Preferreds

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AltaRed
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Re: Preferreds

Post by AltaRed » 03 May 2017 11:40

milton wrote:
03 May 2017 11:24
Question about IFC.PR.A. It's a rate reset resetting Dec 2017 at BOC5YR + 1.72%. Pfd-2L. If BOC5YR is 1.01%, then it would reset at 2.73% for $0.6825 per year. It's trading at $18.15 for a pitiful reset yield of 3.76%. Why wouldn't it be trading closer to, say $15?
Perhaps partly on the hope BoC5 will increase between how and then. My view would be to buy it AFTER reset if the then price provides you with a yield in the mid 4% range. Also remember, these insurance resets may be called someday at par in exchange for NVCC compliant issues, which would give them a nice cap gains from current pricing. Question remains though: When/if the regulator will foist the same process on the insurance industry that they have for the banking industry? Hence the insurance resets carry a 'premium' relative to say, pipeline issues. See James' blog for the continuing saga.
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Re: Preferreds

Post by lacrosse905 » 16 May 2017 09:28

New preferred issue by Power Financial 5.15% perpetual, Series V,just got an alert fro m TD.

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Re: Preferreds

Post by SoninlawofGus » 16 May 2017 09:36

lacrosse905 wrote:
16 May 2017 09:28
New preferred issue by Power Financial 5.15% perpetual, Series V,just got an alert fro m TD.
Interesting -- the common of both PWF and POW pay nearly that much and are trading close to (PWF) or below (POW) book value. I own POW; tempted to buy more in light of the recent fall, but I'll probably just hold.

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Re: Preferreds

Post by lacrosse905 » 21 May 2017 12:06

lacrosse905 wrote:
16 May 2017 09:28
New preferred issue by Power Financial 5.15% perpetual, Series V,just got an alert fro m TD.
Placed an expression of interest for 800 shares,was allocated 300. I will be watching to see how this trades on the secondary market when it comes out on or after May 26th.

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Re: Preferreds

Post by Thegipper » 21 May 2017 12:27

lacrosse905 wrote:
21 May 2017 12:06
lacrosse905 wrote:
16 May 2017 09:28
New preferred issue by Power Financial 5.15% perpetual, Series V,just got an alert fro m TD.
Placed an expression of interest for 800 shares,was allocated 300. I will be watching to see how this trades on the secondary market when it comes out on or after May 26th.
Are they resets? if so what is the reset rate?

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AltaRed
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Re: Preferreds

Post by AltaRed » 21 May 2017 13:48

Thegipper wrote:
21 May 2017 12:27
lacrosse905 wrote:
21 May 2017 12:06
lacrosse905 wrote:
16 May 2017 09:28
New preferred issue by Power Financial 5.15% perpetual, Series V,just got an alert fro m TD.
Placed an expression of interest for 800 shares,was allocated 300. I will be watching to see how this trades on the secondary market when it comes out on or after May 26th.
Are they resets? if so what is the reset rate?
By definition, it is a perpetual.... as in Power Financial 5.15% Perpetual. And it is priced 'on the money' given James reported on the 17th that Perpetual Disounnts are yielding 5.10% YTW.
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Re: Preferreds

Post by adrian2 » 21 May 2017 13:55

Thegipper wrote:
21 May 2017 12:27
lacrosse905 wrote:
21 May 2017 12:06
lacrosse905 wrote:
16 May 2017 09:28
New preferred issue by Power Financial 5.15% perpetual, Series V,just got an alert fro m TD.
Placed an expression of interest for 800 shares,was allocated 300. I will be watching to see how this trades on the secondary market when it comes out on or after May 26th.
Are they resets? if so what is the reset rate?
No, they are perpetuals, the same dividend in perpetuity.

As it's usually the case, they can be called back by the issuer:
The Prospectus wrote:On and after July 31, 2022, the Corporation may, on not less than 30 nor more than 60 days’ notice, redeem for cash the Series V First Preferred Shares in whole or in part, at the Corporation’s option, at $26.00 per share if redeemed prior to July 31, 2023, $25.75 if redeemed on or after July 31, 2023 and prior to July 31, 2024, $25.50 if redeemed on or after July 31, 2024 and prior to July 31, 2025, $25.25 if redeemed on or after July 31, 2025 and prior to July 31, 2026 and $25.00 if redeemed on or after July 31, 2026, in each case together with all declared and unpaid dividends to but excluding the date of redemption.
Such a call would not be a good thing for the shareholder.
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Re: Preferreds

Post by Thegipper » 21 May 2017 18:37

If interest rates start moving up these shares will trade down.

