Investment Q&A

Q: Dear Sirs,

Looking for your thoughts on Primero - it recently came to market with a 5 year US pay debenture(5.75%)and subsequently has traded down from the $5.80 area, where the debenture has begun trading in the low 90's. Any reason for the steep decline and do the debentures represent value at these levels?

With thanks,
B

Q: Hi Peter and Team

I am a 70 year old retiree and currently have 90 percent of my savings in Equities and 10 percent in cash. I am concerned that I should have some fixed income for safety in event of a significant market pullback. Can you recommend either a bond etf or bond mutual fund that would offer some protection and a modest return. What percentage would you recommend.

Ray

Q: Hi Peter,

Could I have your opinion on Bombardier Pref B ? I have about a 50 % loss if I sold today, don't mind the income but concerned about future down side. Would you sell and move on ?

Thx
Dave

Q: I am confused re value received on call / reset date and would appreciate if u could clarify
Example : perpetual BRF.PR.F trading now at $22.40 and bought at par @$25.00 with a call date 31 July 2018 at $26.00. Can you explain why it would be called at this price and how likely is this ?

Example : RESET. AQN.PR.A trading now at$18.40 and bought at par at $25.00 with a reset date 31dec 2018 for $25.00 Does this mean that on 31/12/2018 the investor has the choice (or is it the company's choice ) to cash in the shares ? Secondly does the investor get the par value $25 or the current market value on that date for the shares?

Q: I own the above reference rate reset preferred shares,. All of the share were bought at the issue price of 25.00 and all are now underwater. It appears that recent rate reductions by the Bank of Canada have pushed their value further down. My question ,are these shares permanently impaired or if the five year rate were to increase, significantly, in five plus years would they return to their 25 dollar value. Is there in effect a type of " option" not reflected in the current price. Thanks

Q: Hi Peter- Rate reset prefs dropped around 4% with the BOC cutting rates due to the fear of a lower BOC rate upon reset ( I think!!). We know that perpetual prefs 'should' drop on interest rates rising. Therefore, can I assume that rate reset prefs offer a good hedge to perpetuals? In my preferred portfolio, my mix is 70% Canada bank resets and 30% US bank perpetuals. Assuming yes to the first question and the current interest rate environment, do you agree with this mix. Thanks for your opinion.

Q: A point of clarification regarding rate reset pref shares. When the rate is reset - I assume that the new dividend is based off of the "par" value of the share - $25 - and not the current market price at that time. For example - ENB.PR.B - on the reset date the new div will be derived based on the 5 year gov bond rate plus the spread of 2.40% applied to $25 and not the current market price at that time which is currently lower than $25. Thanks

Q: My question is regarding ENB preferreds. It would seem they have all been subject to a sell off. Do you know the reason and is this a buying opportunity? I hold two of the issues and would seriously consider a top up.

Q: I hold a few preferreds of different types and from different companies and must admit that the recent price movements of perpetuals versus rate reset, floating etc. has been an eye opening experience. Some of your Q and A explanations have helped explain a lot. I have a question specific to Bombardier preferreds BBD.PR.C There is a lot of talk about the possibility of Bombardier having to raise money with either a share or debt issue to overcome the current cash crunch and respect debt covenants. If this were to happen, it would obviously be taken negatively by the market, but how would you expect the preferreds to react? Is it possible that shoring up their balance sheet would actually support and lift the price of the preferreds, or would you expect them to drop together with the common shares? Same question if they were to reduce or eliminate the common share dividend, how do you think the preferreds would react?

Q: Hi - Back in 2009 I bought a number of Corporate Bonds (all at a discount) which have done quite well. Unfortunately, a good chunk of them are coming due and I would like to replace them. Finding decent yields is alot tougher. I am looking at Preferred Shares as a potential replacement both for the yield and the dividend tax credit which makes them look even better than corporate or gov bonds. In my view the Prefs - particularly for banks and utilities have risk closer to bonds than equities. Do you agree? Many thanks

Q: I set up a 5 year preffered ladder on the advice of a local adviser. Most of these investments are rate reset types. This ladder is has lost me a lot of money. I note that I'm not the only one in this sinking boat. My question is straight forward. Do I hold these shares or sell them?

Q: I am down 25% after today on cpx.pr. I must admit I did not understand how much it could go down in a reset rates. If interest rates go up later in the year, will those shares go up again? Though it pays a 7% yield, when you are down 25% it is not much comfort. I am thinking of selling and putting the money I have in something with growth and try to recoup the money that way, something like exco or evertz. Your thoughts please. Thanks.

Q: Hello,

ZPR is now down over 5% ytd. This seems to be more than interest rates concerns. Has the credit risk increased? Any ideas why the preferred market is being hit so hard?

BTW, I noticed that the credit ratings of CPD holdings has been removed from their website. I called Blackrock about it: they said they would find out and call me back, but they never did.

Thanks, Greg

Q: The 5 year yield on Canadas is 0.69%. ENB.PR B has dropped from $24.86 to $20.97 since November 17. Do you think now would be a good time to start taking positions in preferreds rather than 5 year GICs @1.25%? Or is an ENB problem causing the decline?
thanks for the ongoing quality replies. I should note that, if today was the 2017 reset, the yield would be 3.09% based on the 240 plus .69

Q: Good Morning
Can you please tell me as to why the RATE RESET PREFERRED SHARES are being hammered since January 19, 2015 when at the same time the PERPETUAL PREFERRED SHARES ARE RISING????????????

Examples of Falling Rate Reset Preferred Shares:
VSN.PR.A down 8%
ENB.PF.C down 4.3%
PPL.PR.G down 5.4%
BRF.PR.A down 5.7%
TA.PR.H down 3.7%
SLF.PR.I down 3%

Examples of Rising Perpetual Preferred Shares:
BRF.PR.E up 3.4%
SLF.PR.D up 1%

I own several rate reset preferred shares and I will appreciate your response as to why the rate reset preferred shares are being hammered when at the same time the perpetual preferred shares are either maintaning their value or rising.
Thank you.

Q: Good morning,

Looking for your insights on a number of preferred shares that are nearing reset in the next year or so and whose prices have been driven down given the recent bank of Canada rate cut and decline in 5 year Canada's. Do you feel these declines represent a buying opportunity in these shares? Also in terms of reset options, the 5 year canada and 90 day bill rates are maybe 20 bps apart, does this make the floater rate the more logical choice, given the redcent compression/ flattening of the yield curve?

With thanks,

Thank yo for your insights.

Q: Hi Team,
I was considering buying this ETF for yield and relative safety for the next couple of years. Can you share your thoughts. I am assuming that it has declined because the recent BOC rate cut?

Thanks as always for your reply.

Q: Comment to David's question this morning:
Assuming that the 5-yr BoC rate (used to determine the reset rate of the preferred shares) at the reset date of March 2016 remains at today's (historically-very-low) value of 0.82%, a discounted cash flow analysis indicates, that at the current bid price of $14.10,the long-term yield of FN.PR.A is 5.3%. This is OK but perhaps a bit on the low side for a sub-investment grade preferred ("Pfd-3").

On the other hand, if you believe that the 5yr-GoC will rise to 1.10% (still low by historical standards) by March 2016, the yield-to-perpetuity increases to 5.8%.

Q: Hi There
You seem comfortable with the common stock, based on a couple of recent questions. I'm wondering, before I buy some, why the pref has been on such a steady long term decline . Am I missing something with the generous pref yield?

Thanks
David

Q: follow up dumb question, then i'll go away...does a company ever chose to redeem preferred shares if the price falls below the issue price? or put another way, in most cases what is the motivation for a company to redeem its preferred issues?