MAPF Performance: May, 2009

The fund performed well in another month of recovery for the preferred share market. As noted in the report of Index Performance, May 2009, Floaters did extremely well in the month – although still an underperforming sector over the past year – while solid gains were recorded in the key FixedReset and PerpetualDiscount sectors.

Fund performance was hurt by the underweighting in Floating Rate issues noted in MAPF Portfolio Composition: May 2009, as well as an underweighting in lower quality issues (which also outperformed), but these allocation hurdles were handsomely overcome by security selection and trading within the actual portfolio.

The fund’s Net Asset Value per Unit as of the close May 29 was $10.6298..

Returns to May 29, 2009
Period MAPF Index CPD
according to
One Month +8.02% +5.01% +4.00%
Three Months +23.97% +12.05% +11.90%
One Year +26.87% -5.12% -5.99%
Two Years (annualized) +14.15% -3.55%  
Three Years (annualized) +11.08% -2.05%  
Four Years (annualized) +9.59% -0.80%  
Five Years (annualized) +9.70% +0.68%  
Six Years (annualized) +11.56% +1.26%  
Seven Years (annualized) +10.82% +2.17%  
Eight Years (annualized) +11.51% +2.13%  
The Index is the BMO-CM “50”
CPD Returns are for the NAV and are after all fees and expenses.
Figures for Omega Preferred Equity (which are after all fees and expenses) for 1-, 3- and 12-months are +4.0%, +11.1% and -5.9%, respectively, according to Morningstar after all fees & expenses
Figures for Jov Leon Frazer Preferred Equity Fund (which are after all fees and expenses) for 1-, 3- and 12-months are N/A, N/A & N/A, respectively, according to Morningstar and the Globe and Mail
Figures for AIC Preferred Income Fund (which are after all fees and expenses) for 1-, 3- and 12-months are +0.9%, N/A & N/A, respectively

Returns assume reinvestment of dividends, and are shown after expenses but before fees. Past performance is not a guarantee of future performance. You can lose money investing in Malachite Aggressive Preferred Fund or any other fund. For more information, see the fund’s main page.

I am very pleased with the returns, but implore Assiduous Readers not to project this level of outperformance for the indefinite future. The past year in the preferred share market has been filled with episodes of panic and euphoria, together with many new entrants who do not appear to know what they are doing; perfect conditions for a disciplined quantitative approach. While I will continue to exert utmost efforts to outperform, it should be borne in mind that beating the index by 500bp represents a good year, and there will almost inevitably be periods of underperformance in the future.

The yields available on high quality preferred shares remain elevated, which is reflected in the current estimate of sustainable income.

Calculation of MAPF Sustainable Income Per Unit
Month NAVPU Portfolio
June, 2007 9.3114 5.16% 1.03 5.01% 0.4665
September 9.1489 5.35% 0.98 5.46% 0.4995
December, 2007 9.0070 5.53% 0.942 5.87% 0.5288
March, 2008 8.8512 6.17% 1.047 5.89% 0.5216
June 8.3419 6.034% 0.952 6.338% $0.5287
September 8.1886 7.108% 0.969 7.335% $0.6006
December, 2008 8.0464 9.24% 1.008 9.166% $0.7375
March 2009 $8.8317 8.60% 0.995 8.802% $0.7633
May 2009 10.6298 7.47% 0.994 7.515% $0.7988
NAVPU is shown after quarterly distributions.
“Portfolio YTW” includes cash (or margin borrowing), with an assumed interest rate of 0.00%
“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.
“Sustainable Income” is the resultant estimate of the fund’s dividend income per unit, before fees and expenses.

As discussed in the post MAPF Portfolio Composition: May 2009, the fund has positions in splitShares (almost all BNA.PR.C) and an operating retractible, both of which have high yields that are not sustainable: at some point they will be called or mature and the funds will have to be reinvested. Therefore, both of these positions skew the calculation upwards.. Since the yield on thes positions is higher than that of the perpetuals despite the fact that the term is limited, the sustainability of the calculated “sustainable yield” is suspect, as discussed in August, 2008.

Significant positions were also held in Fixed-Reset issues on May 29; all of which currently have their yields calculated with the presumption that they will be called by the issuers at par at the first possible opportunity.

However, if the entire portfolio except for the PerpetualDiscounts were to be sold and reinvested in these issues, the yield of the portfolio would be the 6.73% shown in the May 29 Portfolio Composition analysis (which is in excess of the 6.33% index yield on May 29). Given such reinvestment, the sustainable yield would be 10.6298 * 0.0673 = $0.7154, an increase from the $0.7016 derived by a similar calculation last month.

Different assumptions lead to different calculations, but the overall positive trend is apparent. I’m very pleased with the results! It will be noted that if there was no trading in the portfolio, one would expect the sustainable yield to be constant (before fees and expenses). The success of the fund’s trading is showing up in

  • the very good performance against the index
  • the long term increases in sustainable income per unit

As has been noted, the fund has maintained a credit quality equal to or better than the index; outperformance is due to constant exploitation of trading anomalies.

Again, there are no predictions for the future! The fund will continue to trade between issues in an attempt to exploit market gaps in liquidity, in an effort to outperform the index and keep the sustainable income per unit – however calculated! – growing.

One Response to “MAPF Performance: May, 2009”

  1. […] * CPD does not directly report its two-year returns. The figure shown is the square root of product of the current one-year return and the similar figure reported for May 2009. […]

Leave a Reply

You must be logged in to post a comment.