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Re: Preferreds

Post by AltaRed » 21 May 2017 19:38

Thegipper wrote:
21 May 2017 18:37
If interest rates start moving up these shares will trade down.
Indeed. I am not buying any at this point.
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Re: Preferreds

Post by jiHymas » 11 Jun 2017 00:20

rhenderson wrote:
21 Apr 2017 14:11
I have a feeling that Uncle James places "no value" on this feature because he believes that interest rates can only go up. Of course they will go up someday, but when.
That's a little too emphatic for my tastes, but I will go so far as to say I see little advantage to be gained from buying insurance against the potential for five-year rates to go down significantly.

In addition, the 'good optionality' of getting the higher of the spread-rate and the minimum rate is largely offset by the issuers' option to redeem the shares if they don't like the terms at the time. In such a case, losses may well be mitigated but will not be avoided completely. Calls are always bad!

The FixedReset carnage in the bear market of 2014-16 was due, I think, to retail investors demanding a floor rate on their preferred share investments. I suspect that this demand came from applying some kind of spread against the expected common dividends on banks and other dividend payers, but that makes little sense to me. I concentrate on the spread against other fixed-income investments [cue a thousand readers who don't think preferreds are fixed-income!]. It baffles me why an income-seeking investor would sell preferred shares yielding - oh, call it 3.5% until the next reset - in order to buy GICs yielding half that.

I think minimum-rate-guarantee investors are fighting the last battle - but we are in a period of global interest rates that are low by any historical standard.

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Re: Preferreds

Post by Thegipper » 11 Jun 2017 17:09

jiHymas wrote:
11 Jun 2017 00:20
rhenderson wrote:
21 Apr 2017 14:11
I have a feeling that Uncle James places "no value" on this feature because he believes that interest rates can only go up. Of course they will go up someday, but when.
That's a little too emphatic for my tastes, but I will go so far as to say I see little advantage to be gained from buying insurance against the potential for five-year rates to go down significantly.

In addition, the 'good optionality' of getting the higher of the spread-rate and the minimum rate is largely offset by the issuers' option to redeem the shares if they don't like the terms at the time. In such a case, losses may well be mitigated but will not be avoided completely. Calls are always bad!

The FixedReset carnage in the bear market of 2014-16 was due, I think, to retail investors demanding a floor rate on their preferred share investments. I suspect that this demand came from applying some kind of spread against the expected common dividends on banks and other dividend payers, but that makes little sense to me. I concentrate on the spread against other fixed-income investments [cue a thousand readers who don't think preferreds are fixed-income!]. It baffles me why an income-seeking investor would sell preferred shares yielding - oh, call it 3.5% until the next reset - in order to buy GICs yielding half that.

I think minimum-rate-guarantee investors are fighting the last battle - but we are in a period of global interest rates that are low by any historical standard.
I am surprised at how many people park significant amounts of cash in HISA in taxable accounts and getting .08% when they could be in a tax efficient preferred paying in the region of 5% with a solid spread protection on the reset date. Resets should be a solid defensive option if interest rates remain stable or on the riser. I much prefer to my chances with preferred shares over the alternate of HISAs or GICs.

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Re: Preferreds

Post by AltaRed » 11 Jun 2017 18:29

Thegipper wrote:
11 Jun 2017 17:09
I am surprised at how many people park significant amounts of cash in HISA in taxable accounts and getting .08% when they could be in a tax efficient preferred paying in the region of 5% with a solid spread protection on the reset date. Resets should be a solid defensive option if interest rates remain stable or on the riser. I much prefer to my chances with preferred shares over the alternate of HISAs or GICs.
HISAs are for preservation of capital, short term cash in/out needs. It is not at all difficult to get 1.5% and can be as high as 2.3%. Prefs are not even in the same league when it comes to preservation of capital especially for funds needed on a short fuse. Compare prefs with corporate bonds if you wish, but not HISAs or GICs.
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Re: Preferreds

