PrefBlog

Performance of the HIMI Indices for June was:

… which is at least a little bit more cheerful than the results in May. 

The Claymore Preferred ETF (CPD) may be viewed, with caution, as a proxy for the S&P/TSX Preferred Share Index. Caution is required due to tracking error – the ETF will deliver performance according to what it actually holds and how well it is able to do things like reinvest its dividends, which is not the same thing as an index return. The fund’s NAV will be reported after MER of 0.45% p.a. Be that as it may, the NAV return for CPD has been calculated elsewhere to be -1.40%, after accounting for all its fees & expenses.

It’s a little difficult to get a handle on the size of this ETF … according to the Toronto Exchange, there are 500,000 “plain” units outstanding and 100,000 “advisor class” (CPD.A). However, the Claymore site claims more: 1.3-million “plain” and 0.1-million “advisor”.

Diversified Preferred Share Trust (DPS.UN) is the main competitor of CPD. It doesn’t publish month-end NAVs, but calculations indicate that it probably marginally outperformed CPD – by about 7 basis points.

Look for huge gains in the Fixed-Floater and Ratchet indices (note that the indices are presented prior to the June month-end rebalancing) over the next month – these are dominated by BCE issues, which are currently the subject of an extremely rich takeover bid. Sadly, there is probably no way to take advantage of this, since the issues may be confidently expected to be bid well above their June 29 closing quotations at the opening on Tuesday morning. While there might be a discount to the price Teachers’ is bidding, attempting to take advantage of this spread will constitute “risk-arbitrage” and – in the absence of insider information, I will suggest that the “risk” will highly outweigh the “arbitrage” if a position is taken.

I will admit to being puzzled by the poor performance of the Interest-Bearing Index, also shown prior to its rebalancing. Note that BAM.PR.T is about to be called, but look at the pre-tax bid-YTWs available for BSD.PR.A and FIG.PR.A! As of June 22 the former had an asset coverage ratio of 1.97:1 (the June month-end distribution will have reduced this a bit, but not much) and a DBRS rating of Pfd-2. As of June 28, the latter had asset coverage of 2.58:1 (and has already accounted for the second quarter distribution), while also being rated Pfd-2. It (FIG.PR.A) remains under review with developing indications (“pending the resolution of their respective reorganization and amalgamation plans, which are expected to occur shortly”) but that reorganization settled months ago … DBRS seems to be dragging its feet a little!

Anyway, look at the credit and the yields available on these things! Remember that the yields will be realized largely as interest income, but really! I won’t suggest that anybody mortgage their house to pile into these investments, but how many people have worse credits yielding less in their RRSPs? Come on – stick your hands up!

This entry was posted on Sunday, July 1st, 2007 at 12:43 pm and is filed under Index Construction / Reporting. 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.