MAPF Performance: April, 2024

Malachite Aggressive Preferred Fund’s Net Asset Value per Unit as of the close April 30, 2024, was $9.7982.

Performance was affected by MFC.PR.B underperforming (following last month’s underperformance) with a -4.18% return, PWF.PR.R with a -2.67% return and MIC.PR.A underperforming with a -1.42% return. This was outweighed by good performance from RY.PR.J (+7.86%, third month of outperformance streak), BN.PR.R (+7.00%) and
TD.PF.C (+6.16%, now largely sold off, the sixth straight month of outperformance) [small holdings are not considered for individual mention here].

The last few months have been very good to preferred shareholders, following the lows of the TXPR price index on 2023-10-31, but yields remain elevated well above those available on instruments with similar risk; for instance, Brookfield Renewable Partners L.P. recently noted they are refinancing BEP.PR.O on the “green perpetual subordinated notes” market at 70bp under the presumed reset rate of BEP.PR.O.

FixedResets continue to yield more, in general, than PerpetualDiscounts although the spread has narrowed considerably; on April 30, I reported median YTWs of 7.12% and 6.83%, respectively, for these two indices; compare with mean Current Yields of 5.24% and 6.66%, respectively.

In previous commentaries, I have used RY.PR.J as a ‘representative example’ of FixedResets, but the outperformance of bank issues in recent months has been so extraordinary that the calculated yield to perpetuity of this issue is now lower than that of the PerpetualDiscount subindex, so this seems to be a good time to stop showing the comparison in such detail. I will note that as the yield spread between FixedResets and PerpetualDiscounts has narrowed, there has been less and less reason to overweight the former class in portfolios; as those who pay close attention to the MAPF Portfolio Composition: April, 2024 will notice, the proportion of Straight Perpetuals held by the fund has been increasing over the past few months.

Returns to April 30, 2024
Period MAPF TXPR*
Total Return
CPD – according to Blackrock
One Month +2.18% +1.22% N/A
Three Months +8.24% +4.86% N/A
One Year +27.73% +14.60% +13.90%
Two Years (annualized) +7.51% +3.07% N/A
Three Years (annualized) +4.76% +1.13% +0.60%
Four Years (annualized) +17.36% +8.83% N/A
Five Years (annualized) +8.36% +4.49% +3.90%
Six Years (annualized) +4.55% +2.63% N/A
Seven Years (annualized) +5.81% +2.98% N/A
Eight Years (annualized) +8.11% +4.79% N/A
Nine Years (annualized) +4.95% +2.67% N/A
Ten Years (annualized) +4.43% +2.07% +1.57%
Eleven Years (annualized) +4.15% +1.89%  
Twelve Years (annualized) +4.55% +2.16%  
Thirteen Years (annualized) +4.51% +2.40%  
Fourteen Years (annualized) +5.78% +3.18%  
Fifteen Years (annualized) +7.15% +3.73%  
Sixteen Years (annualized) +7.86% +2.97%  
Seventeen Years (annualized) +7.40%    
Eighteen Years (annualized) +7.36%    
Nineteen Years (annualized) +7.31%    
Twenty Years (annualized) +7.43%    
Twenty-One Years (annualized) +8.22%    
Twenty-Two Years (annualized) +7.92%    
Twenty-Three Years (annualized) +8.27%    
MAPF returns assume reinvestment of distributions, and are shown after expenses but before fees.
The BMO Capital Markets “50” Preferred Share Index is no longer being calculated. The final performance report incorporating this venerable index was published as of December, 2020.
“TXPR” is the S&P/TSX Preferred Share Index. It is calculated without accounting for fees, but does assume reinvestment of dividends.
CPD Returns are for the NAV and are after all fees and expenses. Reinvestment of dividends is assumed.
Figures for NBI Preferred Equity Income Fund [NBC480] (formerly Omega Preferred Equity) (which are after all fees and expenses) for 1-, 3- and 12-months are +1.58%, +5.86% and +16.64%, respectively, according to National Bank Investments after all fees & expenses. Three year performance is +1.71%; five year is +5.48%; ten year is +3.05%.

Figures from Morningstar are no longer conveniently available.

