Following their very strong gains in January, Canadian preferred shares continued to move upward in price in February, but at a more subdued pace. Reduced activity in preferred share Exchange Traded Funds (ETFs) probably accounted for the smaller preferred share gains. The Bank of Montreal Laddered Rate Reset ETF (ZPR) experienced a 45% drop in units created from January to February, although a meaningful $81.8 million still flowed into the ETF. We suspect that the lower activity in ZPR reflected reduced hedging requirements for structured notes as the RSP season wound down. Because of the lower demand for rate reset preferred shares, that sector underperformed the broad market for the first time since last September. Also in February, new issue activity increased to four issues, compared with only one the previous month. The S&P/TSX Preferred Share index returned 1.49% in the month.