Canadian Chat

There is plenty of discussion going on throughout the site on various Canadian securities so this post is for creation of a “Canadian Discussion” page.

This was requested by a reader and it is easy to do so we can do it quickly.

Hopefully this will be a page for those with Canadian interest will meet up.

415 thoughts on “Canadian Chat”

  1. The BOC met on Wednesday and left the overnight rate (same as Fed funds rate) unchanged at 1.75%, but hinted at a rate cut on the next go. The BOC 5-year, which isn’t set directly by the bank, immediately dropped.

    In the last 10 trading sessions, the BOC 5-year has doped by 20 basis points, from 1.62 to 1.42, while the BOC 3-month rate has been largely unchanged. There is presently a 22 bps inversion between 3-month and 5-year. Not stable.

    Despite the drop, Canadian preferred haven’t dropped much in price. But I see cracks in pricing starting to appear, which has the potential to lead to lower prices. A little economic bad news could get the job done.

    Perhaps to post something after markets have closed.

    1. Noticed the same. Some cracks are starting. It also seems (to me) that the drop in US yields is impacting the Canadian bond market. Their yields seem to move in the same direction as the US yields. At least for the 3-4 months since I have been focusing on bond yields in Canada

    2. A technical question: BCE.PR.Y or BCEFF (OTC) shows a dividend of .08229 each month on TSX. For the life of me, I cannot replicate this amount. My attempt.. Prime rate of 3.65 times 80 % plus adjustment of 4% of Prime (per Prospectus as trades low) = .03066 %…. applied agains $25 par and divided by 12 (it pays monthly) = $.06288 C. What am I missing.. not feeling too smart.. Thanks

        1. Thanks for reply on BCE.PR.Y. Yes, you are right- prime is 3.95 and it pays at 100%. I have an inquiry in to BCE to ask why prospectus is 80% of prime plus an adjustment of 4% of Prime and not just 100% of Prime. Will let you know. Again thanks

      1. Logic – as Steve indicated Prime is now at 3.95%.

        If you go through the prospectus, and it’s weird pricing mechanism, you find that the issue is effectively pinned to 100% of prime for now. 0.08229 per month is exactly correct.

        The yields on the BCE floaters are very rich.

    3. The Canadian market is pricing in a policy mistake. BOC should have cut and now they have a very significant yield curve inversion on their hands. The longer the curve is inverted, the greater the risk of a BOC-induced economic slowdown. They need to get off their behinds and make a course correction to get the yield curve uninverted. BOC rate is above the US rate and they need to be below it.

  2. BOC held rates steady yesterday which the market didn’t like, inverting the yield curve even more and sending the 5 year to 1.40. Haven’t seen that level for a while. No real impact on reset preferreds yet.

  3. Are Canadian preferreds cheap or expensive? “Compared to what” you say? How about compared to themselves?

    There are a couple ways to gain some insights here. One is to compare the “spread” between the BOC 5-year and 5-year resets over time. The former is currently 1.58% and the latter is 5.61%, a difference of 403 bps.

    The 5.61% is the stripped yield, based on current dividend rate, of the cohort of 137 resets that I currently follow. It’s not the whole market. The reset rate on the cohort is 18 bps above the current nominal rate, meaning the “real” spread is a bit more than the 403 bps indicated.

    How does 403 compare to history? Going back 10 years, to late 2009, the reset-BOC 5 spread has been as small as about 100 bps and as wide as about 475 basis points. Right now, as I said, it’s about 400 bps, which makes the spread wide relative to its 10-year average.

    “Wide” equals fat yields, which is good for investors.

    Another way to get a feel for the market is to look at the rate of new issuances compared to redemptions. If issuers are pumping out new issue like mad it’s because prices are good for them, not you. On the flip side, if issuers are redeeeming like mad, it suggests that prices are good for investors.

    In 2019, there were a total of 9 new Canadian preferred issued, 6 bank issues, 2 Brookfield issues, and 1 electric utility issue. (I’m ignoring split corps and other screwy stuff.) That compares with about 180 or so outstanding reset issues. The total number of Canadian preferred, including min rates, fixed, and floating, is 400+. Put another way, the rate of new issuances is down to a trickle. It’s like the birth rate in western Europe.

    So let’s look at redemptions. In 2019, there were few, if any, redemptions. But many among you will understand that that is because most of the resets are so far under water that no preferred issuer in their right mind would redeem their issues.

    However, issuers have been buying their own preferred in the open market hand over fist, under so-called “normal course issuer bids”. That’s Canada speak for share buy backs. The number of preferred shares outstanding is actually shrinking.

    The reason is not because Canadian firms have gone to an internally-funded model. They just find preferred “expensive” relative to the alternatives of issuing stock or selling debt. I see the same thing in the U.S. market.

    Preferred are often described as being either expensive debt or cheap equity. It seems, right now, in both the U.S. and Canada, that would-be issuers find preferred to be too expensive as debt and not cheap enough as equity. Would-be issuers are choosing to avoid new preferred issues. Investors are being pushed to accept either lower yielding debt or higher risk equity.

    No advice here. Do what you will do based on your own situation. I own a snoot full of Canadian preferred, mostly resets, almost all bought in cheaper markets than what we see today. I’m not maxed out but I’m much closer to it that most of you, I’m sure. I’m a selective buyer today and always on the lookout for the next crisis, whenever and from where ever it may come. There is always a next crisis.

  4. Canadian withholding tax on preferred shares …… do you pay more in total tax because of it? The answer is it depends on your U.S. Federal tax rate, as I explain.

    To get an answer to the question I used tax software and constructed 2 hypothetical couples, both married/filing jointly. The first had taxable income of $126,000 (2018 return, line 10) and the second had $226,000 on line 10. I did each couple, with and without US$15,000 in Canadian preferred dividend income, withheld at 15% or US$2,250. The Canadian income was substituted for an identical amount of U.S.-source income so as not to change the total taxable income for either couple.

    The question then became how much of the Canadian withholding did the two couples “lose” on their U.S. returns because of the Canadian withholding?

    In the case of the $110,000 couple, the loss was $824 out of the $2,250 withheld, and in the case of the $226,000 couple it was $2.

    The reason, upon reflection, is intuitive: Canada is going to withhold you at a 15% rate no matter your U.S. tax situation. If your effective U.S. Federal tax rate is less than 15%, then the U.S. is not going to make up the difference for you. And neither is Canada. So the difference, if any, between the 15% Canadian withholding and your effective U.S. Federal tax rate, goes bye-bye. The lower your U.S. Federal tax rate the greater the loss. At higher incomes (anything above a 15% rate) the loss asymptotically approaches zero.

    So what does it mean? For the $126,000 couple, they “lost” $824 on approximately a US$250,000 portfolio of Canadian preferred (this is the portfolio that would be required to generate $15,000 in dividend income and $2,250 of withholding, assuming a 6% average yield on cost). That $824 loss works out to be a 0.33 percentage point loss in return. For the $126,000 income couple, that is the cost of “buying Canadian”.

    For the $226,000 couple, there is no loss of return.

    In my case, I compare the QDI preferred opportunities in both the U.S. and Canada, considered the taxes, and went from there. My portfolio of Canadian preferred was acquired at a simple average YTW (stripped, at time of purchase) of 6.16%. The weighted average would be a little higher. The average credit would be about BBB-, with none lower than BB.

    I did not see those kinds of returns available in the U.S. market at the time and still don’t. Not for quality product, on a buy-and-hold basis, without call risk, and without having to nibble on the edges of the market.

    The above discussion pertains solely to QDI preferred (almost all Canadian issues are QDI) held in NON-QUALIFIED U.S. accounts (meaning they are not IRAs, 401Ks or similar).

      1. Yes. If you use software the Form 1116 is generated automatically from 1099 data entered.

        Last year, I had foreign source income across 7-8 accounts and it was easily consolidated into a single Form 1116.

        1. Bob – what does the software say if there is $50k of wages and $15k in Canadian dividends withheld at 15%?

    1. Good summary Bob. We should probably add one distinction for couples with $600 or less withheld, which equates to $4,000 or less (singles $300/$2,000) in CN distributions. That couple should utilize 1040, Schedule 3, Line 1. A (super-simple) single entry provides 100% credit of the withheld amount. Qualifying criteria on page 2 here: https://apps.irs.gov/app/vita/content/globalmedia/4491_foreign_tax_credit.pdf

      Also: most couples with $600 or less withheld should not use Form 1116, as reduction of the credit is a near certainty. An exception would be if rolling over prior years’ disallowed amounts.

      1. Thanks for this added input, alpha. Do you know if tax software will recognize the lower amount and put it on Schedule 3, line 1 or does it put it on Form 1116 and you have to override it?

        1. HR Block’s tax cut program automatically puts it in the right spot. I have claimed the Foreign Tax Credit for years and never completed Form 1116. My amount is small enough that it is just a one line entry on the 1040 form

  5. Transalta raised their common stock dividend. This is after increasing their FCF guidance last month. Certainly good news for the preferreds which trade at 7%+ yields.

    Debt/EBITDA of 4x for a power generation utility is quite reasonable and leverage is on its way down. The main downside leading to their low credit rating is their coal fueled generation. The market for coal generation is weak and they’re unable to obtain long term contracts for that. However, they are reducing coal ops and replacing them with gas. My guess is coal stays in use longer than people are expecting but it’s not surprising that no one wants to commit to buying coal electricity long term.

  6. I’m perplexed. I’ve been successfully both buying and selling a number of Canadian preferred issues using the over the counter symbols on Schwab.
    For some reason I’v run into trouble with NPIWF. I am unable to execute a sell order. I’ve been trying for a couple of days. I’ve gone through the process of checking bid and ask prices for NPI.PR.C done the math and have various asks in place that should have executed. Any ideas?

    1. Jim – issue shows good volume and current bid of C$19.79, US$15.14.

      I do all my trading on the TSX but others have reported having OTC bids getting “stuck”, even when they should execute.

      You can lower your ask, and see if that triggers, but at risk of selling cheap.

      Or wait.

      What I think is that these OTC bids require human intervention, and if a bid or ask is right at the money, the human doesn’t bother. You have to go outside the bid/ask to wake them up.

      Just a guess.

      1. I’ve tried going out of the range. Nothing has happened with the over the counter symbol for a week it appears in spite of reasonable volume for NPI.PR.C . It looks like schwab is showing volume for C as the NPIWF volume. By the way, the bid and ask numbers at Schwab are right on the money based on the Toronto exchange numbers for the C. Schwab’s trading platform , Streetsmart edge shows nothing with regard to current price or bid/ask. So I’m guessing the “human” would be in Toronto, perhaps napping.

      2. Well I think this is the impetus that I need to open an account with Interactive Brokers. Is that deal that you mentioned a few weeks ago still available

        1. Jim – on IBKR I last looked about a week ago and the referral page was still live.

          In order to submit a referral I need a first and last name, an email, and a phone number. Once I submit it’s in IBKR’s hands.

          Send to me as a PM through Shrinking Alpha. Same nic as here.

    2. I own NPIWF through Schwab. Sometimes with OTC Canadian preferreds through Schwab, I need to up the bid about $0.05 above what I see in ask price on TMXMONEY. It then often executes within a few cents of that ask price

    3. Jim,

      I’ve had a lot of problems buying issues using OTC symbols. But I’m not willing to put in a bid 5 cents above the ask and just hope for the best.

      Also, I think NPI-A is a little better than the C series. I like that it will reset on 9/1/2020, locking in what should be a good rate for five years. Based on VIX futures, the market is pricing in a potentially highly volatile event in November. I like resets that price prior to that event. NPI-A is my single largest Canadian position and top 5 overall.

      1. Jim – I would concur on preferring the A over the C, depending on your view of interest rates and what the rest of your reset ladder looks like.

        But 5 cents? My position in NPI.PR.A was purchased at 14.49, versus present 16.10. Somewhere along the way 5 cents loses importance to me.

      2. LI,
        Slow on the uptake. Highly volatile event. Made me laugh. I need to get beyond the limitations of the OTC system.

    4. Last trade was on jan 10.close at $14.86 U>S>
      I own shares in my TDA account.
      When I want to trade OTC issues
      I always enter the buy or sell at
      10 cents over or under the bid and ask and TDA usually splits the difference. If the price moves I move accordingly.
      I do not care about the pennies difference, but understand many investors do.
      If I wanted to sell Tuesday I would enter $14.75 and see what happens for the rest of the day.
      I am a hold.
      You can always call and see if the broker can force the trade through for you with the online commission if your broker charges one.
      Howard

      1. Thanks for that info Howard. I did try a variety of different sell orders. It’s odd that there were no shares traded for a week given the the equivalent Canadian symbol had reasonable volume during that period. Anyway I’m on my way to an Interactive Broker account which should make things a lot more simple. Bob-in DE helped me with this and the process with IB has been very sweet.

    1. EMA.PR.F reset yesterday. Like the issuer, like the issuer, just so-so on the price. Yield is 5.84% at the reset rate.

