Preferreds

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Re: Preferreds

Postby like_to_retire » 05 Jun 2016 23:22

scomac wrote:Not a terrible trade-off IMO.

Yeah, for sure. It's a decent pickup now, but for those that owned it before it's unfortunately been a real downer. That will teach me not to be so sure that interest rates are going to rise.

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Re: Preferreds

Postby AltaRed » 06 Jun 2016 09:27

scomac wrote:I switched out of MFC.PR.C for the above issue based on a pick up in YTW assuming that at some point Basel III requirements would be enforced upon lifecos. At present YTW is running ~10.17% assuming no change in dividend rate upon subsequent resets and a retraction on or about 01-31-2025. It's all about the potential capital gain with a call option on the GoC 5 yr. going forward. Not a terrible trade-off IMO.

The real kick in the nether regions would be if Basel III requirements are never enforced on the lifecos.
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Re: Preferreds

Postby scomac » 06 Jun 2016 10:01

AltaRed wrote:
scomac wrote:I switched out of MFC.PR.C for the above issue based on a pick up in YTW assuming that at some point Basel III requirements would be enforced upon lifecos. At present YTW is running ~10.17% assuming no change in dividend rate upon subsequent resets and a retraction on or about 01-31-2025. It's all about the potential capital gain with a call option on the GoC 5 yr. going forward. Not a terrible trade-off IMO.

The real kick in the nether regions would be if Basel III requirements are never enforced on the lifecos.


That's why I'm not lining up to buy a whole bunch of them! That said, the very nature of the preferred share market suggests that there will be an opportunity to get out at a gain without the above eventuality ever coming to pass. Unfortunately, they don't ring a bell when it comes.
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Re: Preferreds

Postby BRIAN5000 » 17 Jun 2016 13:19

Nice dip in CPD the other day down to $11.90 :roll:
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Re: Preferreds

Postby Thegipper » 12 Jul 2016 16:17

I loaded up on MFC.PR.F. Efficient market theory doesn't work in the preferred market? This one just reset in June with a yield of 7.7%. The next reset date is June 2021. Another potential is Basel and the real possibility that the issuer may be required to redeem in order to meet their tier 1 capital requirements. If that happens I am looking at a great capital gain. From $13.65 to $25.00. I can be patient with this one while I am collecting 7.7% in dividends.

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Re: Preferreds

Postby al42 » 12 Jul 2016 17:07

This one just reset in June with a yield of 7.7%.

Hmm..looks like it reset to 2.178% that gives a yield of around 4% at today's $13.9 price.
Am I missing something here?

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Re: Preferreds

Postby AltaRed » 12 Jul 2016 17:17

Nope. You got it.
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Re: Preferreds

Postby like_to_retire » 12 Jul 2016 17:18

Thegipper wrote:I loaded up on MFC.PR.F. Efficient market theory doesn't work in the preferred market? This one just reset in June with a yield of 7.7%. The next reset date is June 2021. Another potential is Basel and the real possibility that the issuer may be required to redeem in order to meet their tier 1 capital requirements. If that happens I am looking at a great capital gain. From $13.65 to $25.00. I can be patient with this one while I am collecting 7.7% in dividends.

Mmmm. I own MFC.PR.F. It reset in June to a yield of 2.178%.

The dividend became $0.136125 per quarter/per share. That's $0.5445 a year per share.

At $13.53 bid today, the current yield is 4.024%.

I can hope (since it's an insurance pref) that it will be called in 9 years at PAR, but that's a long time and a bit of a pipe dream.

Personally, I'd rather steer my money toward non-financial prefs that are able to offer minimum reset dividend guarantees.

ltr

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Re: Preferreds

Postby Thegipper » 13 Jul 2016 09:52

like_to_retire wrote:
Thegipper wrote:I loaded up on MFC.PR.F. Efficient market theory doesn't work in the preferred market? This one just reset in June with a yield of 7.7%. The next reset date is June 2021. Another potential is Basel and the real possibility that the issuer may be required to redeem in order to meet their tier 1 capital requirements. If that happens I am looking at a great capital gain. From $13.65 to $25.00. I can be patient with this one while I am collecting 7.7% in dividends.

