PrefBlog

Trading was relatively heavy in February, with portfolio turnover of about 135%, as the market showed an increasing distaste for insurers that eventually spread to banks by month-end. The huge issuance of bank Fixed-Resets ceased during the month, but MFC led the way with an issue that proved wildly popular towards month-end, followed by three bank announcements as quarterly results were unveiled.

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.

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.

The fund’s credit quality was affected by the downgrade of BCE, which did not have a great effect on its price. However, as a precautionary measure, holdings in this name were reduced by a partial swap into YPG.PR.B, an operating retractible also rated Pfd-3(high) by DBRS which is currently trading with an extraordinary yield. Both issues will be swapped into higher grade names as opportunities to do so on an attractive basis permit.

While I am not thrilled at the presence of Pfd-3(high) names in the portfolio, the total exposure and the exposure to individual names is well within reasonable limits and the credit quality of the portfolio remains higher than that of the benchmark indices.

Credit distribution is:

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 (when adjusted for the downgrade of BCE).

Claymore provides the following ratings breakdown:

Two events have occurred since the Dec. 31 calculation date of CPD’s credit quality:

• Rebalancing of TXPR index with only a slight change in quality
• Downgrade of BCE: CPD holds about 4.3% of its portfolio in BCE issues

The other event impacting MAPF’s credit quality was a wholesale move into insurers, with the fund taking positions in SLF, GWO, IAG and ELF. The trading is too “messy” to present fairly in a table (the move itself was done in pieces; after the move was made there were many opportunities to swap between issues of the same name), so I will content myself with an illustration of the yields of the most liquid CM perpetualDiscount (CM.PR.H) vs. the most liquid SLF perpetualDiscount (SLF.PR.A):

• Yields-to-Worst
• Spread

Trade details will be published with the semi-annual report to unitholders, due in July.

Liquidity Distribution is:

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

This entry was posted on Tuesday, March 3rd, 2009 at 5:17 pm and is filed under MAPF. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.