      I was a buyer of this issue months ago but no now.

      EMA.PR.G is unlikely to ever issue.

  7. https://tax.kpmg.us/content/dam/tax/en/pdfs/2019/global-withholding-taxes-guide-kpmg-2018.pdf

    Pretty interesting document re: worldwide taxes and treaties, etc. Does this portion detailing Canada shed any light on issues some of you are having with your brokerages witholding monies you think they should not be?

    Don’t shoot the messenger. Just posting in case this may help someone. I personally, don’t have any witholding issues w/CAN holdings.

    Seems like a pretty cool document to help with deciding whether to buy some other foreign securities like the Greek based shippers and such.

  8. Comments on BAM floating rate issues ….

    I restrict this discussion to the 4 BAM issues that are based on Prime, BAM.PR.B, BAM.PR.C, BAM.PR.E and BAM.PF.K.

    The issues are identical in the sense that that are all the same credit, are all callable “any”, and all float based on Prime. Where they differ is the percentage of prime. The B, C and K issues all float at 70% of prime. The E issue, effectively, is pinned to 100% of prime (yes, it’s a bit more complex than I made it out).

    As one would expect, the B, C and K issues trade at essentially identical yields of 5.71% to 5.77% at today’s close. No reason they should differ.

    The E issue closed today to yield 6.13% , almost 40 bps higher. In my judgement, the difference is not justified. Even if one assumes a cut in prime, the E still gives a higher yield at present prices. A higher yield for no more risk = free money.

    BAM.PR.S floats off the BOC 3-month rate, so is not comparable to the other 3.

    If I were to purchase one of the BAM floaters, at present price, it would be the E.

    BAM may or may not be appropriate for you. Floaters, based on Prime or otherwise, may not be appropriate for you.

    1. Okay. My starter position order was completed for BAM.PR.E. An OTC symbol should appear in the next day or so. I will publish it when I get it for anybody else interested in buying it.

          1. Got it, thanks. I was trying to see what broker TSX reported for a sale through Schwab. There was a 300 share trade at 10:27 through TD but not you.

            My trades on IBKR show up as “Anonymous”.

            1. This may sound nuts but I felt my trade in CU.PR.H never showed up. But it could have been broken up into smaller trades. My guess was if it was it was CIBC

  9. Gentlemen, sorry to say but I’m puzzled with a DBRS rankings.
    According to the manual from their site all issues having Pfd-3 grade are IG:

    “Pfd-3
    Preferred shares rated Pfd-3 are generally of adequate credit quality. While protection of dividends and
    principal is still considered acceptable, the issuing entity is more susceptible to adverse changes in
    financial and economic conditions, and there may be other adverse conditions present which detract from
    debt protection. Pfd-3 ratings generally correspond with issuers with a BBB category or higher reference
    point.”
    But I often read in the comments that only pfd-2 and above are considered investment grade.
    So I will be very appreciate if someone will explain me this distinction.

  10. The future of Bombardier Inc. is being called into question after the company said it was actively considering alternatives to reduce its staggering debt.

    After exiting the commercial aircraft business, selling its aerostructures unit and unloading a large tract of land in Toronto, the company said it is working to reduce debt and “solve its capital structure.” Bombardier’s long-term debt stood at more than US$9 billion as of Dec. 31, 2018.

    Do not own, just passing along

    https://app.tmxmoney.com/news/cpnews/article?locale=EN&newsid=pcw98445&mobile=false

    1. Steve & others – I have never included Bombardier in any of the spreadsheets I have posted. For good reason.

      I consider it uninvestible. If it were not in Canada, and more specifically in Quebec, it would have died long ago.

      If you want to live on the wild side, with a reasonable hope of getting your money back, look at Dundee Corp.

      Another issuer with a colorful past.

      1. There are a lot of moving pieces with these Canadian preferreds. So far, I’ve tried to get the highest quality companies I can to try to minimize the level of risk. If you added bankruptcy risk to the inherent currency and interest rate risk, it would probably make my head explode.

      2. Pass on both. Ran across bombardier on tmxmoney as lead story. I knew they had some preferreds, so I posted it to alert others.

    2. Bombardier / AirCanada- Stay clear.

      (https://www.fraserinstitute.org/article/bombardier-and-canadas-corporate-welfare-trap)
      Bombardier’s corporate welfare began, at least federally, in 1966 when it received its first disbursement of $35 million from the federal department, Industry Canada. In the decades since, various Bombardier iterations received over $1.1 billion (all figures adjusted for inflation) in 48 separate disbursements from just Industry Canada. That includes two 2009 cheques worth $233 million.

      (https://www.fraserinstitute.org/article/air-canada-still-flying-high-on-ottawas-corporate-welfare)
      (https://dealbook.nytimes.com/2009/07/30/air-canada-gets-bailout-from-ottawa/)
      Air Canada has secured a 1.02 billion Canadian dollar ($922 million) lifeline with some help from the federal government, giving the carrier a crucial infusion of cash to help it survive the recession and avoid another trip through bankruptcy protection, The Globe and Mail reported.

  11. New Canadian OTC Symbols. All of these are fixed-rate, callable, but trading under Par. Current yield 5.2%. Credit ratings S&P equivalent is BBB (Canada DBRS ratings of PFD-2),

    MFC.PR.B is MNQFF
    Manulife Finl Corp CL A SER 2 Preferred Stock (Canada)

    MFC.PR.C is MNUFF
    Manulife Finl Corp CL A SER 3 Preferred Stock (Canada)

    SLF.PR.B is SLFSF
    Sun Life Financial Inc. CL A SER 2 Preferred Stock (Canada)

    On the new symbols, using the Schwab platform, I use the all-in-one-ticket to buy or sell these.

    1. I am going to open up my last two fixed-rate Canadian issues for 2020 tomorrow.

      They will be PWF.PR.Z and PWF.PR.L

      Will post OTC symbols tomorrow night

      1. Steve – what about BAM.PR.E? Currently yielding 6.18%. Curious what others think of this one. I’m not sure if the fact that it is tied to the prime rate should be somewhat advantageous compared to the 3 month. The info below gave me flashbacks to my college calculus classes.

        https://bam.brookfield.com/~/media/Files/B/BrookField-BAM-IR-V2/preferred-shares/2019-pref/Provisions-ClassAPrefShare-Series8.pdf

        The holders of the Series 8 Preferred Shares are entitled to receive monthly floating cumulative preferential cash dividends, accruing daily, as and when declared by the board of directors on the 12th day of each month in an amount per share equal to the product of C$25.00 per share and one-twelfth of the annual floating dividend rate applicable to the month being the average Prime Rate for the month multiplied by a Designated Percentage as provided in the share conditions. The Designated Percentage established for November 2001 was 85%. Thereafter, the Designated Percentage has been adjusted each month based on the average trading price of the Series 8 Preferred Shares, to a maximum of 100% and a minimum of 50%.

        The adjustment factor applied to the Designated Percentage is calculated as follows:

        If the Calculated Trading Price for the preceding month is The Adjustment Factor as a percentage of Prime shall be

        $25.50 or more -4.00%
        $25.375 and less than $25.50 -3.00%
        $25.25 and less than $25.375 -2.00%
        $25.125 and less than $25.25 -1.00%
        Greater than $24.875 and less than $25.125 nil
        Greater than $24.75 to $24.875 1.00%
        Greater than $24.625 to $24.75 2.00%
        Greater than $24.50 to $24.625 3.00%
        $24.50 or less 4.00%

        The maximum Adjustment Factor for any month will be +/- 4.00%.

        1. I like being tied to the prime rate, as a general concept, because we are not going negative on this rate.

          I am basically at my self imposed reset or floating rate limit of 10% for Canadian preferreds (at 9% right now) but may buy more of TD.PF.D (TDBKF that you opened up) if I can get a better price.

          I have two similar issues of a lesser quality preferred Canada Bell (PFD-3) current yield is 6.3%. BCE.PR.H (BECEF OTC symbol) and BCE.PR.Y (BCEFF).
          I like the Telecomm space if the economy pulls back similar to my UZA (non investment grade) holding.

          I am a pass on this one but not for the concept. I like the concept and idea of prime rate floating

    2. SLF was upgraded to BBB+ on DBRS. Flagship of the industry.

      You had 3 of the 4 additions on FINRA dailies yesterday. Must be some kind of record.

      1. thanks for upgrade info on DBRS for SLF.

        I am going to hold off on any more OTC symbols for PWF. I put my funds into PWF.PR.I at 6% instead. Paid a little above PAR for PWF.PR.I but I sold GWL.PR.F for a small capital gain that covers the risk exposure. Playing with the house’s money. Holding WFC-T (sold today) and COF-P has worked for me. It’s another one of my short term trades that exceed money market rated that last until the call actually occurs. Except, of course, there is some currency risk to this one,

  12. Is anyone currently aware of a broker who will not withholding on Canadian preferreds held in a retirement account? I think we know that Schwab will disregard the tax treaty between the US and Canada and withhold on Canadian preferreds held in retirement accounts. Has anyone had experience with Fidelity, E-Trade, etc.?

    1. I know that Vanguard won’t withhold taxes. Because they won’t let you buy them! Anything ending in “F” is a four-letter word at Vanguard.

      I’m interested in the answer. I’m thinking of setting up Roth accounts for small people and stuffing them with Canadians.

      1. Bob, Vanguard did, until they figured out they were not going to. Earlier last year I had issues from 4 different Canadian companies. They then stopped allowing purchases, but allowed me to continue to hold them. And they did take the 15% out in taxable. In my Roth they took the 15% out of the Altagas OTC minimum reset but not the Enbridge issues. I have since jettisoned them from Roth.

        1. It was amazing how fast Vanguard clamped down on Canadian prefs!

          And it’s all so silly. US securities laws remind me of Cash’s One Piece at a Time song – nothing fits. How hard would it be for the SEC to allow the sale of OSC registered issues in the US without the need for an SEC filing?

          Anyone who has looked at a prospectus for a Canadian preferred knows there is plenty of disclosure. The base form prospectus, with the prospectus supplement, runs 100 pages typically.

          1. Bob, I actually got a level above reps demanding answers why they put the kibosh to buying them. The official reason was they were adjustables and had no fixed payment (yes, they never did mention currency, ha). So of course I said then why do you allow me to buy NSS and ALLY-A as they are not fixed either? They didnt have an answer. So I won the battle with my argument, but lost the war anyways.
            To be honest, you were the reason I fought. This was a bit after the CoBank preferred fiasco where they made me sell my CoBank preferred like a sheep. Only to find out you fought them and they relented. Well they didnt relent on this for me, ha.

            1. Grid – that is the closest I ever came to winning an argument with Vanguard. I got the call, they asked for my “permission” to remove the offending issues from my account, I said “no” and that any removal would be involuntary, and the next day they relented. Couldn’t add but kept the shares I had.

    2. Tex. Somebody posted merill lynch. They have a self directed account that allows you to function just like schwab without a broker.

      1. Hey Steve – have you contacted Merrill or any other brokers yet or had personal experience with how they handle Canadian preferreds in a retirement account? I can’t seem to find a previous post that covered this.
        Thanks!

        1. Actually I am in the process of discussing this will merill lynch right now. Will take 1-2 more days. Apparently Merrill edge doesn’t allow OTC. You have to speak to Merill lynch directly. I have no idea what this means but pusuing

    3. I have made this post in the past but a redo seems in order.

      If you hold Canadian securities in a U.S. qualified account you should NOT have 15% (any % withheld). But that’s not the end of the story.

      If the security in question is SEC registered you should not tolerate withholding. Hopefully, your brokerage will understand that. If not, you may have to use some persuasion. Your greatest leverage may actually be with the company issuing the security. Call and/or write the investor relations people. They have a vested interest in helping you and they have the leverage to get things changed.

      If the issue in question is NOT SEC registered, you have a problem. This includes all but a handful of Canadian preferred issues. The IR people of the issuer will not help you. Look at the prospectus for the issue and you will see something like the following, lifted verbatim:

      “The Series K Shares (as hereinafter defined) to be offered hereunder have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), or any state securities laws and may not be offered or sold in the United States of America or to or for the account of U.S. persons (as defined in Regulation S under the U.S. Securities Act). See “Plan of Distribution”. ”

      If you are in doubt of SEC registration check the prospectus. To generalize, anything trading on the NYSE will be SEC registered. Anything trading OTC, with an “F” as the last letter of the ticker, is not SEC registered.

      If you push the point too much with your broker, be prepared for unintended consequences. You are in a gray area and the path of least resistance (for your broker) may be something you haven’t thought of. Speaking with experience.

        1. IBKR withholds 15%, exactly as they should, given it’s a non-qualified account.

          Have no idea how they would handle a qualified account.

          Waiting to see how the 1099 comes out before I declare myself happy.