Manulife Preferred Income Class Adv has been terminated by Manulife. The performance of this fund was last reported here in March, 2018.
Figures for Horizons Active Preferred Share ETF (HPR) (which are after all fees and expenses) for 1-, 3- and 12-months are +2.01%, +6.97% & +20.15%, respectively. Three year performance is +2.75%, five-year is +6.07%, ten year is +3.17%
Figures for NBI Preferred Equity Fund [NBC410] (formerly Altamira Preferred Equity Fund) are +2.10%, +7.25% and +21.18% for one-, three- and twelve months, respectively. Three year performance is +2.44%; five-year is +5.56%; ten-year is +2.48%

Acccording to the fund’s fact sheet as of June 30, 2016, the fund’s inception date was October 30, 2015. I do not know how they justify this nonsensical statement, but will assume that prior performance is being suppressed in some perfectly legal manner that somebody at National considers ethical.

The last time Altamira Preferred Equity Fund’s performance was reported here was April, 2014; performance under the National Bank banner was first reported here May, 2014.

The figures for the NAV of BMO Laddered Preferred Share Index ETF (ZPR) is +19.33% for the past twelve months. Two year performance is +4.48%, three year is +2.55%, five year is +5.74%, ten year is +1.63%

Note that analysis of ZPR shows some doubt as to whether this fund is either "laddered" or an "index fund".

Figures for Fiera Canadian Preferred Share Class Cg Series F, (formerly Natixis Canadian Preferred Share Class Series F) (formerly NexGen Canadian Preferred Share Tax Managed Fund) are no longer available as the Fund is now the property of Canoe Financial. The last reported performance for the merged fund was May 2020.
Figures for BMO Preferred Share Fund (advisor series) according to Morningstar are +0.05%, +3.60% and +12.10% for the past one-, three- and twelve-months, respectively. Three year performance is -1.12%; five-year is +2.44%; ten-year is +0.11%.
Figures for PowerShares Canadian Preferred Share Index Class, Series F (PPS) are no longer available since the fund has been terminated. Performance was last reported for the fund to month-end, March 2023
Figures for the First Asset Preferred Share Investment Trust (PSF.UN) are no longer available since the fund has merged with First Asset Preferred Share ETF (FPR).

Performance for the fund was last reported here in September, 2016; the first report of unavailability was in October, 2016.

Figures for Lysander-Slater Preferred Share Dividend Fund (Class F) according to the company are +1.8%, +5.8% and +17.8% for the past one, three and twelve months, respectively. Three year performance is +2.7%, five-year is +4.9%.
Figures for the Desjardins Canadian Preferred Share Fund A Class (A Class), as reported by the company are +1.05%, +4.13% and +13.69% for the past one, three and twelve months, respectively. Two year performance is +2.46%, three-year is +0.42%, five-year is +3.42%
Figures for the RBC Canadian Preferred Share ETF (RPF) are reported by Morningstar as +2.39%, +6.42% and +18.33% for the past one, three and twelve months, respectively. Three-year performance is +1.52%, five-year is +4.95%
Figures for the Dynamic Active Preferred Shares ETF (DXP) are +1,3%, +5.2% and +16.9% for the past one, three and twelve months, respectively. Three-year performance is +3.7%; five-year is +7.1%
Figures for the Purpose Canadian Preferred Share Fund (Class F) are +2.40%, +7.08% and +21.61% for the past one, three and twelve months, respectively. Three-year performance is +2.81%; five-year is +6.81%; seven-year is +3.25%; ten-year is +5.30%.

The five-year Canada yield increased, with the five-year Canada yield (“GOC-5”) moving from 3.55% at March month-end to 3.85% at April month-end.

The Seniority Spread (between long-term corporate bonds and interest-equivalent PerpetualDiscounts) was 345bp on 2024-5-1 narrowing a bit from 355bp on 2024-3-27 (chart end-date 2024-4-12) :

The situation with FixedResets is interesting, with the spread between GOC-5 and the interest-adjusted FixedReset (Discount) rate widening significantly (despite recent narrowing) from its 2021-11-10 low of 344bp to a level of 512bp (as of 2024-5-1) … (chart end-date 2024-04-12):

…while at the same time the interest-equivalent spread between FixedReset (Discounts) and PerpetualDiscounts has narrowed to -15bp (as of 2024-5-1) from its 2021-7-28 level of +170bp (chart end-date 2024-04-12):

There is no significant correlation between the Issue Reset Spread and 1-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues.

