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Index Construction / Reporting

December 2006 : The Month in Review

Index	December Total Return
Ratchet	+1.56%
FixedFloater	+0.85%
Floater	-0.21%
OpRet	+0.08%
SplitShare	+0.32%
InterestBearing	+0.99%
PerpetualPremium	+0.34%
PerpetualDiscount	+1.08%

The indices have now been rebalanced. Changes are

Ticker	From Index	To Index	Reason
PWF.PR.A	Floater	Scraps	Volume
PWF.PR.D	OpRet	Scraps	Volume
BAM.PR.I	Scraps	OpRet	Volume
SXT.PR.A	Scraps	SplitShare	Volume
RY.PR.A	PerpetualDiscount	PerpetualPremium	Price
BAM.PR.M	PerpetualDiscount	PerpetualPremium	Price
IAG.PR.A	PerpetualDiscount	PerpetualPremium	Price
RY.PR.D	–	PerpetualPremium	New Issue, 12/13
FBS.PR.B	–	SplitShares	New Issue, 12/15
FBS.PR.A	Scraps	–	Redeemed, 12/15

More details will be added to this post shortly.

Update : Notable performances in December were:

Issue	Index	Performance
TCA.PR.X	PerpetualPremium	-1.5349%
WN.PR.B	OpRet	-1.5298%
WN.PR.C	PerpetualPremium	-1.2424%
WN.PR.D	PerpetualPremium	-1.2314%
BMO.PR.G	OpRet	-1.2002%
…
BSD.PR.A	InterestBearing	+2.1407%
SLF.PR.D	PerpetualDiscount	+2.2634%
PWF.PR.K	PerpetualPremium	+2.3561%
CM.PR.G	PerpetualPremium	+2.3605%
STW.PR.A	InterestBearing	+2.4835%

Not a very pleasant month for the Weston issues, presumably due to the 9-figure charge against inventory.

Update & Bump: The rebalanced indices have been uploaded here.

Market Action

January 2, 2007

Not a good start to the new year!

There was a strange data problem with the TSX feed today … a missing line-break caused problems! The HIMIPref™ database has been updated, but there’s no time to do the daily report.

The redemptions of TA.PR.C and BAM.PR.S have been processed and reorgDataEntries processed. Now, there’s just time before I knock off to have a quick look at the interface to that !*%*#$ feed and see if I can set things up to capture a similar error in a more timely fashion next time …

Update : Mea culpa. It wasn’t the TSX’s fault – it was mine, revising the raw feed to remove the TA.PR.C redemption and not doing it right. Still … the programming has been revised so that the same problem will be caught much more efficiently and similar problems will be reported much better (to me, I mean). Just another day in the software-bulletproofing department.

Update 2007-01-04 :

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index	Mean Current Yield (at bid)	Mean YTW	Mean Average Trading Value	Mean Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	4.09%	4.09%	31,372	17.27	1	+0.0000%	1,036.2
Fixed-Floater	4.78%	3.63%	88,427	8.39	7	+0.0843%	1,039.8
Floater	4.59%	-18.56%	66,915	8.28	4	0.0899%	1,037.6
Op. Retract	4.66%	1.01%	82,278	2.05	17	-0.1087%	1,032.5
Split-Share	5.13%	1.47%	206,173	2.27	10	-0.1565%	1,041.5
Interest Bearing	6.72%	5.79%	72,617	2.40	6	+0.1486%	1,032.9
Perpetual-Premium	4.99%	3.56%	276,408	4.60	55	+0.0933%	1,054.6
Perpetual-Discount	4.49%	4.51%	812,110	16.40	3	+0.0811%	1,058.6

Another Update, 2007-01-04 :

Major Price Changes
Issue	Index	Change	Notes
ELF.PR.G	PerpetualPremium	-1.1328%
LBS.PR.A	SplitShares	-1.0092%
W.PR.H	PerpetualPremium	+1.0558%

Volume Highlights
Issue	Index	Volume	Notes
NA.PR.L	PerpetualPremium	36,000
NA.PR.K	PerpetualPremium	30,937
CM.PR.I	PerpetualPremium	18,940

There were no other “$25 p.v. equivalent” index-included issues with over 10,000 shares traded today.

Publications

Research : Split Shares

As many will have noticed, Operating Retractibles, as a group, are getting more expensive all the time. In many cases, they are trading with a negative yieldToWorst and even when these worst-case-scenarios are positive, they yield less than Canadas after tax while retaining all their corporate risk.

The preferred shares issued by split-share corporations may be of interest to many who want a retractible investment … and I’ve written an introduction to this type of preferred share:

Look for the Research Link!