    4. I started buying some Canadian preferreds about a year ago through Schwab. In my IRA I have EBGEF, FTRSF and NPIWF and in a taxable account I have EBBNF. Schwab is withholding 15% from dividend payments on these in both accounts. I have talked to Schwab about the IRA withholding and they say it is required by Canadian law. In hindsight I probably should have purchased these preferreds only in my taxable account.

      1. Alan – they have to tell you something but they are dead wrong. To the contrary, “Canadian law”, which is to say the US-Canada tax treaty, specifically exempts withholding on Canadian dividends paid into a qualified account.

        To be practical, I suggest 1) find a custodian who will not withhold, 2) move the issues in question from qualified to taxable (where at least you get a credit for foreign taxes paid), or 3) live with it.

        1. Alan, Bob is 100% correct. If you like frustration, here is the form that is used to exempt. Though the good brokerages and fortunate stock issues do need the form to avoid the withold in tax free.
          https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/nr7-r/nr7-r-18e.pdf
          In fact here is another example for the Fidelity users to ensure (maybe) that nothing is withheld.
          https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/declaration-of-eligibility-for-benefits-NR301.pdf
          I have found out my brokerages had mixed results on proper exemption withholding in tax free and it varied ticker to ticker. So I just now open only door #2 of Bobs options and just have it withheld in taxable and later claim a tax credit.

          1. Gridbird – it’s funny Fidelity has a form because as I mentioned over the weekend, they get the withholding rules right for Canadian securities registered to trade in the US and I know I never filled out a form for them.

            I do agree – this should be a no brainer for any good brokerage

            (now that excludes those preferreds not registered to trade in the US but that people have gotten OTC tickers created for that prompted some of the initial discussion)

            1. Maverick, I misspoke missing a key word from my previous post. It should have said “Though the good brokerages and fortunate stock issues do NOT need the form to avoid the withold in tax free.”
              Maverick, basically every OTC canadian reset preferred mentioned here is not registered. It has alway been that way and people and entities have been randomly one offing adding to the collection over the years in an ad hoc manner. None of these are registered. Some happen to process easier tax wise though as mentioned with reasons previously posted.

            2. If anyone has a Canadian pref (with OTC symbol), in a qualified account, and is NOT having 15% withheld, please do us all a favor and let us know the issue and the brokerage.

                1. Qualified= any species of IRA, Roth, 401-k, 403-b, and the like.

                  I don’t know if HSAs are qualified. I don’t have one and never looked into it.

                  1. Ok, I figured that after thinking, but I only use the term qualified in terms of the tax deduction and thus in taxable account. Yes, HSA has same provisions as the other tax free as I have owned them before in that account. Presently for me my experiences were…
                    Vanguard Tax free…EBBNF and EBGEF had no withholding extracted. However, ALTGF and TGAPF did…However a moot point since they are blocking…
                    TD, HSA and IRA… EBBNF and EBGEF had no withholding. FTRSF had no withholding. ERRAF did, but another online friend raised holy heck over a period of time and got it changed. ALTGF also had a withholding.
                    Oddly enough I saw a pattern with mine out of Vanguard and TD. Any OTC CAD reset that was listed as a pink sheet had no withholding problem. The ones assigned gray market had the withholding extracted from it.

                    1. Thanks for reply, Grid.

                      Seems the key lies more in the issuer than the brokerage. Assuming, of course, the brokerage allows the purchase.

                      I manage a couple Roths for others and want to set up a couple more and would like to put in some Can prefs if I could be sure of no withholding. I find it very difficult to get brokerages to give binding answers on how they will treat various things in advance of funding or transfer.

          2. Thank you, Grid and Bob. I’ll take a look at the Fidelity form and maybe send it to Schwab and see what they say. I purchased the Canadian preferreds in early 2019 so this will be my first tax season with them. I’ll probably wait till I have filed to decide what to do. For now I am resigned with getting 85% of the dividend in the ones I have in my IRA. I am in the RMD stage of life so need to manage what I withdraw and move to my taxable account.

            1. Alan, that may be your best bet as each broker may have specific form. But technically its the first link form, the NR7-R form as ultimately you would have to file to get it back (or at least further withholdings stopped) from Canadian govt as that is where that money should presently reside at…in their coffers.

              1. A little more on this. Schwab told me that the form only insures that no more than 15% will be withheld from dividends in an IRA, but that it does not exempt a dividend from any withholding.

                1. Alan, from what I know the NR7-R, is the one to get your refund back.
                  https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/nr7-r/nr7-r-18e.pdf
                  But you would have to deal with the Canadian govt to do this. Schwab would be no assistance. Im fact just me, there is nothing I would do to get involved in the morass. I sold out and bought in taxable and just washed my hands of it. Is there anyway you can do this? It. Just seems a trail of tears heartache and frustration. Plus in reality you are losing the QDI benefits that these receive leaving in tax free. A 15% wipeout each divi is just to penal to ignore if there is something you can do about it.

                  1. I’ve been trying to figure out how someone who has a 0% tax rate on QDI can participate in Canadian preferreds without taking the 15% haircut. I’ve spent a lot of time thinking about this problem and still haven’t been able to figure anything out besides try to find a broker that doesn’t withhold on retirement accounts. However, I’m not sure that exists in reality.

                    1. Need to draw a distinction between qualified and non-qualified accounts.

                      On a qualified account you will probably have 15% withheld and you can kiss it good bye.

                      On a non-qualified account, you will definitely get 15% withheld you get a tax credit (not deduction) for foreign tax paid.

                      Form 1116. Use tax software. It does the heavy lifting for you.

                      I think what you will find, at the end of the day, if you hold Canadian preferred in a NON-QUALIFIED account in the U.S., you pay no more tax on the income than you would if the income in question were U.S. source. That can be a 0% rate, or 15%, or 22%, or whatever, depending on your personal tax situation.

                      The simple way to test this is make up a dummy 1099 and add it in to last year’s tax return. Put in $66.6k of Canadian source qualified dividend income and withholding of $10k, and see what you come up with.

  13. I have spent a fair amount of time posting about Canadian issues. Between Tex and myself, several fixed-rate investment-grade OTC issues are now available (more coming tomorrow).

    But, as per Bob-In-DE post, this market is not cheap either. So right now, 15% of my net worth is or will be in TSX issues. 9% 5 year-fixed-reset issues and 6% traditional fixed-rate issues. Still quite conservatively positioned.

  14. MFC.PR.B
    MFC.PR.C
    SLF.PR.B

    All in the process of getting OTC symbols. All trade under PAR. All are traditional fixed-rate and callable. Credit rating is BBB equivalent (PFD-2 on DBRS). The current Yields are 5.2%. Will publish OTC symbols tomorrow

    1. Someone likes insurance companies! They won’t make you rich but they won’t leave you broke.

      Don’t forget GWO. Their lone reset could use an OTC ticker.

  15. Like some others, I started Canadian preferred stock investing in Spring 2019 and quickly had my head handed to me as I didn’t appreciate the complexity and volatility of these instruments. I’ve since managed to do quite well since the pullback gave me the chance to average down and add new issues that I learned about on this site (thanks in part to Dr. Bob’s wonderful spreadsheets).

    The one issue that’s really lagged in performance compared to my others (which are all exceeding six month highs) is FTS-G. I made the initial mistake of going with FTS-G instead of the superior ERRAF but given their divergence in performance, I wanted to see what folks think of FTS-G. Catch up potential or laggard for good reason?

    Here’s one way to think about FTS-G. Assuming today’s rates stay the same, over the next 7.5 years you will have an average yield of 5.9%. Thereafter, the yield will be 5.5%. The 7.5 year average is comprised of 6.4% for the next 3.75 years and then 5.5% for the following 3.75 years (and thereafter). If you factor in the time value of money (especially important if buying on margin), FTS-G will actually be better than a security that gives you 5.9% over the next 7.5 years.

    1. LI,
      Personally, I don’t think ERRAF was more superior than FTS-G. In fact, it was always opposite.
      I somewhat have the same conclusion as you do, but I have a sightly different approach though. I compare FTS-G to the others issues from Fortis itself. As of now, FTS-G is undervalued and will outperform others over the next 15 year, considering everything stay the same.
      ERRAF (EMA.PR.C) on the other hand will under perform in the next 10 years its own sisters from Emera.

    2. I own both EMA.PR.C and FTS.PR.G as core holdings. As we know, preferred are influenced by common stock movements as well as interest rates. At some point, we get a significant pullback in the stock market. Typically utilities do better than most in a big pullback.

    3. Exactly my timing, Landlord. I began looking into Canadians after a posting on the subject over in CDx3 brought them to my attention, and so far so good. It took a while to understand them and to find research materials – that was the most difficult thing. I’m not buying anything with less than a 6% yield at time of purchase which has meant fewer & fewer choices, but the bulk of my buying is completed. I accept the realities of currency fluctuations but don’t think it’s likely to hurt me in the long run. The Cd/US $ rate is basically a function of global materials & commodity prices, I believe, and over time is more likely to improve than degrade. Time will tell.

  16. Tex,

    Going to open up some fixed issued tomorrow, a little different than your list. The fixed issues are all between 5.2% – 5.4% for the investment grades.

    I want staggered ex-dividend dates for myself 02-05 (CUTLF), 02-18 (MFC’s), 02-26(SLF’s), 03-12 (have with IFC/BAM) and 04-09 (PWF’s). I plan on doing some rotation and flipping. If market moves down, I can always hold since these are all good investment-grade companies. If they are called, fine because they all are below par.

    Do I think I can capture the dividends for 5 issues every quarter? NO. But I will take two issues per quarter to try and get 10.4% per year.

    I am looking to have 2 OTC symbols on or about each ex-div date. Don’t want to pay up on any given date.

  17. Canadian preferred have gotten (are getting) expensive ……

    I’m not one to throw a turd in the punch bowl (why ruin a good party) but I do urge the folks to consider their investments with care and consider the risks. Consider just how volatile the price of the resets and floaters in particular can be, and also the currency risk.

    If you cannot emotionally, or financially, live with the possibility of a 30% price drop, and a 10% currency drop (possibly at the same time), Canadians may not be for you. Especially so the resets and floaters.

    On the other hand, if you have a high risk tolerance, don’t panic easily, understand bond math, and are attentive to your portfolio, there are still opportunities.

    By category:

    Min rate issues are very fully priced. Overpriced really. A good many issues are now trading above par (stripped), so have call risk. I expect them to be called as they come up to a call date. Call dates come up only once every 5 years.

    Fixed rate issues are also fully priced, with some trading above par and subject to call. Most fixed rate issues are callable any time.

    Resets have come up a great deal in price in the last 6 months. I would call them “fairly” priced. Still some good deals but be discerning. There are even a handful of resets with call risk. Like min rates, resets can only be called once every 5 years.

    Floaters are in the same boat as resets.

    Final comment: relative to U.S. preferred, Canadians look like a gold mine. Opportunities still exist; I merely suggest considering the risks as you evaluate the yields.

    Personally, my buys have trailed way off. Not because I don’t have bids in, but because prices have run away from my bids.

    1. I wish there was a way to rec this great post (and many others here, ala IV).

      Thanks for the caveats. I don’t invest in these things for all the reasons you’ve so admirably stated.

      JMO

    2. Bob, they are what they are, and as you constantly state one needs to understand the pros and cons and if it fits a persons profile. But price wise they (naked resets) really are where they should be, at least with the ones I track. CAD 5 yr yield is the same now as it was early part of March. And to no surprise, the prices of prefereds today are right where they were back in March.
      They produce income, but the reality is they are a dirty market trade on direction of interest rates. If 5 yr drifts closer to 2% they will rise more. If it falls again. Well we already seen the results of that this summer and would see it again if it happens.

    3. Thanks for the perspective. I was looking at some fixed-rate reset issues now since I sold some that spiked like EBGEF.

      You are right. It does look like a gold mine compared to the US market. However, when you look at some pricing history it looks like some were a super gold mine within the last 12 months.

      I’ve been trading Canadian preferreds since March 2019. Within several months, I was losing my shirt on EBGEF and ALTGF. I stayed the course and did just fine. But did I expect to be down 13.4% in EBGFEF in 4 months? No, I did not. But it recovered well for a profit.

      This market is much more volatile than the US market. What I have learned so far, is think the opposite of the US market. If my full position is 4% of my net worth start with 0.5% or 1%. Then see how it goes. Do not go to a full position as I normally do in the US preferred marketplace. This is a market to be a patient buyer to get rewards. Patience in the US preferred market usually causes you to lose the rewards.

      Invaluable to hear from an experienced investor as to what the historical pricing has been. We all know the reality, it is only worth what a buyer will pay for it.

      I appreciate your insights and cautions.

      Still looking at some issues. One I will be willing to hold for 5 years so I can ride through the price spikes up and down.