There is no significant correlation between the Issue Reset Spread and 3-month performance for discounted FixedResets for either the Pfd-2 or Pfd-3 Group issues.

There are strong correlations for both the Pfd-2 Group (24%) and the Pfd-3 Group (36%) for 1-Month performance against term-to-reset:

… and we see similar behaviour for three-month returns vs. Term to Reset, with correlation for the Pfd-2 Group (40%) and the Pfd-3 Group (19%):

It should be noted that to some extent a dependence (of performance on term-to-reset) can be justified as the nearer-term issues will receive the benefit of higher projected dividend rates sooner as a result of higher GOC-5 yields and therefore, perhaps, for longer. Equations for the relationship between correlation slope and change in GOC-5 were derived in the August 2022 PrefLetter. Last month I wrote:

I ascribe the apparent correlation between term to reset and performance for Pfd-2 issues over three months to be due to the influence of bank issues; bank issues with a short term to reset have done very well recently due to a perception of a relatively high chance of redemption in the near future as financing is now available very cheaply in other markets.

… but now, with significant correlations found for both credit groups at both time-spans, I suspect that the enthusiasm for near term resets is due to expectations of higher reset rates in the near future than was previously the case.

Upwards-sloping correlations of Performance vs. Term are to be expected when GOC-5 declines.

I keep talking about ‘Sustainable Income’ and nowadays it’s far higher than the dividends that are currently being distributed. This is because Sustainable Income is the average yield-to-worst (YTW) of the portfolio when the YTW is calculated to perpetuity (or to redemption, of course, if the yield to redemption is lower), including resets at the current GOC-5 rate. The sharp increase in GOC-5 in the past year-odd has caused the difference between YTW and Current Yield to skyrocket, but one way or another I expect that these two values will become much closer – slowly at first, but quickening in about two years. We have to wait for the reset date of the MAPF portfolio securities before we see a change in actual cash receipts – and, of course, there is no guarantee whatsoever that the rate used for estimation purposes now will be used for the actual calculation in the future (chart prepared as of 2024-4-12).

I will note that the fund’s current holdings of FixedResets are now paying dividends based on their previous reset at an average GOC-5 rate of 1.59% (weighted by shares held). The jump from last month’s measurement of 1.45% is due to the fund’s significant purchases of CM.PR.S (which reset 2023-1-31, with a GOC-5 rate of 3.43%) and the reset of the fund’s holdings of TRP.PR.D (which reset 2024-4-30 with a GOC-5 rate of 3.61%). However, neither issue has yet earned a dividend at the new rates: CM.PR.S will go ex-dividend around 2024-6-27, while TRP.PR.D will have to wait until the third quarter this year with an ex-date of 2024-7-2 (declared).