Mmmm. I own MFC.PR.F. It reset in June to a yield of 2.178%.

The dividend became $0.136125 per quarter/per share. That's $0.5445 a year per share.

At $13.53 bid today, the current yield is 4.024%.

I can hope (since it's an insurance pref) that it will be called in 9 years at PAR, but that's a long time and a bit of a pipe dream.

Personally, I'd rather steer my money toward non-financial prefs that are able to offer minimum reset dividend guarantees.

ltr

Thanks for clearing this up. Both my brokerage firm and Globeinvester gave me this 7.7 return. I guess the lesson is to look at the actual distribution and do your own calculation. Just the same the 4% yield might not be so bad. I will live with this mistake.

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Re: Preferreds

Postby pmj » 13 Jul 2016 10:06

Thegipper wrote: I guess the lesson is to look at the actual distribution and do your own calculation.

Google Finance also has trouble with companies that have more than one of regular shares, preferred shares and split shares - sometimes stating the correct dividend/distribution, but the wrong yield, or vice versa.
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Re: Preferreds

Postby Thegipper » 13 Jul 2016 19:55

like_to_retire wrote:
Thegipper wrote:I loaded up on MFC.PR.F. Efficient market theory doesn't work in the preferred market? This one just reset in June with a yield of 7.7%. The next reset date is June 2021. Another potential is Basel and the real possibility that the issuer may be required to redeem in order to meet their tier 1 capital requirements. If that happens I am looking at a great capital gain. From $13.65 to $25.00. I can be patient with this one while I am collecting 7.7% in dividends.

Mmmm. I own MFC.PR.F. It reset in June to a yield of 2.178%.

The dividend became $0.136125 per quarter/per share. That's $0.5445 a year per share.

At $13.53 bid today, the current yield is 4.024%.

I can hope (since it's an insurance pref) that it will be called in 9 years at PAR, but that's a long time and a bit of a pipe dream.

Personally, I'd rather steer my money toward non-financial prefs that are able to offer minimum reset dividend guarantees.

ltr
I don't think one would have to wait 9 years. If OFSI imposed this requirement they might call the shares well before the imposed date. Even if they didn't I am sure the announcement would give these shares an immediate boost in share pricing.

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Re: Preferreds

Postby like_to_retire » 13 Jul 2016 20:09

Thegipper wrote:I don't think one would have to wait 9 years. If OFSI imposed this requirement they might call the shares well before the imposed date. Even if they didn't I am sure the announcement would give these shares an immediate boost in share pricing.

The date that James Hymas uses is Jan 31, 2025, but he admits that it doesn't appear to be likely and says he will extending it again to Jan 31, 2027. That's in 11 years away, and that's still a dream. I'm not holding my breath.

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Re: Preferreds

Postby AltaRed » 13 Jul 2016 21:02

Not only that but the issuer does not necessarily have to call it at that time, i.e. it would be called at the reset date. There still are bank resets out there that are non-compliant and have not yet been called. But yes, I would expect some kind of a price bump for issues that are 'likely to be called' within 5 years.
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Re: Preferreds

Postby milton » 02 Aug 2016 22:34

Have preferreds turned the tide? For the first time in an eternity (okay, 1-1/2 years), the recent purchases are UP instead of DOWN! As of Aug 2:

SLF.PR.C (perpetual) bought June 24 @ $21.07 now $22.72 (up 7.8%)
EMA.PR.C (rate reset Aug 2018) bought June 16 @ $17.44 now $18.14 (up 4%)
CU.PR.F (perpetual) bought May 31 @ $20.92 now $22.50 (up 7.6%)
ENB.PF.C (rate reset Mar 2020) bought Apr 25 @ $17.60 now $17.72 (up 1%)
BCE.PR.M (rate reset Mar 2021) bought Apr 18 @ $14.25 now $15.05 (up 5.6%)
AIM.PR.A (rate reset Mar 2020) bought Apr 6 @ $10.32 now $11.04 (up 7%)
MFC.PR.J (rate reset Mar 2018) bought Feb 22 @ $16.70 now $19.79 Aug 2nd (up 18.5%)
BBD.PR.C (perpetual) bought Feb 16 @ $8.80 now $16.50 (up 88%)

Anyone else catch the rising tide? Hope some of you made some money, that was a tough go for too long!