    4. OK, I’m going to ask a question that I feel like I should NOT not know the answer to already, but I bet I’m not alone in wanting a definitive answer: When I buy a Canadian dollar denominated preferred, I assume the currency risks. Right now, in round numbers $1 Canadian buy $.77 USD AND/OR $1 USD buys $1.30 Canadian dollar. Since I’m assuming the currency exchange risk, do I want the US Dollar to get “stronger” or “weaker” and does getting “stronger” mean it goes to $1 Canadian buying $.76 USD or $1 Canadian buying $.78 USD; $1 USD buying $1.31 CDN or $1.29 CDN???? I know one’s the inverse of the other so I’m not asking about that, I’m asking about which is better for me as an American owning a Canadian denominated preferred. I never feel confident that I know what I should be rooting for when it comes to currency exchange risks! It’s a mental block in my blockhead I think. Am I alone on this issue?

      1. Here is how I see it. If it pays $1 CAD dividend, you get $0.77 US after the currency translation. If the Canadian dollar strengthens to equal to the dollar, your dividend would jump to $1US (a whopping increase). If you purchased at par for around $19.20US and it stayed trading at par, it would be worth $25US (a whopping increase).

        You want the Canadian currency to strengthen against the dollar.

        There are google searches to forecast the Canadian currency against the dollar. From what I have found the forecasts are that it will drop again to around 0.75. If others find different forecasts please let us know

        1. I have another thought. A penny for your thoughts? This may be worth less than a penny. It’s just my belief that I cannot argue.

          If the huge deficits of the US Federal Government do not cause inflation, could it impact the strength of the dollar? I would think so. So to my way of thinking Canada offers some potential growth in payouts on its preferreds due to our deficit spending.

          To me, that seems like a reasonable possibility but that’s like forecasting bond rates. I really have more hope than reasoned arguments.

          I would always go by forecasts by reputational sources on the web.

      2. 2WR, If holding it depends on whether you are wanting to buy more or sell, ha! Ok seriously…Firstly, lets get more confused before we begin. When you hear on CNBC reporters say “The dollar is weakening”, this is a general reference to a basketful of world currencies. So in effect the dollar could be weakening in that assessment but actually strengthening or status quo verses Canadian dollar.
        But mano e mano versus each other only its like this. If you are buying CAD resets with CAD currency and US dollar weakens its going to make your purchase of CAD issues more expensive to buy. But remember the dividend is equally effected in same manner also. So in effect you are getting less “bang for the buck”.
        Think of it in vacation terms, for example. When dollar is stronger (or inverse say Euro is thus weaker), its cheaper to vacation in Europe because the dollar buys more. When USD is weaker the Euro vacation is more expensive because the “dollar doesnt go as far”.
        But…In the case of the Enbridge issues you own, I dunno…They are priced off USD with no conversion needed. So on surface there appears no effect. As I dont think there is any currency conversion involved with those issues. As they are paid in USD. The prospectus implies in my ability to interpret anyways a currency risk for buyers. Since this was issued to Canadians that would make sense.
        I understand how this stuff works, but not 100% sure I know how to explain this all correctly, so pick it apart if you see something crazy or wrong.

        1. Thanks, Steve and Grid…. I was thinking not in terms of the Enbridge issues I own purposely limited to the USD denominated ones, I was thinking about reasons other than their current relative cheapness in current yield broadly speaking to USD preferreds to consider expanding into the CDN denominated issues as well.. I also realize, or think I realize, that saying (when not speaking about a basket but merely “mano a mano”) that “when the Canadian dollar strengthens, that’s the same thing as saying “when the USD weakens.” So, by your illustration, SteveA, that means that when someone says the USD has weakened vs the CDN dollar (a yay for me, CDN denominated preferred owner!), the conversion rate has gone UP from $1 CDN buying $.77 USD to buying $.78 CDN. The USD weakening (or the CDN strengthening) would also mean that the inverse ratio of $1 USD buying $1.30 CDN has gone DOWN to $1 USD buying $1.29 CDN, right? So as long as I don’t want to visit Canada but I own CDN denominated preferreds, I’m rooting for further USD weakening to aid in my performance.

          1. LIke Bob-in-DE, I ignore the currency risk. However, I ignore it both on a short term and long term basis. That is not to say, I do not look at currency forecasts. If I were to see forecasts of a big move (Up or down) in the Canadian dollar over the next few years that might influence me to buy or sell. It hasn’t happened yet.

            What I like to do is go to Google ( I mark to market daily ) and get a more exact currency reading. I type in 1,000 Canadian dollars. This morning it $766.56. So it may be portrayed at $0.77 cents. It is not – it is $0.76656 cents right now. I also have my spreadsheet formula adjust my expected dividend. So if the Canadian dividend is $1.0, my expected dividend is $0.76656 right now. I don’t like surprises.

          2. 2wh,
            Just get this notion, that when you buy CDN issues you want USD dollar to be as strong as possible (means you get more CDN stuff). When you sell CDN issues you would want USD as week as possible (means you get more USD back)
            Of course, currency exchange game is no different that “sell high and buy low” game.

    5. Thanks Bob, I agree with camroc and the others that I appreciate your information. I have decided for now to limit my Canadian exposure
      to walleyes and preferreds that pay in U.S $. Both are tasty, eh?
      EBGEF.

      1. Pike is good, too.

        If sticking to preferred issues denominated in US$ (not just paying in US$), you have the 4 Enbridge issues and 1 Altagas issue, ALA.PR.U aka ALTGF.

        Might also want to consider ENBBF, as it will give you a bit of diversification on reset dates when combined with EBGEF.

        Cheers from the Diamond State

  18. Maverick61, Girdbird, and others regarding my plans to push Schwab to get them to change their business model for IRA’s on these dividends.

    I have changed my mind. Thank you for reminding me that these were never intended to trade in the US. This is why this site is so valuable.

    Insisting that a brokerage firm preciously follow laws for something that was never intended to be offered in this marketplace is not reasonable to me. Especially when I have choices, like going to Merrill Lynch to get these tax free in an IRA account. For those of you who don’t know, Merrill Lynch has a self-directed account that doesn’t require having a Merrill Lynch broker just like Schwab accounts. Now, that I have researched their offerings, having a portion of my IRA (at least until I start RMD’s) with Merrill has a few other advantages for me other than just how they handle these dividends since I am a Bank of America customer. So I should do this anyway.

    Perhaps the odds of unintended consequences are low, but changes sometimes result in that. I don’t think this is worth the risk since my request is for something that they never designed for the US marketplace.

    1. Steve – “pick your battles” is a favorite saying of mine, and to my eye you are right not to pick this battle. Find issues that won’t have 15% withheld, or remove the offenders from the qualified account, or live with the withholding.

      I personally have no experience with the subject as I don’t hold any QDI issues (Canadian or otherwise) in my qualified accounts. In putting a QDI issue in a qualified account you are wasting the QDI, even if you don’t have tax withheld.

      I save my qualified space for those things that generate high income and otherwise have zero privileges under tax law. But that’s me.

    2. Steve – what do you think about contacting other brokers besides Schwab and seeing if they will withholding on Canadian preferreds in retirement accounts?

  19. SteveA,

    I commend you on your effort. One suggestion is try contacting one of those shady ambulance chasing class action lawsuit firms. They seem to be constantly filing shareholder class action lawsuits every time a company’s stock price goes down. Surely, one of them would be interested in a class action lawsuit over improperly withheld taxes.

    1. I am starting to have 2nd thoughts. I need to do more research. If these were not intended to be traded in the US but we are able to get them in the OTC market despite that, do I really want to rock the boat? Am I going down a road that has more risk than reward? I’m reconsidering moving just a portion of my IRA assets to Merrill. If I recall some prior posts some brokerages stopped trading a few selected OTC issues.

      1. Steve, I wouldn’t say that foreign stocks aren’t meant to be held by US investors. It’s just that most US investors get their foreign stock allocation through funds rather than individual stocks (largely due to the difficulty of buying individual foreign stocks and getting screwed over on fees and withholding). Certainly the government of Canada would say that Canadian stocks are absolutely meant to be owned by US investors (just as many Canadians have a large portion of their net worth in US stocks).

        I hope you pursue this matter because I think you are definitely in the right and have a strong case. It’s just another way institutions screw over the little guy and no one is holding them accountable.

        1. RE: Ownership of Canadian (or other foreign) issues by U.S, domiciles.

          Many Canadian common stocks are SEC registered and can be freely traded by U.S. persons. Most of these will have U.S. stock exchange tickers. Not “F” tickers, but real U.S. tickers. They tend to be the larger companies and resource companies, as the latter often have a big U.S. following.

          Canadian fixed income issues don’t generally get SEC registered but there are exceptions. For example, here is the registration statement of a recent Enbridge note issue:

          https://www.sec.gov/Archives/edgar/data/880285/000110465919064346/a19-22424_1424b5.htm

          Non-registered issues trading on the OTC are in a gray zone. There are more than 100 Canadian issues alone trading OTC with “F” symbols. No advice here.

  20. Just reading the comments about withholding. While you should get back all your withholding as a credit against your US taxes, I believe there is a big caveat. If you would not have owed any US taxes on the dividend in question (for example if you earn less than $40k/year then your tax rate on QDI is 0%), then you will get no credit. Remember, the treaty is so you avoid double taxation. If Canada taxes you 15% and the US taxes you 0%, then you’re only being taxed once.

    That scenario aside, I don’t mind having the taxes withheld. Makes quarterly estimated tax payments easier.

    1. Hey Landlord – Can you help me understand better at how you arrived at that answer? Do you have any links to where I could read about this further? Thanks!

      1. Tex, here is an example that would explain Landlord’s information.
        If the tax you paid to the foreign government is higher than your U.S. tax liability, then the maximum foreign tax credit you can claim will be the U.S. tax due, which is the lesser amount. If the tax you paid to the foreign government is lower than your tax liability in the U.S., you can claim the entire amount as your foreign tax credit. Say you had $200 withheld by an outside government, but are subject to $300 of tax at home. You can use that entire $200 as a credit to trim your U.S. tax bill.
        Now imagine just the opposite. You paid $300 in foreign taxes but would only owe $200 to the IRS for those same earnings. When your taxes abroad are higher, you can only claim the U.S. tax amount as your credit. Here, that means $200. But you can carry the remaining $100 over one year – if you completed Form 1116 and file an amended return – or forward up to 10 years.

        https://www.investopedia.com/articles/personal-finance/012214/understanding-taxation-foreign-investments.asp

        ——— The important thing to remember is this is a filing for a tax credit on foreign paid dividends to avoid double taxation. It isnt filing for a refund to receive from it being withheld. You have to owe taxes to receive the credit.

    2. Landlord – just a clarification. I don’t think you meant this the way I read it but just mentioning it so no one is confused

      You said “I believe there is a big caveat. If you would not have owed any US taxes on the dividend in question (for example if you earn less than $40k/year then your tax rate on QDI is 0%)”

      It is not just US taxes on the dividend in question – but US taxes on all your income. So while someone could be in the 0% bracket for QDI – if they have other income that is taxable, the foreign tax credit could be used to offset the tax on that other income.

      And the $40K is based on an individual. Married filing a joint return essentially doubles the limit

      1. “ It is not just US taxes on the dividend in question – but US taxes on all your income. So while someone could be in the 0% bracket for QDI – if they have other income that is taxable, the foreign tax credit could be used to offset the tax on that other income.”

        Maverick, I’m not sure about the above. I once had a foreign bank account in which taxes on interest was being withheld at 35%. I never received the full credit on that tax paid. I believe it was because my US tax rate on interest is lower than 35%. Similarly, I’ve avoided buying French stocks (I was interested in the REIT Klepierre) due to the high tax withholding and my understanding that not all of that is recoverable regardless of how much US tax you owe in aggregate. So I think it does depend on the taxes you would pay on the dividend in question in the US.

    3. It’s actually better than that, LI.

      If your earned income (including pensions, social security, and similar) does not exceed $24k (personal exception for a married couple), you can have up to almost $79k in qualified dividends (common or QDI preferred) and pay zero federal tax in the U.S.

      Above that, keep it to munis and you can get to a much higher number.

      This “zero tax” setup won’t work for most people but it can work for many.

      There is no such break on state taxes and at some point you may run into AMT problems with munis.

    4. Landlord Investor, …and that $40,000 ($39,375) income relates to Single filers whereas the US tax rate on QDI is 0% up to $78,750 for joint filers, or 15% from $78,751-$488,850.

      I found this interesting: Joint filers with no income other than QDI dividends could have income up to $103,150 and owe zero US tax if using the $24,400 standard deduction. ($78,750+$24,400).