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
Average
YTW
Leverage
Divisor
Securities
Average
YTW
Capital
Gains
Multiplier
Sustainable
Income
per
current
Unit
June, 2007 9.3114 5.16% 1.03 5.01% 1.3240 0.3524
September 9.1489 5.35% 0.98 5.46% 1.3240 0.3773
December, 2007 9.0070 5.53% 0.942 5.87% 1.3240 0.3993
March, 2008 8.8512 6.17% 1.047 5.89% 1.3240 0.3938
June 8.3419 6.034% 0.952 6.338% 1.3240 $0.3993
September 8.1886 7.108% 0.969 7.335% 1.3240 $0.4537
December, 2008 8.0464 9.24% 1.008 9.166% 1.3240 $0.5571
March 2009 $8.8317 8.60% 0.995 8.802% 1.3240 $0.5872
June 10.9846 7.05% 0.999 7.057% 1.3240 $0.5855
September 12.3462 6.03% 0.998 6.042% 1.3240 $0.5634
December 2009 10.5662 5.74% 0.981 5.851% 1.1141 $0.5549
March 2010 10.2497 6.03% 0.992 6.079% 1.1141 $0.5593
June 10.5770 5.96% 0.996 5.984% 1.1141 $0.5681
September 11.3901 5.43% 0.980 5.540% 1.1141 $0.5664
December 2010 10.7659 5.37% 0.993 5.408% 1.0298 $0.5654
March, 2011 11.0560 6.00% 0.994 5.964% 1.0298 $0.6403
June 11.1194 5.87% 1.018 5.976% 1.0298 $0.6453
September 10.2709 6.10%
Note
1.001 6.106% 1.0298 $0.6090
December, 2011 10.0793 5.63%
Note
1.031 5.805% 1.0000 $0.5851
March, 2012 10.3944 5.13%
Note
0.996 5.109% 1.0000 $0.5310
June 10.2151 5.32%
Note
1.012 5.384% 1.0000 $0.5500
September 10.6703 4.61%
Note
0.997 4.624% 1.0000 $0.4934
December, 2012 10.8307 4.24% 0.989 4.287% 1.0000 $0.4643
March, 2013 10.9033 3.87% 0.996 3.886% 1.0000 $0.4237
June 10.3261 4.81% 0.998 4.80% 1.0000 $0.4957
September 10.0296 5.62% 0.996 5.643% 1.0000 $0.5660
December, 2013 9.8717 6.02% 1.008 5.972% 1.0000 $0.5895
March, 2014 10.2233 5.55% 0.998 5.561% 1.0000 $0.5685
June 10.5877 5.09% 0.998 5.100% 1.0000 $0.5395
September 10.4601 5.28% 0.997 5.296% 1.0000 $0.5540
December, 2014 10.5701 4.83% 1.009 4.787% 1.0000 $0.5060
March, 2015 9.9573 4.99% 1.001 4.985% 1.0000 $0.4964
June, 2015 9.4181 5.55% 1.002 5.539% 1.0000 $0.5217
September 7.8140 6.98% 0.999 6.987% 1.0000 $0.5460
December, 2015 8.1379 6.85% 0.997 6.871% 1.0000 $0.5592
March, 2016 7.4416 7.79% 0.998 7.805% 1.0000 $0.5808
June 7.6704 7.67% 1.011 7.587% 1.0000 $0.5819
September 8.0590 7.35% 0.993 7.402% 1.0000 $0.5965
December, 2016 8.5844 7.24% 0.990 7.313% 1.0000 $0.6278
March, 2017 9.3984 6.26% 0.994 6.298% 1.0000 $0.5919
June 9.5313 6.41% 0.998 6.423% 1.0000 $0.6122
September 9.7129 6.56% 0.998 6.573% 1.0000 $0.6384
December, 2017 10.0566 6.06% 1.004 6.036% 1.0000 $0.6070
March, 2018 10.2701 6.22% 1.007 6.177% 1.0000 $0.6344
June 10.2518 6.22% 0.995 6.251% 1.0000 $0.6408
September 10.2965 6.62% 1.018 6.503% 1.0000 $0.6696
December, 2018 8.6875 7.16% 0.997 7.182% 1.0000 $0.6240
March, 2019 8.4778 7.09% 1.007 7.041% 1.0000 $0.5969
June 8.0896 7.33% 0.996 7.359% 1.0000 $0.5953
September 7.7948 7.96% 0.998 7.976% 1.0000 $0.6217
December, 2019 8.0900 6.03% 0.995 6.060% 1.0000 $0.4903
March 5.5596 7.04% 1.006 6.998% 1.0000 $0.3891
June 6.3568 6.10% 0.9900 6.162% 1.0000 $0.3917
September 7.2852 5.32% 1.00 5.320% 1.0000 $0.3876
December, 2020 8.3947 4.46% 0.999 4.464% 1.0000 $0.3747
March, 2021 9.6473 4.48% 0.996 4.498% 1.0000 $0.4339
June 10.3712 3.92% 0.985 3.980% 1.0000 $0.4127
September 10.7572 4.08% 1.017 4.012% 1.0000 $0.4316
December, 2021 10.7432 4.31% 0.999 4.314% 1.0000 $0.4635
March, 2022 10.5040 5.53% 1.004 5.508% 1.0000 $0.5786
June 9.3115 7.04% 0.993 7.090% 1.0000 $0.6672
September 8.4093 8.10% 0.997 8.124% 1.0000 $0.6916
December, 2022 7.9921 8.47% 0.996 8.504% 1.0000 $0.6796
March, 2023 8.0788 7.90% 0.997 7.924% 1.0000 $0.6401
June 30 8.0197 9.19% 1.003 9.163% 1.0000 $0.7348
September 29 7.9922 9.86% 0.997 9.890% 1.0000 $0.7904
Decenber 29, 2023 8.4715 8.14% 1.002 8.124% 1.0000 $0.6882
March 28,2024 9.5892 7.60% 1.006 7.555% 1.0000 $0.7244
April 30, 2024 9.7982 7.60% 0.988 7.743% 1.0000 $0.7587
NAVPU is shown after quarterly distributions of dividend income and annual distribution of capital gains.
Portfolio YTW includes cash (or margin borrowing), with an assumed interest rate of 0.00%
The Leverage Divisor indicates the level of cash in the account: if the portfolio is 1% in cash, the Leverage Divisor will be 0.99
Securities YTW divides “Portfolio YTW” by the “Leverage Divisor” to show the average YTW on the securities held; this assumes that the cash is invested in (or raised from) all securities held, in proportion to their holdings.
The Capital Gains Multiplier adjusts for the effects of Capital Gains Dividends. On 2009-12-31, there was a capital gains distribution of $1.989262 which is assumed for this purpose to have been reinvested at the final price of $10.5662. Thus, a holder of one unit pre-distribution would have held 1.1883 units post-distribution; the CG Multiplier reflects this to make the time-series comparable. Note that Dividend Distributions are not assumed to be reinvested.
Sustainable Income is the resultant estimate of the fund’s dividend income per current unit, before fees and expenses. Note that a “current unit” includes reinvestment of prior capital gains; a unitholder would have had the calculated sustainable income with only, say, 0.9 units in the past which, with reinvestment of capital gains, would become 1.0 current units.
DeemedRetractibles are 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 (definition refined in May, 2011). These issues are analyzed as if their prospectuses included a requirement to redeem at par on or prior to 2022-1-31 (banks) or the Deemed Maturity date for insurers and insurance holding companies (see below)), in addition to the call schedule explicitly defined. See the Deemed Retractible Review: September 2016 for the rationale behind this analysis.

