Natixis Canada Blog

Month: April 2014

BMO Redemptions: Comments from Jeff Herold, CFA

As expected, the Bank of Montreal announced today that it will be redeeming its Series 21 preferred shares (BMO.PR.O), effective May 25th. The $275,000,000 issue had a 6.50% dividend rate and a reset spread of 458 basis points.

At current prices, investors should carefully consider taking profits now, if they hold this issue. The yield until redemption of BMO.PR.O is quite low and there is an opportunity to reinvest at much better yields. In addition, new issue supply continues to lag the pace of redemptions, and with $1.8 billion of redemptions scheduled for the end of this month, demand for remaining issues is expected to remain strong.

Jeff Herold

Avoiding NVCC Issues: Comments from Jeff Herold, CFA

Bank of Montreal is raising $500,000,000 with an NVCC-compliant, rate/reset preferred share issue today. The dividend rate will be 4.00% and the reset spread will be +233 basis points.
While the issue was well received, we chose not to participate as we saw better value in other issues. The slow supply of new issues so far in 2014 means there has been unsatisfied demand, resulting in some issues becoming over-valued. In addition, we believe that the market is not yet pricing in the incremental risk of loss with NVCC issues and prefer to avoid them for now.

Jeff Herold

Quarterly Preferred Share Index Review: Comments from Jeff Herold, CFA

The quarterly preferred share index review has occurred with the following additions and deletions to be made in the S&P/TSX Preferred Share Index and S&P/TSX Preferred Share Laddered Index after the close of business on April 17, 2014.

S&P/TSX Preferred Share Index

S&P/TSX Preferred Share Laddered Index

In order for a preferred share issue to be included in the index it must be listed and trade in Canadian dollars on the Toronto Stock Exchange. In addition, it must have a market capitalization of at least C$100 million, a minimum three-month average daily value traded of C$200,000 and a minimum rating of P-3 or equivalent.

The expectation is that this rebalancing will have minimal impact on the price of the issues being added as large index ETFs already hold many of these issues. The impact on the price of those issues being deleted is harder to determine as they will be influenced by the trading patterns of index players.

Ian Clare  

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