    5. Or, you end up with “excess foreign tax credits” that don’t offset anything else under most circumstances.

  21. Work will be picking up for me over the next couple months so I probably won’t be able to get anymore OTC symbols set up for some time. For Steve or anyone else interested in getting others created, here are the fixed rate issues without OTC symbols that I think may be interesting:

    – GWO.PR.P – Pfd 2H, 5.4% coupon, trading at around par, 5.37% current yield, not callable at $25 until Mar. 31, 2021
    – GWO.PT.T – Pfd-2H, 5.15% coupon, trading at 98% of par, 5.24% current yield, not callable at $25 until Jun. 30, 2026
    – MFC.PR.B – Pfd-2, 4.65% coupon, trading at 90% of par, 5.18% current yield, callable at $25 anytime
    – PWF.PR.R – Pfd-2H, 5.5% coupon, trading at around par, 5.48% current yield, not callable at $25 until Apr. 30, 2021
    – PWF.PR.Z – Pfd-2H, 5.15% coupon, trading at 96.4% of par, 5.34% current yield, not callable at $25 until Jul. 31, 2026
    – SLF.PR.B – Pfd-2H, 4.8% coupon, trading at 92% of par, 5.22% current yield, callable at $25 anytime
    – TD.PF.F – Pfd-2, NVCC, 4.9% coupon, trading at 97.8% of par, 5.01% current yield, not callable at $25 until Oct. 31, 2024

    1. I’m only interested in 5.4% and above unless it is below par. So that is:

      – GWO.PR.P – Pfd 2H (BBB+ equivalent), 5.4% coupon, trading at around par, 5.37% current yield, not callable at $25 until Mar. 31, 2021
      – PWF.PR.R – Pfd-2H (BBB+ equivalent), 5.5% coupon, trading at around par, 5.48% current yield, not callable at $25 until Apr. 30, 2021
      – CCS.PR.C – Pfd 2L (BBB- equivalent) , 5% coupon(companies only preferred – coop insurance company), trading at 90.7% of Par, 5.37% current yield, callable now

      I will work on the list above early next week when I get time. This should offer a nice range of new fixed investment grade issues in the Canadian market without call risk and without paying premiums over PAR.

        1. BAM.PR.E is a rare animal. It originally was a Brascan issue sold in 1981. It may be the oldest Canadian preferred still trading.

          And the age accounts for its unusual price structure. Effectively, it’s pinned at 3.95%, or whatever prime is. So, it’s a “semi-fixed” issue.

          To any with an interest, BAM has a fascinating corporate history that goes all the way back to Samuel Bronfman (yes, the Seagram fellow), and continues with “EdPer” investments, through Brascan, to Brookfield Asset Management. In effect, BAM is the company bootlegging built.

          1. Steve – Help me out and set this one up dude! Bob just said it’s semi-fixed. What else could you want? Lol

            1. No, I am not going to buy something that doesn’t fit me to help somebody out. Sorry, but read on.

              HOWEVER, when I took another look at this, this is down $3 from, from it’s 52 week high (20%). It looks like a significant overreaction to the fear of Canada cutting its prime rate (which I do believe will happen in 2020 – a small cut). It does look like a reasonable short term capital gain potential. Short term being in the next year or so. So, this will fit me. Not sure, if it impacts opening the OTC symbol but it will be good to cancel order. Today’s it has almost no volume so somebody jumped the price to get some shares.

              Keith was busy, I left him a message

              1. Of course…I was kidding. I do feel strongly about this one though. It would’ve been next on my list but I’m swamped at work so not sure when I would have an opportunity. Best of luck!

                  1. Good news. We didn’t wear them out. Bam.pr.e is not setup in Schwab’s system. He put a request in to set it up. He is hoping to have them done tomorrow. It is normally 24 hours. When I left him the message, I left the symbol, so he started working on it immediately.

  22. Okay. I have the time and I’m on a roll. I am starting with my SCHWAB financial consultant but I will not take no for an answer anymore. I want the tax treaty between the US and Canada enforced for IRA accounts and Canadian tax withholding stopped for IRA accounts. No more excuses that Citibank cannot do it. This stops when their chief legal counsel and operating officer confirm for me that they are unable to use their scale to get business partners to honor tax treaties.

    What will assist me greatly in this mission is can others on the board tell me if they are using a broker who honors the tax treaty and have no Canadian withholding taxes on their IRA accounts?

    I am on a mission. Failure is not an option. I may not get it changed but I will get this into the offices of Schwab’s Executives. They are the only ones that I will accept No from.

    1. I wish you luck, Steve, because I’m with TDA now, soon to be Schwab. I have a few CA stocks in my IRAs and none of the divvies have CA tax withheld. No preferreds, though.

      If you reach an impasse, why don’t you tell them you’re prepared to take it to appropriate federal & state agencies as well as to your congressperson and see if that moves them.

      As I said, good luck. What they’re doing is uncalled for and unacceptable.

      JMO

      1. Too bad. If we can confirm IRA accounts investing in OTC market for Canadian preferreds do not have taxes withheld at TD Ameritrade, this would become a Merger Integration issue. Then Schwab could have TD Ameritrade produce the $$$ impact of not resolving the issue and the issue gets much larger and draws more interest.

        Perhaps somebody else can confirm.

        1. Steve, my experiences with TD in IRA have been hit or miss… The Enbridge issues were fine. They did not take the 15% out. But they did take it out of a Canadian Utilities and Emera preferreds. An online friend after multiple calls and hell raising got the Emera issue (ERRAF) reversed. Once he succeeded mine also got reversed. But I decided then its a layer of problems and finger pointing I didnt want to deal with. So I sold all out of IRA and just keep in taxable. I owe Uncle Sam anyways so I might as well start chipping away at the bill with the 15% withholding. So any CAD issue I own is in taxable now.
          But each situation is different depending on brokerage and who is the investment bank that owns the shares that flow through to the US side.

          1. Grid – So if I understand correctly, when you hold these Canadians (I only have the Enbridge USD issues) in a US taxable account, when you file the appropriate forms at tax time, you don’t actually physically get your withheld funds back in cash, you get them applied dollar for dollar vs what you owe Uncle Same for the year? Is that right? It would be only if you’re due a refund that year that the withheld CDN funds would turn into cash in hand?

              1. Thanks, SteveA – That’s what I’m relying on, that TurboTax makes the process painless….. Knowing what to expect should at least make it easier to double check how it actually gets done. This will be my first go around with CDN withholding, and I’ve purposely limited what I own and how much until I’ve gone thru the reporting process. The way some of these CDNs are now coming into what may seem to be a more worldly based pricing zone as opposed to what might be considered the parochial view of Canadians only dominated involvement (I”m thinking of how to explain the spread between EBGEF and Ni-B for example when I say that) maybe I’ll be missing the low hanging fruit by doing this, but that’ll be typical of my “style” or lack thereof…

                1. 2wr, We’ve been commenting so much about this Form 1116 I decided to actually check it out. It’s not as onerous as its reputation. It’s paint by number and completed manually takes about 15 minutes. Takeaways:

                  Those with foreign taxes withheld of <=$300/$600 (single/married filing jointly), which equates to <=$2,000/$4,000 foreign sourced income at a 15% withholding should consider a simple single-entry using 1040, Schedule 3, Line 1. It appears those in this group should ensure their tax preparers do not use Form 1116 unless carrying forward unused foreign tax withheld as the tax credit may be reduced using Form 1116. See page two here: https://apps.irs.gov/app/vita/content/globalmedia/4491_foreign_tax_credit.pdf
                  See 1040, Schedule 3, Line 1 here: https://www.irs.gov/pub/irs-pdf/f1040s3.pdf

                  Those with foreign taxes withheld >$300/$600 (>$2000/$4000 foreign income) will need to file Form 1116. The form compares one’s overall taxable income (after itemized or standard deduction) and effective tax rate on that taxable U.S. sourced income against the foreign tax/foreign sourced income. Form 1116 has limitations on the recovery of foreign taxes. Running a few pro formas on 1116, it appears the full foreign tax credit occurs at the 24% incremental tax bracket for Form 1040.
                  Form 1116: https://www.irs.gov/pub/irs-pdf/f1116.pdf
                  2019 Tax Brackets: https://www.nerdwallet.com/blog/taxes/federal-income-tax-brackets/

                  Please everyone do your own DD.

                  1. Yeah, alpha, it’s that comparison to your overall income that will get you if you’re forced to use Form 1116. My faithful TurboTax has been carrying fwd (for more than a decade) over $5K of foreign taxes paid on various Canadian holdings that I will never get back.

                    If I could do it all over again, I’d never exceed that $600 threshold for joint filing.

                    JMO

                    1. camroc, Hoping a superior yield from your CN holdings mitigated the loss of funds buried in tax carry-forwards. I’ve surely had my own Monday-morning-quarterbacking (regrets) related to taxes over the years.

                      Don’t want expected CN QDI marginalized so will be managing accordingly. Though on the other hand, even if taxed at an equivalent of a sub-15% rate, many CN QDI issues still seem to offer (increasingly difficult to find) core-worthy value.

          2. I have been doing this also (keeping in taxable accounts). But sometimes like now, I would prefer to keep a holding for long term capital gains and use spare cash in my IRA account. It’s not the end of the world but it’s less convenient. The treaty should be honored and I going to push it. It would help my argument if competitors could do it (multi-reason argument). Plus, I can roll over a piece of my IRA to them to show that I am serious. So Fidelity due to their policies on anything that floats is out as is TD/Ameritrade.

            I have contacted Etrade and Merrill Lynch. I will not aggravate TD due to the merger but maybe if Etrade and Merrill cannot either I can stir the pot by claiming that this is costing them money and why are they tolerating it?

            I spend my career in Information Technology, that CRAP that Citibank cannot do this is utter nonsense. The Canadian tax rate is 25%. If you fill out a form by account, it gets lowered to 15%. Obviously they handle that correctly for each individual account, So you need to add a 2nd option 0% withholding. This should take a competent IT professional no more than a day to make that change. Folks, literally it should be no more complicated than that. Computer programming is not some black magic. This is excuse management because nobody is pushing hard enough.

            1. For TD or Vanguard, I have never touched or received a form at all. The 15% withholding was automatically deducted not 25%.

              1. Interesting but we know that Citibank in providing the dividends to Schwab can distinguish between 15% and 25% taxes, let them add the 3rd option. I am thinking that maybe Merrill Lynch is different. I don’t see why Merrill would Citibank as a provider since Merrill is owned by Bank Of America. Schwab has already told us if they flow through Depository Trust Corp (DTC), they don’t withhold from IRA accounts. So, I am hoping if Merrill is using DTC – it is tax free in your IRA. I love Schwab, but if that’s an option, my question to Schwab management will be, why are you hurting your customers and not hurting Citibank by taking the business to DTC.

                Given Schwab’s scale, I would bet that Citibank would get this done ASAP. A point I am already planning on making this point to Schwab. My outrageous request being Citibank honors the tax treaty.

                1. Steve, you got more energy than I do, go get ‘em! I personally have a larger imbalance of taxable over tax free. So it was easy to wave the white flag and just move it out of tax free to begin with and thus better utilize the QDI benefit in taxable.
                  I bet this will prove to be frustrating. Like I mentioned earlier through TD, Enbridge did not have any with holding but yet, 2 others did. So if you can plug a leak with one finger in the dike, another may spring elsewhere to deal with.

    2. Steve, I roll with Merrill and unless I have a Canadian holding sitting outside of an IRA, I never see any witholdings of the 15% taxes. Not sure if this is because of Merrill’s ties with BofA or what but if I ever see the 15% come out, I’m selling the holding. Personally and I understand contrary (and respectfully) to others feelings here, I’m not giving up 15% of my earned income for any reason (if I can help it), even if I will get it back in a year via tax filings. I’m in the business of making money – not loaning it for free to some government or other entity.

      I am and have held Canadian preferreds and Canadian common stocks and all are treated the same at Merrill. They honor what they’re supposed to.

      1. This is excellent news. I will use two arguments with Schwab (1) intentionally ignoring a tax treaty (which their head of legal has to feel comfortable with and why would he?) and (2) Competitive disadvantage with other brokerage firms (why would any COO want this?)

        Plus, I can fire a shot across the bow by rolling over the cash in my IRA account and have two IRA’s if they are not responsive. And with RMD’s in 4 years, I am not keeping two IRA accounts when they start.

        My goal is to get Schwab to fix their problem (my account is with Schwab). I am not going to accept Citibank not honoring the tax treaty excuse anymore. It is Schwab. Let’s see what happens

        1. I applaud your efforts, no doubt. You’re sticking up for what’s right. However, it’s my experience that these brokerages just don’t care – no matter how much they are threatened with you or a group of investors pulling money. Now that many brokerages allow you to trade for ‘free’, they’ve lost one of the biggest things they had to calm ruffled feathers – the ability to comp you some free trades. There’s little left to make you feel appreciated as a client. JMHO…

          But let’s hope they change the way they do things and give you a fair shake.

          1. A4I, I think part of the problem is getting to the right person that can effect the change. I know one online friend made multiple calls. And it was a never ending ping pong blame game. Steve looks like he is rolling up his sleeves for battle, so he may get it done. I had no resolve for the fight and did an effective end around for me. I loved your anti withholding battle. I first thought that initially myself. But I am already going to owe Uncle Sam thousands this year. So these withholdings will chip away nicely at the bill I will owe.