The same reasoning is also applied to FixedResets from these issuers, other than explicitly defined NVCC from banks.

In November, 2019, the assumption of DeemedRetraction for insurance issues was cancelled in the wake of the IAIS decision included in ICS 2.0. This resulted in a large drop in the yield calculated for these issues

The Deemed Maturity date for insurers was set at 2022-1-31 at the commencement of the process in February, 2011. It was extended to 2025-1-31 in April, 2013 and to 2030-1-31 in December, 2018. In November, 2019, the assumption of DeemedRetraction was cancelled in the wake of the IAIS decision included in ICS 2.0.
Yields for September, 2011, to January, 2012, were calculated by imposing a cap of 10% on the yields of YLO issues held, in order to avoid their extremely high calculated yields distorting the calculation and to reflect the uncertainty in the marketplace that these yields will be realized. From February to September 2012, yields on these issues have been set to zero. All YLO issues held were sold in October 2012.

These calculations were performed assuming constant contemporary GOC-5 and 3-Month Bill rates, as follows:

Canada Yields Assumed in Calculations
Month-end GOC-5 3-Month Bill
September, 2015 0.78% 0.40%
December, 2015 0.71% 0.46%
March, 2016 0.70% 0.44%
June 0.57% 0.47%
September 0.58% 0.53%
December, 2016 1.16% 0.47%
March, 2017 1.08% 0.55%
June 1.35% 0.69%
September 1.79% 0.97%
December, 2017 1.83% 1.00%
March, 2018 2.06% 1.08%
June 1.95% 1.22%
September 2.33% 1.55%
December, 2018 1.88% 1.65%
March, 2019 1.46% 1.66%
June 1.34% 1.66%
September 1.41% 1.66%
December, 2019 1.68% 1.68%
March, 2020 0.57% 0.21%
June 0.37% 0.21%
September 0.35% 0.14%
December, 2020 0.42% 0.08%
March, 2021 0.94% 0.09%
June 0.93% 0.13%
September 1.07% 0.13%
December, 2021 1.31% 0.16%
March, 2022 2.44% 0.53%
June 3.24% 2.11%
September 3.45% 3.60%
December, 2022 3.37% 4.35%
March, 2023 2.93% 4.44%
June 3.74% 5.00%
September 4.31% 5.21%
December, 2023 3.21% 5.13%
March, 2024 3.55% 5.06%
April, 2024 3.85% 5.03%

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