The cogniscenti will have noticed that Malachite Aggressive Preferred Fund has been known to hold a lot of these.

I have uploaded portfolio evaluations for the draft HIMI Preferred Indices for December 29, 2006, for the Operating Retractible and Split Share indices.

Update 2007-11-22: See Split Share and OpRet Yields for some updated yield numbers and a fascinating discussion in the comments.

MAPF

MAPF Returns: December 2006

The monthly return for Malachite Aggressive Preferred Fund has been calculated.

The unit price as of December 29, 2006, was $9.6213 after distribution of $0.121966 Capital Gains and $0.180846 Dividends.
Returns may therefore be calculated as:

Periods Ending December 29, 2006	Return (see Note)
Month	+0.94%
Quarter	+3.32%
Year	+6.89%
Two Years (Annualized)	+6.40%
Three Years (Annualized)	+8.69%
Four Years (Annualized)	+14.43%
Five Years (Annualized)	+11.65%
MAPF returns are shown after expenses, but before fees.

Note that past performance should not be taken as a guarantee of future performance. You can lose money investing in MAPF or any other investment.
“But what about risk?” you ask, and I’m glad you asked that question. The following data is based on the Value Date portfolio.

All issues held in the portfolio are rated Pfd-2(low) or better by DBRS. 45% are rated Pfd-1(low) or better, 53% are rated either Pfd-2(low) or Pfd-2, 2% of the portfolio is cash.

The composition of the portfolio in terms of the HIMI Preferred Indices is:

Index	MAPF Composition
Ratchet	0%
Fixed-Floater	0%
Floating Rate	0%
OpRet	0%
SplitShare	42%
InterestBearing	0%
PerpetualPremium	54%
PerpetualDiscount	2%
Cash	2%

The nice thing about the returns is that they have been virtually entirely dividends and capital gains, resulting in a generally lower tax rate than for interest for most taxable investors.

The fund is now available to investors across Canada, provided they meet the definition of “accredited investors”. This is a new development, requiring a trivial amount of extra disclosure on my part (basically, I have to give you the right to back out of the purchase agreement within a week of subscription AND tell you that you have that right) and I’m very pleased. I’ll be issuing a press release in early January announcing this availability.

For more information and documents regarding the fund, see the HIMI website

Market Action

December 29, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index	Mean Current Yield (at bid)	Mean YTW	Mean Average Trading Value	Mean Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	4.10%	4.10%	31,372	17.27	1	+0.0000%	1,036.2
Fixed-Floater	4.78%	3.65%	90,998	8.40	7	+0.1127%	1,038.9
Floater	4.50%	-19.07%	59,079	6.61	5	-0.1571%	1,036.7
Op. Retract	4.64%	0.09%	82,567	1.97	17	+0.1159%	1,033.7
Split-Share	5.08%	2.14%	234,234	2.51	9	+0.0496%	1,043.2
Interest Bearing	6.96%	6.12%	79,631	3.38	7	-0.2055%	1,031.4
Perpetual-Premium	5.02%	3.61%	258,326	4.39	52	-0.0373%	1,053.6
Perpetual-Discount	4.54%	4.54%	790,495	13.31	6	-0.1794%	1,057.8

Major Price Changes
Issue	Index	Change	Notes
TD.PR.N	OpRet	-1.0881%	On volume of 26 – count ’em, twenty-six – shares, to close at 27.27-13, 17×11. Now with a pre-tax bid-YTW of 2.65% based on a call 2009-5-30 at $26.00.
ACO.PR.A	OpRet	+1.0172%	I don’t get it. This now has a pre-tax bid-YTW of 0.35% based on a bid of 28.8 and a call 2008-12-31 at $26.00. Even if it makes it to the softMaturity 2011-11-30, it will only have yielded 2.56% (PRE-tax) from these nose-bleed levels … and this latter, generous figure is only 3.58% interest-equivalent with an Ontario Equivalency Factor of 1.40. Three point Five Eight Percent? I can do better than that in Canadas. Retail.
LBS.PR.A	SplitShare	+1.0195%	Still with a pre-tax bid-YTW of 3.75%, based on a bid of 10.90 and a hardMaturity 2013-11-29 at $10.00. An interest-equivalent rate of 5.25% is something I find MUCH more interesting for seven-year money.
BMO.PR.I	OpRet	+1.1650%	Against all odds, this issue has gained in price since I mentioned it in November, to close at 26.05-07 1×50, on frenzied volume of 100 shares. That makes the pre-tax bid-YTW -26.38% (yes, NEGATIVE 26.38%), based on a call 2007-1-28 at 25.25. I can only imagine that people figure that since the issue has survived redemption possibilities since 2005-11-25, it will make it until the softMaturity 2008-11-24 at $25.00 … and they may be right! The issue pays $1.1875 so, by waiting until 2007-11-25 anyway, the bank can save another $0.25 call premium for a net cost of $0.9375 … which is about where BMO could issue new retractible prefs right now, assuming they wanted to. But so what? What’s the point of this analysis and risk-taking? If the things survive a year beyond that, to the softMaturity 2008-11-24, they will have yielded 2.72%, so it’s the same story as ACO.PR.A mentioned above: interest equivalent (factor 1.4) of 3.81% for two-year money? My cat can do better than that with Canadas.

