MAPF Portfolio Composition: January 2009

Trading was relatively heavy in January, with portfolio turnover of about 120%, as the late-December rally continued for the first half of the month and then settled in for a more traditional grind. The market was also affected by heavy issuance of Fixed-Resets, many of which had their issue sizes bumped upwards to meet investor demand. These Fixed-Reset issues seem to have found a new level for the initial fixed rate: 6.25% which is much more interesting than the 5.00% of last year. While still rather expensive as a class, the newer issues are at the point where they are becoming competitive with straight perpetuals.

Trades were, as ever, triggered by a desire to exploit transient mispricing in the preferred share market (which may the thought of as “selling liquidity”), rather than any particular view being taken on market direction, sectoral performance or credit anticipation.

MAPF Sectoral Analysis 2009-1-30
HIMI Indices Sector Weighting YTW ModDur
Ratchet 0% N/A N/A
FixFloat 9.9% (+0.7) 6.95% 13.87
Floater 0% N/A N/A
OpRet 0% N/A N/A
SplitShare 12.2% (-20.8) 14.89% 6.32
Interest Rearing 0% N/A N/A
PerpetualPremium 0.0% (0) N/A N/A
PerpetualDiscount 71.5% (+12.9) 7.28% 12.27
Fixed-Reset 7.2%% (+7.2) 6.34% 13.45
Cash -0.8% (0) 0.00% 0.00
Total 100% 8.17% 11.82
Totals and changes will not add precisely due to rounding. Bracketted figures represent change from December month-end. Cash is included in totals with duration and yield both equal to zero.

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.

Positions held in the split-share corporations WFS.PR.A and FTN.PR.A were tendered for their monthly retraction in mid-December and retraction proceeds were received in mid-January. The retraction was highly profitable.

The fund’s closing position in the Fixed-Reset BNS.PR.X arrived by a circuitous route:

Post-Mortem on BNS.PR.X Purchase
Dec. 31 N/A N/A N/A 19.62 18.51
Jan. 14     Bought
Jan. 21   Bought
Jan. 30 Bought
Closing Bid
Jan. 30
24.90 25.02 24.90 21.35 19.60
None None None None None

Perhaps not the most profitable sequence of trades ever presented on this website, but they did a reasonable job of protecting the capital gains earned at mid-month! It should be noted that HIMIPref™ works by comparing like securities to like and is very cautious when swapping between classes … the impetus of initial trade was only partially direct analysis that NA.PR.O was more attractive than BMO.PR.K & BMO.PR.L; a major driving force of the trade was that the NA issue when taken relative to other fixed-resets was more attractive than the BMO issues relative to other PerpetualDiscounts.

Credit distribution is:

MAPF Credit Analysis 2009-1-30
DBRS Rating Weighting
Pfd-1 60.4% (+4.3)
Pfd-1(low) 6.1% (+3.0)
Pfd-2(high) 9.3% (+9.3)
0.4 (-10.9)
24.6 (-5.8)
Cash -0.8% (0)
Totals will not add precisely due to rounding. Bracketted figures represent change from December month-end.

The fund does not set any targets for overall credit quality; trades are executed one by one. Variances in overall credit will be constant as opportunistic trades are executed. The overall credit quality of the portfolio is now superior to the credit quality of CPD at August month-end.

The lowest rated issues in the portfolio are BCE.PR.I and BNA.PR.C. The latter issue is an entirely reasonable credit; a split share secured by shares of BAM.A with asset coverage that continues to be about 1.8:1.

Liquidity Distribution is:

MAPF Liquidity Analysis 2009-1-30
Average Daily Trading Weighting
<$50,000 0.5% (-0.1)
$50,000 – $100,000 13.5% (+3.0)
$100,000 – $200,000
39.9% (-2.7)
$200,000 – $300,000 20.4% (+10.1)
>$300,000 26.5% (+9.6)
Cash -0.8% (0)
Totals will not add precisely due to rounding. Bracketted figures represent change from December month-end.

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. A “unit trust” is like a regular mutual fund, but is sold by offering memorandum rather than prospectus. This is cheaper, but means subscription is restricted to “accredited investors” (as defined by the Ontario Securities Commission) and those who subscribe for $150,000+. Fund past performances are not a guarantee of future performance. You can lose money investing in MAPF or any other fund.

A similar portfolio composition analysis has been performed on The Claymore Preferred Share ETF (symbol CPD) as of August 29. When comparing CPD and MAPF:

  • MAPF credit quality is better
  • MAPF liquidity is higher
  • MAPF Yield is higher
  • Weightings in
    • PerpetualDiscounts is similar
    • MAPF is much less exposed to Operating Retractibles
    • MAPF is more exposed to SplitShares
    • FixFloat / Floater / Ratchet is similar
    • MAPF is slightly less exposed to Fixed-Resets

2 Responses to “MAPF Portfolio Composition: January 2009”

  1. […] discussed in the post MAPF Portfolio Composition: January 2009, the fund has positions in splitShares, which complicate the calculation greatly. Since the yield […]

  2. […] By and large, Mr. Critchley’s attitude towards the structure has become more cautionary as the terms of new issues have improved! I consider the recent spate of new issues to be somewhat rich compared to PerpetualDiscounts, but to a much smaller degree than they were a year ago. In fact, there is now enough overlap between the more expensive PerpetualDiscounts and the cheaper FixedResets that the fund I manage has taken some opportunistic positions in Fixed Resets, as disclosed in the portfolio composition review for January 2009. […]

Leave a Reply

You must be logged in to post a comment.