Post by Thegipper » 11 Jun 2017 20:07

AltaRed wrote:
11 Jun 2017 18:29
Thegipper wrote:
11 Jun 2017 17:09
I am surprised at how many people park significant amounts of cash in HISA in taxable accounts and getting .08% when they could be in a tax efficient preferred paying in the region of 5% with a solid spread protection on the reset date. Resets should be a solid defensive option if interest rates remain stable or on the riser. I much prefer to my chances with preferred shares over the alternate of HISAs or GICs.
HISAs are for preservation of capital, short term cash in/out needs. It is not at all difficult to get 1.5% and can be as high as 2.3%. Prefs are not even in the same league when it comes to preservation of capital especially for funds needed on a short fuse. Compare prefs with corporate bonds if you wish, but not HISAs or GICs.
won't disagree with that set of facts. i f you hunt around you might find 1.5% or 2% in a HISA. I think we have posters who are constantly moving cash trying to get a 1/4 % advantage. They seem to be using this as a longer term strategy. I have newer issues of reset preferred from high quality issuers paying a 5% yield and the reset has a floor on it which almost guarantees a 5%rate with the reset. If the big insurers or banks start defaulting I am not sure what a government guarantee will be. I agree most preferred are risker. I think the risk can be greatly reduced if you do your homework. If the HISA is in a taxable account you are still losing money when you take into account inflation and income tax.

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Re: Preferreds

Post by AltaRed » 11 Jun 2017 20:40

I don't believe many here would have large sums of cash in HISAs, and even if so, not for the longer term. There is a place for HISA cash, i.e. emergency fund, accumulating for a major purchase like a down payment on a house, buffer for 1-2 years of expenses in event of a severe equity correction, etc. Prefs have proven themselves too variable in market pricing to meet that need, albeit I would reckon the newer resets with floors have much lower variability in market pricing.
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Re: Preferreds

Post by Thegipper » 11 Jun 2017 22:20

AltaRed wrote:
11 Jun 2017 20:40
I don't believe many here would have large sums of cash in HISAs, and even if so, not for the longer term. There is a place for HISA cash, i.e. emergency fund, accumulating for a major purchase like a down payment on a house, buffer for 1-2 years of expenses in event of a severe equity correction, etc. Prefs have proven themselves too variable in market pricing to meet that need, albeit I would reckon the newer resets with floors have much lower variability in market pricing.
Yes I know they can find 2% on HISA if they hunt around. Seems like a lot of hassle. I do note that a pile bailed out of their Home Capital HISAs accounts when they became nervous about the safety of their money.

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Re: Preferreds

Post by AltaRed » 11 Jun 2017 23:52

FWIW, I have just over 7% of my portfolio in prefs, some straight perps, and some low(er) spread discount resets, mostly in the insurance industry. I am hoping to take advantage of the 'deemed retractible date' that James is anticipating in 2025 or beyond. :P

I am relatively happy with my choices, the timing and damage of 2014 notwithstanding. I consider them an Other Asset Class, neither equity nor FI and will likely draw them down along with equities over time. I run a high equity allocation so having some GICs, bonds, prefs and HISA is essential to my good sleep.
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Re: Preferreds

Post by Shakespeare » 12 Jun 2017 00:14

I do note that a pile bailed out of their Home Capital HISAs accounts when they became nervous about the safety of their money.
A number of years ago, a lot of people here were happy about their GM bonds - until it seemed GM would default.

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Re: Preferreds

Post by adrian2 » 12 Jun 2017 11:28

Thegipper wrote:
11 Jun 2017 20:07
I have newer issues of reset preferred from high quality issuers paying a 5% yield and the reset has a floor on it which almost guarantees a 5%rate with the reset.
Correction: it almost guarantees a 5% rate if they reset and are not called away by the issuer.
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Re: Preferreds

Post by Wing » 12 Jun 2017 19:03

adrian2 wrote:
12 Jun 2017 11:28
Thegipper wrote:
11 Jun 2017 20:07
I have newer issues of reset preferred from high quality issuers paying a 5% yield and the reset has a floor on it which almost guarantees a 5%rate with the reset.
Correction: it almost guarantees a 5% rate if they reset and are not called away by the issuer.
New to preferreds, I want to find something with "almost guaranteed" 4-5% rate of return. Where should I start looking or any site/blog/book to recommend?

