Research: When Will Preferreds Recover?

2007 was a rotten year for preferreds. In the January, 2008, edition of Canadian Moneysaver, I attempted to explain why.

Look for the research link!

Update, 2008-2-19: In the article I indicated my amusement at the mention of preferred shares in the BMO annual report:

It is noteworthy that BMO revealed a charge of “$160 million in respect of trading and structured-credit related positions and preferred shares” – surely one of the few times that preferred share trading has been mentioned as a significant element of a Canadian bank’s profitability!

BMO has just announced another writedown including:

Trading and structured credit-related positions, preferred shares, third party Canadian conduits and other mark to market losses, approximately $175 million pre-tax.

Those durn preferred shares, eh?

10 Responses to “Research: When Will Preferreds Recover?”

  1. lafontaine says:

    When Will Preferreds
    Recover?

    Your articles are always very interresting…

    I have a simplistic way of analyzing and building my preferred shares portfolio:

    1) stick to the best only – Banks and Pow / Pwf / insurance co

    2) buy on weakness and buy only good interest bearing pref( 5,6%+)

    3) keep in mind the 2% rule ( example :medium term municipal bond at 4% or Pwf.pr.G at 25 : 5,9% equivalent at 8% Qc or 2.2%+ of additionnal tax free interest: after 4 years net cost of share 22,75$ ) , so that on the medium term , you can put things in perspective if the market fluctuate.

    4) take a small profit once in a while….

    Louis Lafontaine

  2. [...] Those who have read my most recently publicized article When Will Preferreds Recover will remember that March-November 2007 marked the greatest peak-to-trough decline in the BMOCM-50 Preferred Share Index going back to at least 1993-12-31. Such readers will doubtless be interested to note that, as of today, the calculated NAV for CPD now shows a decline of 1.06% for January to date, vs. a gain of 1.14% in December. In other words, we are now within a whisker of deepening the trough. Have a nice day! [...]

  3. [...] It was another interesting month, in terms of trends. Readers will remember that strength in early December evaporated in the face of tax-loss selling, exacerbated by sudden concerns regarding the credit quality of CIBC. In January, early strength was blown away by the new BNS perpetual issue, which raised fears that the market would reprice itself to reflect the concessionary 5.6% coupon. These fears proved to be unfounded … but not before the market came very close to dipping below its November 30 value – which, for now, remains the month-end marking the market’s low point. [...]

  4. [...] The FloatingRate index bounced back (just a little bit!) from its disastrous performance in December. The tepid returns for the two perpetual sub-indices mask a great deal of excitement – at its peak on January 16 the PerpetualDiscount index was up 1.85% on the month, while at its trough on January 21 it was down 1.23%. The downdraft was caused by a new issue: BNS.PR.O, announced January 17. There was extreme fear that this could presage another hit to the market as happened in September, but by the time TD.PR.Q was announced January 22 the worst was over. [...]

  5. [...] BMO has announced another writedown involving preferred shares – I have updated the post regarding preferred performance in 2007. In another update to an old post, I’ve added some information to Seniority of Bankers’ Acceptances … which I find particularly interesting in view of concerns over the monoline business model. Finally, the most recent post re ABK.PR.C has been updated … everything is proceeding as anticipated. [...]

  6. [...] outperformed its benchmark during a vicious downturn – the causes of this downturn have been previously discussed. Large market moves are, in general, good for the fund’s relative performance because [...]

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  8. [...] the $1.1-billion in seven issues is down 56.5% by dollar value and 50% by number from 1Q07. I have previously suggested that heavy issuance in 1H07 was at least partly responsible for 2007’s horrible [...]

  9. [...] but gloomy, Readers will be fond of my article When Will Preferreds Recover?, in which I pointed out: I have examined the last 14 years history of the BMO-CM 50 Preferred Share [...]

  10. [...] Readers will remember that I laid at least part of the blame for preferred shares’ appalling performance in October 2007 on forced-sales to meet [...]

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