Natixis Canada Blog

Month: June 2015


What a Potential “GrExit” Means For Global Investing

Charles Lannon, CFA Partner and Head of Global Mandates Toron AMI

Over the weekend of June 27- 28th, Greece’s Syriza government imposed capital controls on Greece’s banks (limiting withdrawals to 60 Euros a day), announced a referendum on proposed bail out terms for Sunday July 5th, and concluded a busy weekend by having party leader and Greek Prime Minister Alexis Tsipras announce that he wouldn’t support those bail out terms. Key upcoming dates include a €1.5b payment due to the IMF on Tuesday, June 30 and another €3.5b due to the ECB on Monday, July 20th. While non-payment of these is not, per the ratings agencies, technically a “default”, the latter of these two dates is important, regardless of the outcome of the July 5th referendum: it is difficult to see how Greece could remain in the Eurozone if it were to default on the central bank.

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Enbridge Update: NexGen Canadian Preferred Share Funds

Jeff Herold
Jeff Herold, J. Zechner Associates, Lead Fixed Income Manager

Enbridge Inc. finally announced details of its reorganization plan to transfer Canadian assets down to its subsidiary Enbridge Income Fund. The plan is fairly complicated but the end result is to allow the parent company to boost its expected common equity returns (including increasing common equity dividends) at the expense of increasing the credit risk for bond and preferred shareholders. Enbridge is also considering effecting a similar transaction with some of its U.S. assets, but the company did not announce any details in that regard.

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Preferred Share Market Update

Jeff Herold
Jeff Herold, J. Zechner Associates, Lead Fixed Income Manager

There was an interesting article in the June 19, 2015 Report on Business that discussed the recent poor performance of rate reset preferred share issues.

Recent rate reset issues have not gone well, in part because of issuer fatigue (too many issues from the same issuer in too short a time), and also because issuers have tried to be too aggressive with the dividend rate. As well, investors are a little gun-shy with the rate reset structure: few expected that the shares would suffer substantial losses in value as the dividend rates were adjusted to a fraction of the original rate.

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May 2015 Preferred Share Commentary

Jeff Herold
Jeff Herold, J. Zechner Associates, Lead Fixed Income Manager

The rally in preferred shares that began in mid-April continued until mid-May. However, preferred shares proceeded to give up their gains over the balance of the month. While there was new issue supply in the second half of May that was probably not the cause of the selloff. Instead, investors appeared reluctant to accept yields much lower than those levels hit in April. The new issues, for example, had difficulty selling out if the issuers were too aggressive in setting the dividend rates. The S&P/TSX Preferred Share Total Return Index earned -0.49% in May. Rate reset issues fared slightly better with the S&P/TSX Laddered Rate Reset Index returning -0.20%.

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Avoid Painting Dividend Paying Stocks with a Broad Brush

Ziegler Photos

April’s initial estimate of first quarter U.S. real GDP called for a 0.2% gain but was revised downward in late May to reflect a 0.7% annualized contraction – a level roughly in line with the 0.8% decline of the consensus forecast.  Like last year, many economists are shrugging off the disappointing first quarter results, hampered by adverse weather conditions and a major strike by west coast port workers.  Economic growth rebounded in the second half of last year, hitting a 5% growth rate in the third quarter, but economists are less sanguine about this year’s recovery.

 

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