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Re: Preferreds

Post by AltaRed » 12 Jun 2017 20:04

Wing wrote:
12 Jun 2017 19:03
New to preferreds, I want to find something with "almost guaranteed" 4-5% rate of return. Where should I start looking or any site/blog/book to recommend?
They are a complicated beast and of various varieties and behaviours...and can be hazardous to your health. I suggeest you spend a good amount of time on PrefBlog for starters and perhaps subscribe to James' PrefLetter for a year or so.
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Re: Preferreds

Post by soldToSoon » 12 Jun 2017 23:43

Wing wrote:
12 Jun 2017 19:03
adrian2 wrote:
12 Jun 2017 11:28
Thegipper wrote:
11 Jun 2017 20:07
I have newer issues of reset preferred from high quality issuers paying a 5% yield and the reset has a floor on it which almost guarantees a 5%rate with the reset.
Correction: it almost guarantees a 5% rate if they reset and are not called away by the issuer.
New to preferreds, I want to find something with "almost guaranteed" 4-5% rate of return. Where should I start looking or any site/blog/book to recommend?
There are many perpetuals that yield more than 5%. Most of them have yielded 5% for a good decade or more and haven't been called. A lot of these issues are rated Pf(2), which is as close as you can get to non-sovereign credit rating, at least in Canada. Who's more creditworthy than the big banks, insurance companies and utilities in Canada? The Feds, a few crown corps and a few provinces. The perpetuals are not a bad deal if one can shoo away the inflation bogeyman and its twin- rising interest rates- from mind.
But the attitude has to be more zen like here- I am content with 5% perpetually (that's why excellent credit of Pf2 or higher is critical). I can allocate say 10 to 20% of my portfolio to these perpetuals and this will generate a predictable cash flow for me. Then I don't need to chase yield anywhere else and can be very moderate in my yield chasing behavior at other places.
But those who always see inflation right around the corner do not like this.
Those who fear deflation should pick up perpetuals with lowest yields (and consequent lower prices) that will prevent a call risk.

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Re: Preferreds

Post by Koogie » 13 Jun 2017 09:59

AltaRed wrote:
12 Jun 2017 20:04
Wing wrote:
12 Jun 2017 19:03
New to preferreds, I want to find something with "almost guaranteed" 4-5% rate of return. Where should I start looking or any site/blog/book to recommend?
They are a complicated beast and of various varieties and behaviours...and can be hazardous to your health. I suggeest you spend a good amount of time on PrefBlog for starters and perhaps subscribe to James' PrefLetter for a year or so.
Or of course, there are several relevant ETFs. For those who are into that kind of thing...
Buy very little, sell even less.

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Re: Preferreds

Post by AltaRed » 13 Jun 2017 10:27

Indeed. A novice may be better served with CPD oor ZPR for example. ... Recognizing CPD contains a mix of preferred types while ZPR is only a ladder of resets. Each has its pros and cons.
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Re: Preferreds

Post by marcharry » 06 Jul 2017 11:10

I realize that building a portfolio of preferred shares can be complex. I used to be a CPD owner but in the early years it very much underperformed. At this point I am interested in simply picking up Canadian bank perpetual preferred shares. I realize that they have 5 year callable dates. I am not sure what the Yield To Worst calcs are - but it seems like they will be paying a yield of around 5% up to potential call dates. That is a considerable premium over GICs.

What am I missing? What are the risks outside of long tail things like banks defaulting which I am not concerned with? It seems like a no-brainer.

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Re: Preferreds

Post by AltaRed » 06 Jul 2017 12:41

I think you are talking mostly about the 'new' fixed reset prefs with the yield floors? If so, there is nothing wrong with those issues* as long as you consider them 5 year money (like a 5 year GIC). That is because the spreads are large on those prefs and when it comes time to reset, if the GOC5 bond yield is anywhere close to 1% or more, they will be recalled. Then, like a maturing GIC, you have to make a decision where you then re-invest those proceeds. And yes, a 5% eligible dividend yield far exceeds that of an interest bearing GIC in a non-reg account.

One question is whether you can buy those on the open market now at $25 or less. This is a case where getting them at IPO makes sense versus buying them on the open market at a premium. My take is we will not see many more of these being issued since the GOC5 bond seems to be going up in yield and issuers may not have to entice investors going forward. As always, control is always in the hands of the issuer. They will recall them when it makes sense for them to do so.

* Especially the big banks.
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