7 Responses to “December 15, 2023”

1. fsabbagh says:

   December 18, 2023 at 4:42 pm

   The preferreds have been weakening. Suspect that expected rate cuts make preferreds less attractive (FRD especially) or maybe that it is risk off time in the market.

2. fsabbagh says:

   December 18, 2023 at 4:43 pm

   Meant risk on

3. baffled says:

   December 18, 2023 at 6:50 pm

   could be due to some tax loss selling

4. niagara says:

   December 19, 2023 at 6:39 am

   “The preferreds have been weakening. Suspect that expected rate cuts make preferreds less attractive”

   Prefs have slid since early 2022 (until the recent bounce), due to significantly higher bond yields. Now prefs are weak due to expected rate cuts? So we are damned no matter what!

   I rather think that it is more related to tax loss selling as baffled notes….maybe recession concerns too….

5. Nestor says:

   December 19, 2023 at 8:03 am

   lol.. rising rates bad for prefs… falling rates bad for prefs.. lol

   lets get a grip. if there is a recession and falling rates, the perpetuals will likely go back to par, no? and all other prefs are generally priced off those? ones the reset most recently will likely benefit, ie those that have 4-5 years left ..
   those that are about to reset in the next year may suffer a bit. but, hey, isn’t that why you have a broad portfolio of prefs, with perpetuals, and ones that reset every year going out 5 years?

6. brian says:

   December 19, 2023 at 3:49 pm

   “have a broad portfolio of prefs, with perpetuals, and ones that reset every year going out 5 years”

   I’m often unsure of what portion of my pref portfolio should be in perpetuals. The consensus is that rate-resets are a better deal at the moment, but I thought I should take a deeper look at what proportions would be best, so…

   I made up a spreadsheet, with the columns being 5 year bond rates of 0%/1%/2%… up to 8%. The rows are an analysis of an individual pref, with current price & yield, guestimated future price (in say, 4 years from now) & yield, cap gain/loss, etc. etc.. The final bottom row of the spreadsheet is an annual yield, over 4 years, which combines the dividend yield and predicted cap gain/loss to give an overall net yield.
   The hardest (i.e. least reliable) part of this is obviously trying to guess what the price of the pref will be 4 years from now for each of the different 5 year bond rates. Pref prices are irrational at the best of times. In theory, the price of rate-resets shouldn’t be affected too much by current interest rates but try telling that to the markets!
   I made one spreadsheet for a rate-reset (eg. RY.pr.J) and then another one for a perpetual (eg. GWO.pr.H).
   As expected, the performance of the rate-resets suffered at very low interest rates and the performance of the perpetuals suffered at high interest rates.
   I then took the bottom line of these first two spreadsheets (overall net annual yield at each of the different 5 year bond rates) and created a third spreadsheet which combined the first two… the 0% to 8% bond rates are again columns across the top and the rows are different mixtures of the rate reset yields vs. perpetual yields (eg. 100/0 ; 75/25 ; 50/50 ; etc..
   I could now see how my portfolio ‘should’ perform across a wide variety of future interest rates, and look at various mixtures of rate-resets vs. prefs to see how different ratios would perform.
   Naturally I paid the most attention to future rates in the 1% to 4% range as those are most likely, but it was also interesting to see estimated returns at extreme future rates.
   The end result of all this was that I decided on a mixture of about 70% rate-resets and 30% perpetuals. I am giving up some of the expected outperformance of rate-resets, especially if rates stay higher, but in return I hedge against possible low returns for rate-resets at very low future interest rates and I expect to get very solid long term returns, no matter where future rates go.

   (Your own thoughts and comments are welcome!)

7. Nestor says:

   December 19, 2023 at 5:58 pm

   brain, i’ll be honest. i don’t do that much work at this. i buy James’ monthly Prefletter, and call it a day. he does all the analysis, ranks the prefs. etc. currently, i’m probably less than 30% in perpetuals. maybe half that at 15%. the rest are floaters and fixed resets. i’ve tried to spread them out over 5 years. with some floaters that have pairs, should i want to swap them. and once a month, when the Prefletter comes out, i see what James recommends and i may or may not adjust anything. i try not to over complicate this. i buy prefs basically for income. i’m not trying to squeeze every last penny out of these things.