Turnover exploded to 24% in October, fuelled by market action following the September announcement of the surprise redemption of TD.PF.K, reinforced by a seeiming overall view that interest rates were on the rise (although I remain bewildered as to why this should have such an effect on FixedResets) and, on the last day of the month, a big rise in the market that may have been simply reinvestment of the TD.PF.K redemption proceeds, but which events in the first three days of November suggest might have marked a turn of the tide – at least for a week or two, anyway!
Sectoral distribution of the MAPF portfolio on October 31, 2023, were:
| MAPF Sectoral Analysis 2023-10-31 | ||||
| HIMI Indices Sector | Weighting | YTW | ModDur | |
| Ratchet | 0% | N/A | N/A | |
| FixFloat | 0% | N/A | N/A | |
| Floater | 0% | N/A | N/A | |
| OpRet | 0% | N/A | N/A | |
| SplitShare | 0% | N/A | N/A | |
| Interest Rearing | 0% | N/A | N/A | |
| PerpetualPremium | 0% | N/A | N/A | |
| PerpetualDiscount | 0% | N/A | N/A | |
| Fixed-Reset Discount | 64.1% | 10.08% | 10.03 | |
| Insurance – Straight | 4.7% | 7.07% | 12.41 | |
| FloatingReset | 0% | N/A | N/A | |
| FixedReset Premium | 0% | N/A | N/A | |
| FixedReset Bank non-NVCC | 0% | N/A | N/A | |
| FixedReset Insurance non-NVCC | 7.9% | 9.23% | 10.60 | |
| Scraps – Ratchet | 0% | N/A | N/A | |
| Scraps – FixedFloater | 1.4% | 11.77% | 9.59 | |
| Scraps – Floater | 0% | N/A | N/A | |
| Scraps – OpRet | 0% | N/A | N/A | |
| Scraps – SplitShare | 0% | N/A | N/A | |
| Scraps – PerpPrem | 0% | N/A | N/A | |
| Scraps – PerpDisc | 4.8% | 8.84% | 10.51 | |
| Scraps – FR Discount | 16.5% | 12.35% | 8.65 | |
| Scraps – Insurance Straight | 0% | N/A | N/A | |
| Scraps – FloatingReset | 0% | N/A | N/A | |
| Scraps – FR Premium | 0% | N/A | N/A | |
| Scraps – Bank non-NVCC | 0% | N/A | N/A | |
| Scraps – Ins non-NVCC | 0% | N/A | N/A | |
| Cash | +0.6% | 0.00% | 0.00 | |
| Total | 100% | 10.15% | 9.92 | |
| Totals and changes will not add precisely due to rounding. Cash is included in totals with duration and yield both equal to zero. | ||||
| The various “Scraps” indices include issues with a DBRS rating of Pfd-3(high) or lower and issues with an Average Trading Value (calculated with HIMIPref™ methodology, which is relatively complex) of less than $25,000. The issues considered “Scraps” are subdivided into indices which reflect those of the main indices. | ||||
| DeemedRetractibles were comprised of all Straight Perpetuals (both PerpetualDiscount and PerpetualPremium) issued by BMO, BNS, CM, ELF, GWO, HSB, IAG, MFC, NA, RY, SLF and TD, which are not exchangable into common at the option of the company or the regulator. These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 in the case of banks or normally in the case of insurers and insurance holding companies, in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis and IAIS Says No To DeemedRetractions for the recent change in policy with respect to insurers.
Note that the estimate for the time this will become effective for insurers and insurance holding companies was extended by three years in April 2013, due to the delays in OSFI’s providing clarity on the issue and by a further five years in December, 2018; the estimate was eliminated in November. However, the distinctions are being kept because it is useful to distinguish insurance issues from others. The name of this subindex has been changed to “Insurance Straight” as of November, 2020 |
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| Calculations of yield and related attributes of resettable instruments are performed assuming a constant GOC-5 rate of 4.16%, a constant 3-Month Bill rate of 5.15% and a constant Canada Prime Rate of 7.20% | ||||
The “total” reflects the un-leveraged total portfolio (i.e., cash is included in the portfolio calculations and is deemed to have a duration and yield of 0.00.). MAPF will often have relatively large cash balances, both credit and debit, to facilitate trading. Figures presented in the table have been rounded to the indicated precision.