Volume Highlights
Issue	Index	Volume	Notes
FBS.PR.B	SplitShare	46,040	RBC bought 10,000 shares of this recent new issue from Scotia at 10.39. But why wouldn’t the purchaser just set fire to his money instead, and save the aggravation of waiting? The pre-tax bid-YTW is 1.35% based on a call 2008-1-14 at $10.00. They must be hoping for survival until the hardMaturity 2011-12-15, which results in a yield of 3.99%. Some might make it. There will always be some capital unit holders who hang on to their stock and don’t force redemption. But it’s not a bet I would make.
SLF.PR.C	PerpetualDiscount	18,500	RBC crossed 10,600 at 24.78, so we know at least one trader showed up for work today. Now with a pre-tax bid-YTW of 4.50% based on a closing bid of $24.79 and a limitMaturity.
CM.PR.I	PerpetualPremium	17,075	Now with a pre-tax bid-YTW of 4.47% based on a bid of 25.38 and a call 2016-3-1 at 25.00.
RY.PR.A	PerpetualPremium	16,900	Now with a pre-tax bid-YTW of 4.48% based on a bid of 25.10 and a call 2015-6-23 at 25.00

That’s it! There were no other index-included issues with over 10,000 shares traded today. Happy New Year!

HIMI Preferred Indices

HIMI Preferred Indices : October 1996

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1996-10-31
Index	Closing Value (Total Return)	Issues	Mean Credit Quality	Median YTW	Median DTW	Median Daily Trading	Mean Current Yield
Ratchet	1,448.3	0	0	0	0	0	0
FixedFloater	1,431.0	1	2.00	4.50%	15.7	175M	5.20%
Floater	1,363.7	7	1.55	3.66%	17.4	86M	3.99%
OpRet	1,239.4	26	1.30	4.71%	4.8	77M	6.54%
SplitShare	1,250.6	1	2.00	5.39%	5.7	3,085M	5.61%
Interest-Bearing	1,239.4	0	0	0	0	0	0
Perpetual-Premium	1,183.9	5	1.00	3.65%	2.6	127M	7.93%
Perpetual-Discount	1,130.3	0	0	0	0	0	0

Index Constitution, 1996-10-31, Pre-Rebalancing

Index Constitution, 1996-10-31, Post-Rebalancing

Data Changes

STW.PR.A : Stealth Redemption?

I praised this issue as recently as yesterday:

This interest-bearing split-share is an attractive issue for RRSP-buyers: a call premium (currently callable at 10.60; declines by $0.20 at the beginning of every calendar year) ensures that if you do get called due to capital unit retractions, at least you get paid for your trouble.

I am now given to understand that this issue was partially called on December 19, with about one-eighth of the issue redeemed at the very nice price (for pref holders!) of $10.60. I have a high degree of confidence in this information.

This is very strange.

There’s no press release.

There’s nothing on their website.

There’s not even anything on SEDAR.

Those who have recently purchased the issue (it has rarely closed above $10.30 since mid-October) will be rather pleased – but really, the company could do a better job of communication.

Update : There was an error in the HIMIPref™ database for the last dividend: the ex-Date should have been 12/27, not 12/28, which will have affected the reported daily return for 12/27 and 12/28. This has now been fixed. My apologies.

Data Changes

December 28, 2006

Data has been input to the HIMIPref™ database but commentary will not be ready until tomorrow. My apologies.

Update (finally!)