            1. Like I said, respectfully – others feel differently than I do, so I get it from both sides. For me though, there are enough hands in my pocket and I’ll be damned if I give ~$9K a year to ??? to hold for me while I ask them for it back at tax filing time, without any gains/ability to use it while they have it. And like you said, you’re not even guaranteed to get it all back from this witholding silliness. It’s just a matter of principal for me. I don’t care whether we’re talking about $100 or $10K.

              1. I hear ya, A4I. I had a smaller initial amount of the CAD issues in tax free. And when it got withheld that was it for me. Flip trades are nice, but never assured. But 15% withheld and no recourse to reclaim defeats the purpose of owning a preferred for me.

              2. A4I – I am mainly in your camp. I have shied away from the Canadian preferred issues many have talked about here because I don’t want to

                1. Deal with the hassle
                2. Assume currency risk
                3. Have 15% withheld for taxes

                Now that said, let me add two caveats. I should note I use Fidelity as my broker

                1. I do hold a handful of foreign stocks, mainly Canadian – but regular common stock dividend payers, not preferreds (with one exception). The ones I own trade regularly in the US – like BMO, BCE, AQN, CM (in the past SU, BNS) for example.

                The first 4 I mentioned I hold in my taxable account and the 15% is properly withheld – and it is very easy to claim as a credit on my tax return.

                2. I have held some – like in the past, SU and BNS in my IRA. Actually still own AQNB in my IRA as I wanted to buy it in size when issued and that is where I had a lot of funds available. And Fidelity nails the handling of the dividends – as no tax withholding is taken out. I receive the full dividend.

                3. Now I am not sure if because all the ones I mentioned are traded regularly on US exchanges makes the tax withholding issue easier. Or just that Fidelity does a great job at it.

                4. Perhaps the problem some are experiencing with tax withholding in an IRA could be with OTC issues that don’t naturally trade in the US. I just haven’t gone down that path to find out and don’t really plan to as I am happy sticking with US preferreds.

                5. An interesting exercise would be for someone with a Fidelity account that if there was a rock solid Canadian Preferred trading OTC with an upcoming dividend at a good rate, to buy it in an IRA as a dividend capture and see how the tax withholding aspect is handled on OTC foreign issues is handled by Fidelity compared to other brokers

                1. Fidelity isn’t worth my time. They will not let you buy anything but a fixed rate over the internet. So even if they get the dividends correct, I am NOT putting up with calling every time, I buy or sell or want to modify a bid.

                  Canada OTC is mostly non-fixed issues

                2. Maverick, Concerning your point #4…I have always suspected that to be a problem. As you know, not only do they rarely trade on OTC, they were not meant to be traded in US to begin with. They were not issued as US registered securities. So of course that brings in the other parties that make the trades happen..

                  1. Gridbird – Yes, that seems like the most logical explanation. These thinly traded Canadian issues on the OTC were never meant to trade in the US. Unlike the names I mentioned that are US registered securities, these are not. So the handling of the tax issues of dividends with them is bound to be haphazard.

                    Shoot – the posts here show how easy it was to get a broker to get FINRA to create an OTC symbol for them. But not a lot of thought has gone into that process on the backend. Hence the reliance on other parties

                  2. So Maverick and Grid, do I risk killing the goose? Is it possible that if I scream loud enough, Schwab stops trading them or helping open new issues up?

                    If they aren’t meant to trade in the US, is that a possible outcome?

                    If that is a risk, I will cease immediately and move my IRA account to Merrill Lynch. I do not want a CURE that is worse than the disease.

                    Sounds like I run a risk of doing damage than good. That would be horrible.

                    Let me know your thoughts and anybody else please weigh in

                    1. Ha, no Steve, its all up and up. These types have slide over to OTC forever. Even issues like common stock Nestle and Daimler trade this way.
                      They dont have to be SEC registered to trade. Recently issued IPO MBNKP which is US was not SEC registered. Its all good.

                    2. I agree with Gridbird. There is nothing truly illegitimate about them trading OTC. But because they were never intended to trade in the US, there is no infrastructure behind them to manage how they would comply with the tax treaty.

                      As to the risk of doing more damage than good – that is hard to answer. I suspect some of the quirks we see at different brokers (for example – Fidelity and the call in on fixed to floating issues – or the brokers who will not let you transfer in certain illiquid issues) didn’t come about because some suits in the back room thought up ways to make things more difficult for their customers. Rather, I suspect many of the quirks came about in response to a previous issue / complaint / etc. So it is possible that if you push a broker on the withholding issue on Canadian OTC stocks not really intended to trade in the US, that the broker says screw it, it is easier just to restrict trading in those securities than deal with the real issue.

                      Now, I said possible – not probable. I highly doubt they do that in response to one person asking a question. But if you followed some of the comments here and got a shyster class action firm involved, or a regulatory agency or a financial magazine or well you get the point – who knows how a broker would react. Sometimes they will just do the easy thing which in this case is say they don’t support trading in those issues.

          2. I will get an answer from their Executive offices. No major corporation will ignore Presidential or Chief Operating Officer’s letters of dissatisfaction. Of course, they will assign it out to some committee but it will get answered on their behalf.

            That may very well tell me and us to go pound salt. But I am going to get them to answer.

            1. Another thought, Steve…Write a ‘letter to the editor’ at Kiplinger’s Magazine and put them on blast for this. You could also take to social media, perhaps – if you can find appropriate areas to post and stir the pot. Maybe a letter to the SEC complaints dept? A letter to FINRA? A letter to the Consumer Financial Protection Bureau?

              Just blowing out ideas here that may or may not help if they don’t give you some results.

              1. First, we let their Executives know. We have no idea if they even know or agree with this. Most Fortune 500 companies are filled with bureaucracy. I ended my career as a member of senior leadership ( lowest possible level that got classified that way) for a fortune 25 corporation. Pretty amazing that a data center guy was considered that. You would be amazed at what some of our customers were told and expected to put up with.

                When they got to the presidential complaint level, trust me they were viewed entirely differently. So let’s make sure an Executive gets involved first.

  23. Anyone holding EBGEF (ENB.PF.V) for anything other than a LT hold may want to review recent price action. This reset tracks closely with FVX (5 yr Treasury). A comparison of EBGEF/FVX for the last 6/12 months evidences that correlation. A de-coupling of the issue from it’s index began to occur mid-December, with EBGEF pricing running well north and away from a declining FVX. That displacement trend continued in a big way the last 30 days and accelerated further the last few days, probably influenced in-part by multiple abnormally large volume up days during that period. I’d encourage everyone to do their own DD. For me this was a core hold though the divergence became too great to ignore and have sold off the entire position with a blended price north of 20. Good luck to all.

    1. Alpha, Im probably just a holder with mine. That being said I have more Northland Power than Enbridge, but they both are tracking the same. I think the zero rate fear is subsiding more than anything. If you go back to early March the 5 yr was at same yield as it is today. And the prices of these preferreds are both tracking right back where they also were in March in direct relation to 5 yr CAD. So over this time period anyways they are right where they should be. Tomorrow, who knows… I have had cash sitting for all week and someone put out an ask of CBKLP at 101.75, so I bought 100 more. Worst I can do is lose a quarter on this. Seems like several of us are burrowing into this 6% QDI, call risk issue.

      1. Yes I hear you Grid about idol cash a real and growing headache in this market. Regarding EBGEF and the 5 yr; if we go back to March the 5 yr yield was about 2.53%, today it is at 1.64%, and yet EBGEF price in March was around 19.80 and today it’s over 20. Maybe due to a lower zero rate fear subsiding like you mention, though one heck-of-a credit spread change. The meteoric 90-day rise from 17.20 to over 20 with flat 5yr during that period was another nudge. You know it’s bad when we’re looking at past calls hoping it hangs on so we’re at least even. lol. I’ve had fishing lines in the water for 1/2 a dozen lower-liquidity types and the asks are still meandering away from my bids. Did manage to pick up some CNTHO when a few dribbled out in early December at 52.50. Rate risk yes, but I have a place in the bucket for LT hold fixed, higher IG/QDI. CU.PR.G is also there. Now I need another reset, ugh.

        1. Hey Alpha! I think you are looking at 2018. March 8 of 2019, the 5 yr CAD was 1.63%. Basically right where it is today where it closed at 1.60% today. Still, I definitely dont blame you for ringing the register. But I will hold, as I am not buying anymore hideout issues that I am in already. Certainly not planning on them rising much more, but I dont like my other options either.
          I did buy 100 of SOCGP at 30.20 today. Only to top the tank off at an even 1000 shares. The others were bought at lower prices.

        2. Ok, Alpha, I figured out what our problem was…You were referencing 5 yr USD note, I was referring to 5 yr CAD note. So both our numbers were correct. I was using 5 yr CAD as that is what almost all mine are based on and they are tracking the similar to where they were in March price and yield wise. You were referencing USD because of the specific Enbridge issue. Oddly though the Enbridge USD denominated is still tracking with the CAD issues even though USD note is down significantly while CAD is unchanged from March.

          1. That’s a fascinating bit of intel re the 5yr CAD, but yes you’re right I’ve been using FVX (US 5 yr) on which it’s based. Now that I know you’ve been using the CAD – check out the EBGEF v FVX. It is telling. Of course on the other hand – this thing has a four year life-span to reset which is an eon compared to what’s been going on even the last 90 days. I understand why you’re holding. My sell/your hold make sense for different reasons. But if you sell next week I won’t be shocked. lol. I really like your SOCGP hold and looks like you nailed it today at 30.20 as it closed at 30.71. Heck, why are you still holding it – that’s already 1 1/2 divvies in a few hours?! So I have to go back to the CN reset well. What I didn’t mention earlier is I also want to climb the credit ladder. Anything with a higher IG badge look especially good to you?

            1. Alpha, That 30.71 was a last trade ask purchase trade. It was buyable at $30 yesterday. If one is going to pay 20% over issue price, its nice to know its uncallable, lol. Its not the issue I want to build my world around, but its a forget about it issue considering I have other counter purchases to it.

    2. I own a small amount of EBGEF as I’m mainly in two other ENB series. Has anyone done the math on whether EBGEF is over-valued vs. ENB.PRV and ENB.PFU?

    3. All my Cd holdings, assembled since April last year, have been steadily floating upwards in price, in fact, in some cases more than 10% over PP: ERRAF, EBGEF, FTRSF, ALTGF, NPIWF, BECEF , FXFLF and non-Nasdaq Intact Fin’l Series 7 & Pembina Pipeline Series 7. I bought them for long-term income producing purposes rather than for trading, so while I’m happy they are worth more than I bought them for, at the same time am wishing I could plough new money into them over the coming year> The pop in pricing makes this harder to do & feel good about it, lol.

  24. Apologies up front for my newb question-

    I have no experience with Canadian preferreds. I trade through Schwab and cannot seem to find any of the common issues on their site. Also – I have heard concerns that some issues might trigger Canadian taxes (I want to avoid). BTW – this is in an tax deferred account. Would appreciate some general guidance to get me going. Thanks!

    1. Almost all the Canadian preferreds at Schwab have taxes withheld in the IRA accounts. By treaty, they should NOT but they do anyway. The way Schwab explained it is if Citigroup pays the preferred dividend to Schwab, they do have the “infrastructure’ to handle IRA accounts and withhold the taxes before Schwab receives them. If DTC pays the preferred dividends, they do handle IRA accounts properly and do not withhold them before Schwab receives them. Their global desk says that preferred dividends from Canada all flow through Citibank. I have not found a way to force Schwab to get Citobank to honor the tax treaty.

      Bottom line ; you are out of luck at Schwab

    2. Welcome, Proto13 – FYI, one of the great aspects of Tim’s site that you’ll find is that there are no “newb’s” here, only people helping people with some like yourself itching to speed up the process of helping others by absorbing as much as they can from all here so willingly sharing of their expertise and knowledge, to be able to more quickly answer as many questions for others in the future as were graciously answered for them at their start.

  25. In response to what Joel has written below, this is an addendum to my earlier comments on IBKR.

    As far as the facts go, I have had an account with IBKR since June, 2019. I opened the account solely to trade Canadian preferred. (The reasons I went for Canadians, and for IBKR, have been written about earlier and I won’t repeat here.)

    Since June, I have done about 200 trades. All Canadian preferred, all in round lots, all on a cash basis, although the account has margin capability. The only exceptions to the ‘all preferreds” has been about 10 currency transactions – selling US$ to buy CA$, with which to buy Canadian preferred – and a handful of BIL and MINT buys and sells.

    My trading experience: Total of all fees paid to date, for everything, has been exactly zero. Commission exactly 1 penny per share, or one loonie per 100-share lot or about 5 basis points on average. Inconsequential.

    Execution has been perfect. Not a single part execution. Not a single dropped bid. Every trade, so far as I could tell, was right at the money. I can so verify by watching the TSX live bid/ask/volume/trade on the TMX website. I put in a bid, it shows instantly on TMX and if it hits the trade shows immediately.