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Re: Preferreds

Postby farco » 02 Aug 2016 22:44

I catch it with BBD.PR.C (bought at $10.50), M.PR.A and BRF.PR.E (bought @17.05)
I plan to buy some others, if the prices are OK until I do it :thumbsup:

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Re: Preferreds

Postby milton » 15 Aug 2016 21:51

Now that prefs are at 1-1/2 year highs, good time for buybacks! Ra ra ra!

BROOKFIELD, NEWS--(Marketwired - Aug 15, 2016) - Brookfield Asset Management Inc. (BAM)(TSX:BAM.A)(BAMA.NX) ("Brookfield") today announced it has received approval from the Toronto Stock Exchange ("TSX") for its proposed normal course issuer bid to purchase up to 10% of the public float of each series of the company's outstanding Class A Preference Shares that are listed on the TSX (the "Preferred Shares").

http://finance.yahoo.com/news/brookfield-asset-management-announces-renewal-115500081.html

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Re: Preferreds

Postby AltaRed » 05 Sep 2016 19:31

Had not noticed this before on PrefBlog but it may be that I don't read all of James' verbosity :wink: From James' Sept 5th entry,
Due to the footdragging by OSFI, I will be extending the DeemedMaturity date for insurance issues by another two years in the near future.


If that means even further (to 2027) to the start of Calls by the insurers, I may have one foot in the casket by the time I can make good on some cap gains from the insurers. Best not to put all eggs in THAT basket me thinks.

Added: Am slowly re-structuring my Fixed Resets into 5 equal tranches of 'resets' on an annual basis much like a 5 year GIC ladder. That way, I may actually see a reset increase sometime before they land a human on Mars.
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Re: Preferreds

Postby snowback96 » 05 Sep 2016 20:19

AltaRed wrote:Had not noticed this before on PrefBlog but it may be that I don't read all of James' verbosity :wink: From James' Sept 5th entry,
Due to the footdragging by OSFI, I will be extending the DeemedMaturity date for insurance issues by another two years in the near future.


James has been making that statement for at least 2 years now. See http://prefblog.com/?p=26162 from August 2014.

OSFI might not be the only one dragging their feet!!! Maybe it's time for James to bite the bullet and update his models to extend the Deemed Maturity by at least 2 years, perhaps to 31 Jan 2027 (or even later given the lack of buzz from OSFI on this topic lately and the assumed 10 year notice period).

I certainly feel that the ~10% YTW's that James currently estimates for many of the fixed-reset insurance issues are misleading at this point.

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Re: Preferreds

Postby like_to_retire » 05 Sep 2016 20:31

snowback96 wrote:James has been making that statement for at least 2 years now.

Heck, I gave up on that whole situation long ago and don't recognize the deemed maturity date any longer with my insurance prefs.

Over a year ago I posted that: "Whenever I''m evaluating insurance prefs, I look at the YTM with a limit maturity of 30 years at bid, and accept that if I was really lucky and got a PAR call in 2025 or 2027, then that would be a huge bonus."

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Re: Preferreds

Postby AltaRed » 05 Sep 2016 21:38

I may be slow on absorption of information (obviously :lol:) but still believe the insurance industry will have to comply someday with NVCC compliant issues. It simply makes the playing field between banking and insurance inequitable long term.
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Re: Preferreds

Postby snowback96 » 05 Sep 2016 22:58

AltaRed wrote:I still believe the insurance industry will have to comply someday with NVCC compliant issues. It simply makes the playing field between banking and insurance inequitable long term.


I agree but the question is the definition of "long term". My theory is that OSFI intended to get this done by now; however, to everybody's surprise interest rates continued to drift downwards to the point where they flinched.

