMO; they don’t publicize it much; and there is some question in my mind as to how representative it is of “the market”. It’s not bad; it’s just not as good, in my own estimation, as what something would be if I designed something to be as good as possible in my own estimation!
The second reason is so that I can write another article about Floating Rate Issues. A number of my articles for Advisors’ Edge have focussed on FR issues and my attempts to dispell some of the mythology that surrounds them. At one point, for one of my articles, I attempted to determine from historical data just what the ideal conditions are for investment in FR Prefs. The sacrifice of many backs of envelopes has given me confidence that I know the answer, but to put these data in a form that will allow me to convince critical readers that I know the answer requires a more formal structure. Once I can plot a thirteen-year graph of perps vs. floaters vs. retractibles, say, controlled for credit and liquidity, I’ll be able to make my case. The answer will surprise many!
2. The “HIMI Preferred Indices” were indexed to 1,000.0 on 1993-12-31. The ones that I report daily with the “Market Action” reports are indexed to 1,000.0 on 2006-06-30. Once the final full-historical version catches up, the 2006-6-30-based numbers will become obsolete and of no further interest.
So, what is the answer on the FR Prefs?
Well … I guess by the time I’m ready to show all my graphs this thread will be long forgotten, so ….
Basically, you buy them at $20 and sell them at $25. The price movements have little or nothing (that I can see so far, anyway) to do with the interest rate environment or expectations or anything else.
On a very informal and approximate basis, I generated some ratios for long-term performance between perpetuals and FRs … in a declining interest rate environment, where you would expect perps to outperform like crazy, it’s the FRs, with their declining dividend payments, that are the best sector of the market.
It makes no sense to me, but then, nobody promised it would.