    No “funny” stuff as I often see with bids on other brokerages, particularly on OTC trades. IBKR does not route your bids through third parties, which I believe explains the lack of execution problems on IBKR and the frequent execution problems experienced on some brokerage platforms.

    Regarding the currency transactions, those are done on the same platform as the preferred trades, and are done at institutional rates. Providing you are exchanging a minimum of US$25k at a time. Once you figure out how to do it, it takes about 5 seconds to trade 25k worth of currency. Which is also about the time it takes to enter orders on the platform.

    Now to impressions. Joel, I cannot possibly argue with how IBKR makes you feel. Beauty, or lack of it is, in the eye of the beholder. But I get the jist, and origins of your comments. I just add some perspective.

    IBKR is a brokerage built by traders for traders. It’s not Fidelity, or TDA, or Vangaurd. For better, or worse. They don’t do touchy-feely. If you’re the kind of investor who needs a lot of hand holding or likes a velvet touch, IBKR is not for you.

    In fact, I would say IBKR is not for most people. IBKR geared the platform for the experienced trader, who doesn’t need a lot of hand holding and who doesn’t want to spend 20 minutes on the phone to solve a 30-second issue, as I have to do with Vanguard. Every time I call Vanguard it’s 20 minutes.

    As to other matters raised:

    Yes, Canadian preferred are either “PR” or “PF” and if you don’t know the difference it can cost you. Lesson: know your symbols.

    Yes, I understand, IBKR charges for quotes, but it’s a fraction of a cent. And there is an easy work around. Two, actually. I have never paid for a quote.

    In contrast to the fractions of a penny that you may pay IBKR for quotes (if you don’t know the workaround), Vanguard regularly costs me thousands of dollar by being slow to get new issues into the system. If I calling Vanguard at 730 AM about an issue that priced the day before, and has already traded retail quantities, I don’t know why it takes them until 300 PM to get the issue up. By which time the price has run up 50 cents per share. To me, that’s money worth complaining about.

    What else can I say? IBKR reps didn’t go to Princeton. They may not even be housebroken for all I know.

    But thus far, with the limited, narrow experience I have with IBKR I have nothing bad to say about them. They are “quirky” but that’s not a disqualifier to me.

    I’m waiting to see how they handle year end matters, including 1099s, before I decide if they are a keeper.

    1. Bob – Have you looked in to whether or not having an account with IBKR would cause you to have FATCA/FBAR reporting requirements? I just wanted to mention that there are very significant penalties associated with failure to file in accordance to these requirements. I haven’t even started to research this issue but wanted to raise the issue if this wasn’t something you or others with IBKR accounts had previously considered. If you aren’t sure if you have a requirement, I believe some will go ahead and file the disclosure forms just to avoid penalties.

      1. Tex – I have been a FBAR filer since there was a FBAR but nothing to do with IBKR.

        FATCA is one of the great evils of our time, since you mentioned it.

        Generalizing the question, it is my UNDERSTANDING that having an account with IBKR that invests directly in TSX issues does not result in a FBAR filing requirement. It is not considered a foreign financial account, even if 100% of the investments are foreign.

        No different than if you had a U.S. brokerage account full of ADRs. Or other foreign issues. It’s the domicile of the account that governs.

        However, and I made this point many times in the past, if you opened a brokerage account directly with a Canadian brokerage firm you would not only trigger a FBAR filing but also a Canadian income tax filing.

      2. Tex – for the benefit of others, FATCA and FBAR have to be clearly distinguished.

        FATCA is a law. FBAR is a form. A form that one fills out once a year, online. After the first one, it takes 5 minutes to complete.

        That said, I am 99% sure an account at a US brokerage account can never trigger a FBAR filing requirement. I could refer you to my international tax attorney but he will charge you $1200/hour to answer your emails.

        A plain reading of the requirement to file a FBAR tells me no filing requirement in the case of a US brokerage invested in foreign securities.

        https://www.fincen.gov/report-foreign-bank-and-financial-accounts

    2. Appreciate the feedback and camaraderie Still can’t get real time B/A/Vol but will push forward. may have to subscribe. Can not get clear on partial fills or no AON orders on a day order either. May need to go off of Lite. Hard to guess without a clear B/A/V. All in all total expenses are a very low low percentage.
      I suppose I want the rules of the game before I put on my uniform.
      Thanks Bob! JA

      1. Joel – you can real time info off this website, but you need to open a free account and make a watch list:

        https://www.tmxmoney.com/en/

        It can also be done on the IBKR website but I don’t want to put the methodology out there in public. It’s not hard. I figured it out quite by accident.

    3. Thanks for sharing your experience Bob–I am sure there are lots of lurkers wanting more data on Canadian issues.

    4. Bob, one other benefit you get with IBKR, you get to mark to market daily. Many of my resets havent traded in over a month, so one has to look at TMX to see whats going on. Not a big deal to me though. I bought a preferred a couple years ago that hadnt traded in 12 years prior to my purchase.

      1. Grid – you get mark to market to the second. Literally. I can look at my entire portfolio on 1 page and get to the second value of each position, price change on the day, cap gain or loss, cash position, margin position, etc.

        But as more of a buy and hold investor I’m focused on my bid page. Not that I’ve had many hits recently. Valuations have gotten rich.

        1. Yes, Bob, that was what I meant, as in any brokerage would show. Baring any near term disasters, the next trades should be up nicely. But, like you, I am more worried about my next buy than the worth of what I presently own.
          In a bit of a lull now though after some nice recent hit and runs. I already have about 20-25% in CAD issues, as long holds, but not actively looking in any other add ons here.

  26. I have purchased Power Financial Corporation Preferred (PWF.PR.I). 6% FIXED RATE coupon, 5.97% current yield. Credit rating is PFD-2H ( BBB+ S&P equivalent). This is a callable issue that was originally issued in 2003. Power Financial is the parent of several Canadian, European, and US companies including Great West Life, Putnam Investments, and Irish Life to name a few. This issue has traded at or above $25CAD for the last 10 years. Paid a marginal amount over $25CAD. Today is ex-dividend date.

    Schwab is setting up an OTC symbol. When I have it I will post it.

    Tex: Thanks for helping guide me on how to do this with Schwab. I went with this verus BAM. Still looking at that. I moved quickly on this one since today was ex-div date.

    1. SteveA,
      Extremely high probability PWF.PR.I and PWF.PR.G will be redeemed.
      https://www.powercorporation.com/en/news/press-releases/2019/power-corporation-and-power-financial-announce-reorganization-simplified-corporate-structure-and-refocused-strategy-122591/`

      –Financing Expense Reduction – PCC and PFC intend to redeem an aggregate of $350 million of First Preferred Shares with available cash, resulting in reduced annual financing costs of approximately $15 million per year.–

      1. Ok thanks. I brought this for the dividend capture of 6% similar to my purchases of COF-P, WFC-T, and CORR-A (which also says in its last quarterly it is looking to reduce expenses and mentions it’s preferred). Better than 1.5% in the money market while it lasts.

      2. Thanks for posting this. I took profits on GWL.PR.F (OTC symbol GWLOF) with a 5.9% coupon (same as PWF.PR.G).

        Sold at $25.71CAD in case they call this one since GWL is owned by PWF.

      3. Steve – Happy to hear it went well for you with Schwab!

        POFPF appears to be the OTC symbol per FINRA. Keith at Schwab gets this stuff quickly.

        I’d really be interested in anyone ends up getting OTC symbols set up for the BAM fixed rate issues.

      4. Buys on PWF.PR.I & G are in essence bets on how long it will take Power to redeem them. At 6%, the I shares is yielding about 65-75 bps above their “natural” yield, so you are getting some compensation for the call risk.

        Gives the history of the Desmarais family, it may take a while to combine the companies and redeem the preferred.

      5. Limit – Very helpful post! PWF.PR.I has 8M shares outstanding while PWF.PR.G has 6M shares outstanding. 14M x $25 = $350M. These 2 are the highest fixed coupon rates outstanding from POW or PWF. I’ll probably stay away from this one due to the call risk since I’m more interested in longer term holds.

        1. Thank you Tex and Bob-in-DE. Meets my objectives as one of my tactical holdings versus staying in money market. High quality company, High coupon. little to no call premium with very low or no probabilty of dropping below Par.

          1. Steve – all true. The only concern I have about issues with high call risk is currency. I am accepting currency risk on my long term holds but I have reservations on issues that may not have a long life.

            Still, for an otherwise pretty risk free 6% I might be persuaded. The “risk free” rate on US past call issues is under 5% now and headed lower it appears.

  27. Picked up a little IFC-D on margin, locking in a 325 bps spread over my margin rate (which floats just like IFC-D) for life. A 325 bps spread isn’t going to make me rich but it’s free money as far as I’m concerned as it’s not using any capital.

  28. Thanks for the lead to Keith. I hope it leads him into a promotion!
    We should start an updated symbol list. I am supposing they are the five symbol-F? I will try to learn how to do a shared Google Sheet over the next couple of weeks, but keep posting them as I also keep a notebook like Grid. Bob has the beginnings of a nice report service already started.
    At least the TSX will give an accurate Last Trade/Vol/Time price if you scroll down to the lower parts of the page.
    Social Commentary (forgive me, it’s the COFFEE!): I am liking to believe my own evidence (called ‘neurosis’ by some) that electronic venues, like this model for investing, CAN really create a group intelligence that may ripple out into other reforms. Without feedback and consequences there is not much progress. The founder of Twitter recently commented that they really underestimated the effects and percentage of ‘trolling and bad intent’. So we are offered both a blessing…OR a curse.
    HNY to All, JA

  29. Schwab set up another couple OTC symbols for me for Intact Financial Corporation.

    IFC.PR.D: IFCPF – Floating rate, 3 mo + 2.66%, Paired with IRC.PR.C
    IFC.PR.E: INFFF – Fixed rate, current yield is 5.35%

    Credit rating for Intact is Pfd-2 which is equivalent to BBB. On IFC.PR.E, you can get a 5.35% yield. Interesting that the new issue from Met Life is 4.75% for the same credit rating as Intact. Intact has a 14 year streak of paying and raising the common dividend while Met Life has a 6 year streak.

    On the fixed issue, it can be redeemed in 2022, but they’d have to give you 26 CAD. There’s a sliding scale after that which drops to 25 CAD in 2026.

    “The Series 5 Preferred Shares shall not be redeemable at the option of IFC prior to June 30, 2022. On or after June 30, 2022, IFC may, on not less than 30 nor more than 60 days’ notice, redeem the Series 5 Preferred Shares in whole or in part, at IFC’s option, by the payment in cash of $26.00 per Series 5 Preferred Share if redeemed prior to June 30, 2023, of $25.75 per Series 5 Preferred Share if redeemed on or after June 30, 2023 but prior to June 30, 2024, of $25.50 per Series 5 Preferred Share if redeemed on or after June 30, 2024 but prior to June 30, 2025, of $25.25 per Series 5 Preferred Share if redeemed on or after June 30, 2025 but prior to June 30, 2026, and of $25.00 per Series 5 Preferred Share if redeemed on or after June 30, 2026, in each case together with all declared and unpaid dividends up to but excluding the date fixed for redemption.”

    Prospectuses can be seen here: https://www.intactfc.com/English/investors/shareholder/dividends/Preferred-Shares/default.aspx

      1. I just checked and you can enter them in to the all in one trading ticket on Schwab.com and it will work.

        You are correct that the full quote page will probably take a few days to be fully available and populated. You should be able to trade it today though.

          1. Some of the fixed issues from BAM also look interesting. BAM.PF.D specifically is yielding 5.469% and has the highest coupon rate of any of the BAM fixed issues. It is cumulative and Pfd-2L. It can’t be called for 25 until 9/30/22. If anyone decides to get an OTC symbol set up for this one, please post it.

            1. let me take a look at the BAM issue to see if it fits for me.

              When you call Schwab to do this, do you ask for somebody specifically or just go through their fixed income desk?

              I am willing to do this if the issue interests me.

              1. Steve – You can contact Keith at Schwab’s global trading desk at 1-877-908-9229 ext. 70010. He is the team lead. I wouldn’t recommend trying to do this with anyone else at Schwab. The first trade may cost a $25 commission and then he will submit to FINRA to get an OTC symbol created. If this will be your first time speaking with him, I would encourage you to be explicit with him that you want an OTC symbol created so you may add to this position commission free in the future if you want.

                He’s been really good to work with on the several of these that I’ve set up. FINRA typically has the symbol within 24 hours. If he doesn’t answer, you can leave him a voicemail and he’ll call you right back.

                1. Another fixed issue that’s interesting is CU.PR.H (Series EE) from Canadian Utilities. It’s rated Pfd-2H and it’s yielding 5.28% and it’s cumulative. The company has a 48 year streak of paying and raising on their common stock. It has the highest coupon of all the CU issues and it can’t be called for 25 until 2024. While studying these, I’ve noticed that the higher coupons seem to be slightly less volatile as interest rates go up.