As long as interest rates are headed south (or even languishing at ultra low rates with no real sign of improvement), insurance company earnings will be severely challenged. The thought of Canadian interest rates continuing downwards (or going negative) and perhaps (under an extreme scenario) putting the viability of MFC, SLF, and GWO at risk strikes fear into the heart of regulators.

Nobody at OSFI is prepared to risk losing their cushy jobs (or a highly paid post-government corporate gig) by moving too quickly on this. Foot dragging is the safest career strategy for those involved.

Also, let's not forget that the insurance industry is a highly effective lobby group (far more effective than the banks). The thousands of insurance agents across Canada are big players in their local communities. They attend their local MP's BBQs, and coach the MP's kids hockey team. Believe me, the industry has made it abundantly clear that subjecting them to the same rules as banks is a "risky" strategy for all concerned.

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Re: Preferreds

Postby jiHymas » 06 Sep 2016 11:04

See Paragraph 249 and Question 70 of the current Risk-based Global Insurance Capital Standard Version 1.0 Public Consultation Document published by the International Association of Insurance Supervisors (IAIS) on 19 July 2016 (Available here):
IAIS wrote:249. The IAIS may consider that a principal loss absorbency mechanism is required for Tier 1 Limited financial instruments to qualify as capital resources. Without such mechanisms these instruments could be considered to only provide going concern loss absorbency through cancellation of distributions.


IAIS wrote:Question 70. Should Tier 1 Limited financial instruments be required to have a principal loss absorbency mechanism?

(1) If "no" to Question 70, should the principal be considered to provide loss absorbency on a going concern basis? Please explain how does the instrument demonstrates loss absorbency on a going concern basis. [sic]


I expect that OSFI will adopt substantially all of IAIS' standards, once they come out.

These things take a helluva long time to grind through; the bank changes happened quickly simply because they were so politically popular. I think we will all cross our fingers that regulatory changes not become so politically popular in our lifetime!

Regulators get paid by the hour, not by the job.

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Re: Preferreds

Postby big easy » 18 Nov 2016 15:55

CPD 5 year total return is -1.2% according to Morningstar and eyeballing the graph, 7 year return looks about the same. Any income generated appears to be offset by (temporary?) capital losses.
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Re: Preferreds

Postby chufinora » 18 Nov 2016 20:57

big easy wrote:CPD 5 year total return is -1.2% according to Morningstar and eyeballing the graph, 7 year return looks about the same. Any income generated appears to be offset by (temporary?) capital losses.

Speaking as someone who owned this for 3 years ~2012-2015 and sold at a loss that was $2 a share above where it is now "this ETF is a dog" and is a good example (Perhaps uniquely) of where an ETF approach does not work. I wanted to get exposure to the preferred market (as a pseudo premium return fixed asset) but was not willing to put the effort in. My take is that this is an extremely complex niche market with lots of traps, unless you are willing to learn the nuances and take the risk to buy the individual stocks, or have enough $ to invest with the guru James Hymas then you are better off leaving it along. I would like to learn this market, but inherently am too lazy (and maybe not bright enough) and don't have enough $'s to use Mr Hymas.

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Re: Preferreds

Postby big easy » 19 Nov 2016 12:15

And yet the siren song of high, tax advantaged yields keeps beckoning. The question is how to best exploit that. I hold some ZPR in taxable accounts and some individual bank prefs (non-NVCC compliant) I'm hoping will be called at the next reset date. Still it has been a harrowing ride. I guess it is best to turn off the lights and not look.

Personally I don't hold perpetual prefs. In a rising rate environment, I think those will get killed and the issuers would be unlikely to call them. The NVCC prefs are another wrinkle that disturbs ones sleep (do they even qualify as preferred shares if they can be converted to common). On the other hand, if things got so bad that a conversion to common were triggered, the non-NVCC prefs might not be worth much either.

I still don't get why rate resets got clobbered so bad. If you are getting 5yr Gov Cda + 2 or 3% on a bank issue, what's wrong with that? Isn't that why you bought them in the first place? Now you need +5% just because interest rates fell?

I'm not sure that prefs shares are worth it any more but I'll hold onto what I've got. Decisions, decisions.
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