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index	Mean Current Yield (at bid)	Mean YTW	Mean Average Trading Value	Mean Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	4.10%	4.10%	32,656	17.26	1	+0.0000%	1,036.2
Fixed-Floater	4.78%	3.71%	94,105	6.54	7	+0.0567%	1,037.8
Floater	4.49%	-19.48%	60,693	6.63	5	-0.0156%	1,038.3
Op. Retract	4.65%	0.74%	84,850	2.17	17	+0.1165%	1,032.5
Split-Share	5.08%	2.06%	238,695	2.50	9	-0.1115%	1,042.7
Interest Bearing	6.94%	5.62%	80,252	1.60	7	+0.9179%	1,033.5
Perpetual-Premium	5.02%	3.56%	266,101	4.41	52	-0.0054%	1,054.0
Perpetual-Discount	4.53%	4.52%	810,985	11.74	6	-0.0986%	1,059.6

Major Price Changes
Issue	Index	Change	Notes
DFN.PR.A	SplitShare	-1.3084%
ELF.PR.G	PerpetualPremium	-1.0054%
BSD.PR.A	InterestBearing	+1.0101%
CM.PR.P	PerpetualPremium	+1.0101%
MST.PR.A	InterestBearing	+1.4808%
STW.PR.A	InterestBearing	+3.4619%

Volume Highlights
Issue	Index	Volume	Notes
TD.PR.N	OpRet	115,700
MIC.PR.A	Scraps	90,000
TD.PR.M	OpRet	50,000
GWO.PR.I	PerpetualDiscount	15,665
SLF.PR.D	PerpetualDiscount	14,402

There were two other index-included issues with over 10,000 shares traded today.

Update: There was an error in the calculation of returns for ELF.PR.G – it went ex-dividend on 12/28 and the dividend was improperly recorded in HIMIPref™. This error has now been corrected.

HIMI Preferred Indices

HIMI Preferred Indices : September, 1996

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1996-09-30
Index	Closing Value (Total Return)	Issues	Mean Credit Quality	Median YTW	Median DTW	Median Daily Trading	Mean Current Yield
Ratchet	1,407.9	0	0	0	0	0	0
FixedFloater	1,405.0	0	0	0	0	0	0
Floater	1,325.7	6	1.65	4.36%	16.4	76M	4.81%
OpRet	1,202.9	24	1.28	5.43%	5.1	80M	6.74%
SplitShare	1,202.9	0	0	0	0	0	0
Interest-Bearing	1,202.9	0	0	0	0	0	0
Perpetual-Premium	1,167.7	5	1.00	4.41%	1.6	110M	8.01%
Perpetual-Discount	1,114.8	0	0	0	0	0	0

Index Constitution, 1996-09-30, Pre-Rebalancing

Index Constitution, 1996-09-30, Post-Rebalancing

Volume Highlights
Issue	Index	Volume	Notes
BAM.PR.K	Floater	41,600	Scotia crossed 32,000 at 24.75 and was the seller for each of today’s six trades.
MFC.PR.A	OpRet	38,410	Now with a pre-tax bid-YTW of 2.99% based on a bid of $27.10 and a call 2011-7-19 at $26.00. Will have yielded 3.06% if it lasts until its softMaturity 2015-12-18, so it hardly seems worthwhile. Even the latter figure, at an equivalency factor of 1.40, is equivalent to only 4.28% interest – you can do better with bonds.
TD.PR.O	PerpetualPremium	37,600	Nesbitt processed an internal cross of 30,600 at $26.30. Now with a pre-tax bid-YTW of 4.16% based on a bid of $26.40 and a call 2014-11-30 at $25.00. Now that’s more like it!
BAM.PR.M	PerpetualPremium	24,000	RBC crossed 10,700 at 25.10. Now with a pre-tax bid-YTW of 4.75% based on a bid of $25.06 and a call 2016-3-1 at $25.00.
CM.PR.I	PerpetualPremium	18,542	Now with a pre-tax bid-YTW of 4.51% based on a bid of $25.32 and a call 2016-3-1 at $25.00

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index	Mean Current Yield (at bid)	Mean YTW	Mean Average Trading Value	Mean Mod Dur (YTW)	Issues	Day’s Perf.	Index Value
Ratchet	4.08%	4.08%	32,259	17.28	1	+0.0400%	1,036.7
Fixed-Floater	4.79%	3.72%	87,027	10.70	7	-0.3509%	1,036.2
Floater	4.59%	-18.67%	67,520	8.28	4	0.0000%	1,037.6
Op. Retract	4.66%	1.42%	82,398	2.05	17	+0.0077%	1,032.6
Split-Share	5.12%	1.32%	199,563	2.27	10	+0.0757%	1,042.3
Interest Bearing	6.73%	5.77%	72,434	2.39	6	-0.1845%	1,031.0
Perpetual-Premium	5.00%	3.76%	271,477	4.61	55	-0.0667%	1,053.9
Perpetual-Discount	4.46%	4.50%	800,671	16.42	3	+0.2019%	1,060.7