Natixis Canada Blog

Month: October 2016

Subdued Volatility for Preferred Shares in September

Jeff Herold
Jeff Herold, Portfolio Manager, NexGen Canadian Preferred Share Fund

September featured less volatility for many financial markets than in recent months, not just for preferred shares, but also for bonds and equities. The S&P/TSX Preferred Share Index returned -0.10%, the FTSE TMX Canada Bond Universe Index earned 0.25% and the S&P/TSX Composite Index gained 1.22%. Even U.S. stocks, as measured by the S&P 500 Index, were subdued, returning only 0.02% (in U.S. dollar terms).

As can be seen in the chart below, the preferred share market weakened markedly on September 7th, led by a selloff in rate reset issues. The timing of the weakness coincided with a new Bank of Nova Scotia rate reset issue. Not surprisingly, the new issue was priced attractively versus existing issues and that prompted selling of those issues to buy the new one. The selling was primarily in older, legacy rate reset issues rather than more recent issues, such as the 5.50% bank issues of the last twelve months. The selling lasted a week and then the market began to recover. For the month as a whole, rate reset issues declined -0.16%. The other major type of preferred shares, perpetual issues, performed slightly better, finishing little changed for the month.


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