Investment Q&A

Q: I own a number of reset prefs. Most trade near the 25.00 range or below.
Two issues puzzle me
Na bank 5.6% reset 2021 at 4.9 plus Boc 5y trades at 27.00
and
Can.west Bank 6.25% reset 2021 at 5.47 plus boc 5y trades at 27.26
My guess at reset dates they will probably be redeemed at 25.
why would they trade so far above the redemption price
thanks

Q: Preference shares
Following your reply, I conclude that, even on a reset date, preference shares may not trade at face value. Therefore, there would be no point in time when an investor is assured of full repayment of capital. Why then would these shares ever be suitable for investor adverse to interest rate risk? The only exception would be the investor willing to hold the shares for an unknown period until the shares are worth more than face value or the issuer decides to redeem them. Also, I wonder whether investors generally understand that, if they pay more than face value for the shares, the dividends represent in part a repyment in capital. Preference shares appear to have an undeserved allure, suitable only for investors willing to gamble with interest rates (perhaps having a trading strategy) or remain invested for an unknow period of time. Perhaps they should generally thought of as speculative and/or suitable only for sophisticated investors. I question whether even investment advisors understand this instrument well, particularly the range of attributes among issues.

Q: Based on bitter experience, I have concluded that preference shares are generally not suitable for an investor disinterested in gambling on interest rates.

My conclusion is based on the following:
- the only type of preference share which assures the investor of a fixed capital repayment amount is one subject to a mandatory fixed redemption date.

It seems to me (perhaps wrongly) that 1. reset shares will not necessarily trade for face value on the reset date and 2. floating rate shares would never necessarily trade at their face value
- in practice, the mandatory redemption type share is not available to a retail investor, if at all.
- apart from interest rate risk, I wonder whether there is a significant spread between bid and ask, placing the investor at an automatic disadvantage at the time of sale

Am I wrong?

Q: Enbridge has a long list of preferreds, with two sets of symbols, PR and PF. What is the difference between the two classes? I was specifically interested in ENB.PF.V - any adders in the grass here? I realize volumes are very small, but this is for a buy and hold account. Finally, how come the preferreds are doing better than ENB and ENF? Thanks.

Q: Hi 5i Team: In an anticipated rising rate environment I am leaning towards adding more ZPR in my preferred share segment of my fixed income portfolio. Am I correct in thinking ZPR is (no pun intended) preferable over HPR at this time? Or should I take HPR as a little diversification as I only hold rate resets in my preferred share portfolio at the present time.

Q: Please don't answer this with the standard reply about split corporations. I know 5i is not crazy about split corporations. No one ever mentions the preferred share side of the split. Everyone talks about the ultra-high yielding Class A shares that pay over 10%. That's not what I'm asking about.

The preferred shares yield about 5%. DFN.PR.A was priced at about 10.50 in 2004 and today its price is 10.34. There was a 30% dip in 2008. Otherwise the graph is amazingly level, showing only a fraction of the losses "normal" preferred shares showed in 2015-16. Also, distributions have never been suspended. A graph of dfn.pr.a compared to the preferred share etfs CPD and HPR may be surprising. The question is, How dangerous are preferred shares of a split corporation? Certainly they have to be safer than the Class A, high yielding shares. Seems like a good place to park some cash, which is what I've been doing. Thank you for your thoughts.

Q: In relation to Jean's question concerning pref shares with reset floors, please note that bank shares do not have such floors for regulatory reasons (in order to be considered as Tier 1 capital).

Q: I'm looking to invest in the preferred shares that have a floor to there dividend. Would you recommend a couple of choices that you feel are a good investment.

Thanks Jean

Q: With anticipated increase in US interest rates fixed rate income investments are expected to suffer, examples are ZPL & PGL.

Any thoughts on why preferred shares are experiencing the opposite trend with substantial gains, examples TRP.PR.E & RY.PR.Z?

Q: I hold 2000 EFN.PR.C in the fixed income portion of my portfolio, with the changes that have taken place do you think it is a safe hold?

Q: What do you think of this preferred share issue? Does it pay a cash dividend? What are the risks? Royal Bank of Canada (Ry.PR.J) Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BD.

Q: I wanted to ask about Discovery Air, but the "ask a question" interface doesn't recognize either the symbol or the name - not sure this is how this is supposed to work. I believe that, in a previous iteration of this interface, 'DA.A' was recognized and searchable as such.

In any case, today's press release from Clairvest <http://www.marketwired.com/press-release/clairvest-update-on-its-investment-in-discovery-air-inc-tsx-cvg-2201427.htm> announces their intention to purchase (at a substantial discount) all the common shares not already owned by them or their affiliates. Supposing this occurs, does this devalue the convertible debentures, or do the debs effectively become a kind of private debt? Put another way, could this actually be good for the security of the debentures?

Edit/share (or not) as you see fit.

Q: Can't say enough times what a great service you guys offer.

Is there an EFT similar to CPD but with a focus on American preferreds? Thanks.

Q: Bank of Montreal Rate Reset Preferred Shares Series 40

Is there any downside to this issue, or is it just a good, solid investment?

Q: Are there any equivalents to Canadian rate reset preferred shares in the US?

Q: My Question is on the Transalta preferred shares. I have the series C preferred shares that are paying me 6.8% and with reset this June expect the yield will be about 6.7%. I see that the company decided NOT to go ahead with the proposed exchange of the preferred shares last Friday. Is this a good or bad sign?

How risky do you view the Transalta preferred shares in terms of ability to pay dividends and viability long term of the company?

Please feel free to publish.

Tony

Q: Hi Guys,

Can you please explain the details around TransAlta PLAN of Arrangement on the consolidation of their preferred shares. Good for unit holders or not? Feels like there might be some upside on dividend but concerned that share value might be affected negatively.

Q: A guest on BNN said this was a new kind of preferred share. Is it a good way to diversify portfolio and gain some yield. What are risks to this investment or is owning common stock of TransCanada a better idea.

Q: I am looking for rate reset or floating rate individual preferred shares or ETF for US companies. Could you please provide me a list of ETFs listed in the US and Canada. Where can I find a list of preferred shares for US Companies?

Thanks

Q: I recently bought some of this preferred. I would like to know if it is eligible for the dividend tax credit? If not, pease explain