Credit distribution is:
| MAPF Credit Analysis 2023-10-31 | ||
| DBRS Rating | MAPF Weighting | |
| Pfd-1 | 0 | |
| Pfd-1(low) | 0 | |
| Pfd-2(high) | 45.9% | |
| Pfd-2 | 19.3% | |
| Pfd-2(low) | 16.4% | |
| Pfd-3(high) | 13.0% | |
| Pfd-3 | 1.4% | |
| Pfd-3(low) | 3.3% | |
| Pfd-4(high) | 0.3% | |
| Pfd-4 | 0% | |
| Pfd-4(low) | 0% | |
| Pfd-5(high) | 0% | |
| Pfd-5 | 0% | |
| Cash | +0.6% | |
| Totals will not add precisely due to rounding. | ||
| A position held in INE.PR.A is not rated by DBRS nor by S&P, but has been included as “Pfd-4(high)” in the above table on the basis of its last S&P rating of P-4(high) and its BB rating from Fitch. A “BB” rating would normally map to Pfd-3, but the company’s disdain for the two major preferred share agencies makes me nervous. | ||
Liquidity Distribution is:
| MAPF Liquidity Analysis 2023-10-31 | ||
| Average Daily Trading | MAPF Weighting | |
| <$50,000 | 16.4% | |
| $50,000 – $100,000 | 27.4% | |
| $100,000 – $200,000 | 38.1% | |
| $200,000 – $300,000 | 17.5% | |
| >$300,000 | 0% | |
| Cash | +0.6% | |
| Totals will not add precisely due to rounding. | ||
The distribution of Issue Reset Spreads is:
| Range | MAPF Weight |
| <100bp | 0% |
| 100-149bp | 1.8% |
| 150-199bp | 13.8% |
| 200-249bp | 52.4% |
| 250-299bp | 18.4% |
| 300-349bp | 1.2% |
| 350-399bp | 1.0% |
| 400-449bp | 0% |
| 450-499bp | 0% |
| 500-549bp | 0% |
| 550-599bp | 0% |
| >= 600bp | 0% |
| Undefined | 11.4% |
Distribution of Floating Rate Start Dates is shown in the table below. This is the date of the next adjustment to the dividend rate, if the issue is currently paying a fixed rate for a limited time; which in practice is successive terms of 5 years. Issues that adjust quarterly are considered “Currently Floating”.
| Range | MAPF Weight |
| Currently Floating | 0% |
| 0-1 Year | 9.2% |
| 1-2 Years | 43.2% |
| 2-3 Years | 18.7% |
| 3-4 Years | 12.4% |
| 4-5 Years | 6.3% |
| 5-6 Years | 0% |
| >6 Years | 0% |
| Not Floating Rate | 10.1% |
MAPF is, of course, Malachite Aggressive Preferred Fund, a “unit trust” managed by Hymas Investment Management Inc. Further information and links to performance, audited financials and subscription information are available the fund’s web page. The fund may be purchased directly from Hymas Investment Management. A “unit trust” is like a regular mutual fund, but are not sold with a prospectus This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission). Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.
Jim, Thanks for the notification on this potential call. I sold today.
ALSO: In regards to TRP paired Series 1 and 2, 3 and 4, 5 and 6, the odd being the Reset and the even numbered being the Floating:
What are the prospects of buying the Floating now, waiting until conversion priveledge for that series, then requesting the conversion to the Reset.
What is your experience on getting the actual numbers needed for an actual allowance by the company for conversion ointo the Reset?
You are much more experienced with the actual behavior and acuity of investors when these conversions actually are allowed by prospectus limits.
Any comments you may have on this would be appreciated. Seems the odds for a million unots doing a coversion is tough.
Thanks in advance Joel A.
Is there an advantage to buying the floating issues now over their fixed rate counterparts? They have much higher dividends, of course, but also trade at a significantly higher price. The floating rate issue and related fixed rate issue should converge to the same price by reset date as they are inter-changeable at that time. I don’t think that there are any restrictions to converting from floating to fixed rates on reset date as long as there are > 1mm fixed rate shares outstanding…at least, that is my understanding. James can confirm.
Jim, Thanks for the notification on this potential call. I sold today.
I assume you mean the post ALA.PR.E Redemption Considered
What are the prospects of buying the Floating now, waiting until conversion priveledge for that series, then requesting the conversion to the Reset.
Is there an advantage to buying the floating issues now over their fixed rate counterparts?
Sometimes!
This depends on the both the difference in dividends and the difference in price. There is a value for the average floating rate received until the Exchange Date at which these effects precisely offset. If the actual average floating rate is forecast to be higher, buy the floating rate; if the forecast is to be lower, buy the fixed rate.
The following is taken from the post IFC.PR.A, BAM.PF.J, BAM.PR.Z, BPO.PR.I : Convert or Hold?:
In the October PrefLetter I wrote:
What is your experience on getting the actual numbers needed for an actual allowance by the company for conversion ointo the Reset?
My guess is that so many people are going to want to convert to the FixedResets that there will usually be less than 1-million of the FloatingResets left behind, so that remainder will be forcibly converted.
The FloatingResets were not very popular when rates were low; now that ‘everybody knows rates are going down’, I imagine they’ll be even less popular.
I don’t think that there are any restrictions to converting from floating to fixed rates on reset date as long as there are > 1mm fixed rate shares outstanding…at least, that is my understanding.
That’s the usual condition. But always check the actual prospectus, just in case!