                  “On or after September 1, 2020, the Corporation may, at its option on not less than 30 nor more than 60 days prior notice, redeem for cash the Series EE Preferred Shares, in whole at any time or in part from time to time, at $26.00 per share if redeemed during the 12 months commencing September 1, 2020, at $25.75 per share if redeemed during the 12 months commencing September 1, 2021, at $25.50 per share if redeemed during the 12 months commencing September 1, 2022, at $25.25 per share if redeemed during the 12 months commencing September 1, 2023, and at $25.00 per share if redeemed on and after September 1, 2024, in each case together with all accrued and unpaid dividends to but excluding the date of redemption.”

                  https://www.canadianutilities.com/en-ca/investors/preferred-shares.html

                  1. I own CU.PR.G (33% of my normal position) paying 5.18% with OTC symbol CNUTF. Will take a look at Series EE but on the surface, looks very similar

                    1. You’re right and they are…all things being equal, I’d typically rather own the higher coupon as I would expect less share price volatility if interest rates started to rise. Just a personal preference.

                2. thanks If I do this I will post for everybody to see. If not this issue, I’m sure it will be another issue. I will start to expand my research on to non OTC listed Canadian preferreds

            2. Brookfield asset management owns lots of different companies.. I see it recently brought OAKTREE capital. Any unusual tax consequences ( does Canada have the equivalent of K1 income?).? Or are BAM dividends just normal foreign dividends like for example Emera or Fortis?

              I am not enamored with the current price of BAM.PF.D. However, I am not opposed to getting Schwab to open up an OTC (sometime next week) assuming they will do that for 50 or 100 shares. I have small positions in other Canadian fixed rate looking for a pullback. On June 15th of this year, this was $20.15. That was a 5.97% yield. Might as well have an OTC setup to be able to buy in on a pullback. So assuming this is a “normal” Canadian dividend, this makes sense for me on a significant pullback.

              One of my fixed-rate resets BRENF is a position, I want to add to. Bob-in_DE highlighted this one. This is a fixed rate minimum. You may want to consider this one

              1. So actually my tax questions extend to BRENF ( I forgot to follow up on that). This is a Limited partnership and may be different than BAM. Is this normal Canadian dividends also? Perhaps Bob-In-DE or Grid would know?

                  1. Guys,

                    https://bip.brookfield.com/stock-and-distribution/tax-information

                    BIP does appear to issue a K-1, per this snippet from the link above:

                    What Tax Form will I receive as a U.S. Unitholder?
                    After the end of Brookfield Infrastructure Partners’ taxation year (December 31), the U.S. taxable income of Brookfield Infrastructure Partners is determined and allocated to all unitholders that are in turn required to report such income on their respective tax returns. The allocation of U.S. taxable income is communicated using Schedule K-1.

                1. BAM, as well as all its preferred, will get you qualified dividends and no K-1.

                  But to be clear, we are talking about BAM specifically, not the entire Brookfield family. There are lots of “Brookfield” entities that are partnerships and will get you a K-1 and non-qual divis. You have to look at each entity individually.

        1. Brought a very small starter position INFFF. Nice find. Thanks.

          I have my self-imposed limit of the fixed-rate reset issues. But this kind of current yield for this quality company under par with a premium for being called early works well for me.

          1. Steve – Glad to help! I’m with you on the fixed-rate reset issues. I almost think about those more as floaters rather than true fixed rates. They have a place in my portfolio, but I’m not sure I want to be betting large dollars on interest rates rising or even staying flat. I’m not smart enough to predict where interest rates will go so I just try to diversify and stay with high quality issuers.

            With that said, getting 6% on IFC.PR.D/IFCPF was too tempting to pass up.

    1. Tex – you are digging into these Canadian like they were a pea meal bacon sandwich! Perhaps I’ll run into you at the St. Lawrence market.

      One thought (suggestion?) I would offer is to go with DBRS ratings over S&P. Dominion Bond rating Service is a Canadian company, and Canada is their home turf. I have a more confidence in their ratings than I do in those from S&P.

      On occasions where there is both an S&P and a DBRS rating the DBRS will often be a half notch lower.

      Zero cost to get DBRS ratings but a free account helps.

      1. Haha. You got me started! I’m in my mid 30s and hoping to retire early so I have to figure out options besides letting my money sit in an online savings account and get 2%. These Canadian preferreds seem ripe with opportunity.

        I got hooked on watching Trailer Park Boys on Netflix so that’s probably part of the problem too.

        I have been using DBRS and I do have a free account. The company reports they have are awesome resources. Thank you and other for all of the information! This website is incredibly valuable!

      2. Bob, In DBRS: also really appreciate the front page “Industry Peers” link providing quick ratings of some competitors.

  30. ‘Try to learn from others experiences, first make sure that you trust their interpretation of their experiences’. My own quote, so much for the disclaimer given in advance. I hope to give an accurate accounting here.
    I have done A LOT of work re: Resets and IBRK. Here are a few tidbits that can shortcut some learning and maybe frustrations for someone interested in this field:
    1) Minor detail: TSX has some preferred recorded as PF.? , but most are PR.?. Order entry and watch lists on IBRK use the same method.
    2) Make damn sure you use IBRK’s paper trading tool to the max before you just jump in over there. My previous ‘GOOMBA-BROKER’ comment of a few weeks ago stand. There is a certain underlying stink when I walk in the room and have contact with any of their staff as support.
    3) There are SIGNIFICANT differences between what you may have experienced at other e-brokerages and IBRK. For example: B/A in real time and other pertinent and necessary data is by monthly subscription. Unless you go for their premium package and tick up a monthly bill you had best not believe much…it may be delayed, but you don’t even know by how long. Also, GTC partials will roll into new day commissions in the old style.
    4) There is more, but DO NOT BE NAIVE…this is “TOO-BAD BRO”-kerage. It’s collect revenue by pitfall.
    5) Q:Access to Global Sov Bonds?
    A: “Sure full access to Euronext, Asia and North Am, just transfer you accounts over”
    Q: There are about thirty third world junk issues available. That’s it! Even the CUSIP finder is a fee.
    A: Broker, “We don’t have a bond desk and that’s it bro.”
    Q: Why should I work with hitmen?
    6) I am researching Schwabs Global Services since I am going to have about seven account switch over there anyway with the merger. I have already had conversations with people at Sch that are very knowledgeable and complete in their disclosures with their Global Services and like what I have heard and will continue to ask a plethora of questions and hopefully have a few happy answers to report here.
    7) Kinda like YELP for brokerages…can’t hide your bad service and busines model anymore.
    8) Not Sour Grapes, but real experience. In good Spirit as THIS site has been that for me!
    JA

    1. Thank you all for thoughts on IBRK. I’m going to probably just keep using Schwab’s global desk to create OTC symbols for me when I want them. It costs $25 when I initially buy and the OTC symbol is automatically posted to my account the following day. After that, it’s commission free. For anyone else who wants to do this, you can contact Keith at Schwab’s global trading desk at 1-877-908-9229 ext. 70010. He’s been incredibly quick to respond and is extremely easy to work with. He’s waived the commission for me a few times too without me even asking.

      I’ll continue to post the new symbols here for those interested.

  31. Bob or others using IBKR – Can you please give a brief testimonial about your experiences with commissions/fees on Canadian preferreds with IBKR? From the website, it looks like the foreign exchange rate fees are $2. I’m having trouble understanding the trading fees and account maintenance fees.

    Would I need IBKR Pro or IBKR Lite? Thanks in advance!

    1. Hi,
      $2 is a comission for exchange USD/CAD
      CAD 1 is minimum comission per order (or CAD 0,01 per share if order’s quantity is >100 shares)
      There is monthly inactivity fee, it’s mean if you have less than $10 trade commissions per month the difference between $ 10 and the amount of your monthly commissions will be debited from your account.
      AFAIK IBKR Lite is for US stocks only, but better contact the support.

    2. Tex – I’ll give a partial answer in public. If you want more details, message me through SA (same nic).

      I’m not sure about IBKR or Lite. I need to figure it out for myself. I don’t believe Lite existed when I signed up. My personal long term plan is to use leverage on the Canadian preferred, which I think requires the full version (not Lite).

      Fees are zero (for me). Commissions are a penny per shares, meaning one loonie per 100 shares. Meaningless as far as I’m concerned.

      My imperfect counsel (imperfect because I’m still learning and haven’t had the time to fully work it out) is IBKR makes sense if you are going to put substantial money into Canadian preferred (or other foreign securities). I would say $100k at a minimum. Otherwise, use US OTC symbols.

      Benefits to using IBKR over OTC: Access to all Canadian preferred issues, versus about 10-15% of issues on OTC. Much better execution. Lower costs. Don’t have to do currency math on every trade, or adjust bid as currency rate changes during the day. No time required to set up symbols. Cheap leverage. Powerful platform, once you invest the time to understand it. Currency conversion fast and cheap.

      Negatives: 1 more brokerage account to maintain. Quirky. Can’t buy “F” issues, but can buy them directly from the underlying exchanges. No OTC issues at all that I can see.

      1. Thanks for the lead to Keith. I hope it leads him into a promotion!
        We should start an updated symbol list. I am supposing they are the five symbol-F? I will try to learn how to do a shared Google Sheet over the next couple of weeks, but keep posting them as I also keep a notebook like Grid. Bob has the beginnings of a nice report service already started.
        At least the TSX will give an accurate Last Trade/Vol/Time price if you scroll down to the lower parts of the page.
        Social Commentary (forgive me, it’s the COFFEE!): I am liking to believe my own evidence (called ‘neurosis’ by some) that electronic venues, like this model for investing, CAN really create a group intelligence that may ripple out into other reforms. Without feedback and consequences there is not much progress. The founder of Twitter recently commented that they really underestimated the effects and percentage of ‘trolling and bad intent’. So we are offered both a blessing…OR a curse.
        HNY to All, JA

      2. PS: IBRK will NOT accept transfer of OTC/Pinks/Greys. Before I opened the account they told me that there would be a small fee like five bucks to do the transition from OTC F-symbol to a direct TSX symbol. Fine. I tried to send ’em over on the asset transfer when opening and was refused. “Sell, move cash and re-buy. Sorry Bro.
        My personal experience.
        Leads to another question for Sch Global Trading.

  32. I had an OTC symbol set up for IFC.PR.C from Intact Financial Corp. The OTC symbol is INTAF. Intact is a property and casualty insurance company and has a 14 year streak of paying and raising dividends on the common.

    It’s 2 rated (BBB), non-cumulative and would reset to 6% if the 5 year is 1.6%. This one resets in 2021.

    If others get any new OTC symbols created for Canadian preferreds, please post them.

    1. Tex – RE: IFC.PR.C, there is another way to play this. You obviously aren’t adverse to risk, and this one fits.

      IFC.PR.C has floating twin, IFC.PR.D. The D trades right now at 6.01% yield based on last sale price of 18.00 and BOC 3-month of 1.65%. No waiting.

      Both issues have lots of interest rate risk, but the issuer and issues themselves are on the low end of the risk range. So, pretty much a pure interest rate play.

      1. Yes, I’ve been looking at that IFC.PR.D as well. I may get a US symbol created for that one too.

        As far as risk, I own a lot of fixed rate US issues. I’m using these CA resets and floaters to hedge somewhat. For the CA resets I own, I’m trying to build a ladder.

        Overall, I’m probably around 75% fixed and 25% non-fixed (float, resets, etc.). I’m nowhere near smart enough to be able to predict interest rates so I’m just trying to have some protection no matter what happens.

        1. Pretty much same for me, Tex. I’m building a reset ladder and intend to hold through the rate cycles.

          For the benefit of others, holding individual Canadian resets (or a handful thereof) can look very scary. Because it is. Resets and their floating rate offspring can go down in a hurry. But taken together with other resets, with reset dates spread out over 5 years, the ride is much smoother.

          That’s assuming we still have rate cycles. If rates go to zero and stay there, Canadian resets won’t save you but then not much will. Anything with a min rate or fixed rate will be called, and all your resets and floaters will go to the cellar.

          1. Isn’t it interesting, though, how energy related CDN resets seem to be responding positively to increasing energy prices now in the face of what has been declining interest rates? Granted decline in 5 yr CDN treas hasn’t been large, but still, enough to believe the increase in prices of resets has to be attributable to energy prices not interest rates, right?

    2. I have the “G” series, bought it through Schwab’s international desk from the Toronto exchange. I agree on the good quality of the credit and this being a straight interest play.

  33. NVCC …. what is it?

    Non-viable Contingent Capital. Starting about 5 years ago, all Canadian bank preferred issues had to be NVCC. If the company gets into financial trouble, à la 2007/8, NVCC capital can be involuntarily converted to (presumably worthless) equity.

    So, the return of debt and the risk of equity. That said the big Canadian bank utilities would probably be the last banks on earth to go down. Right after State Street and Northern Trust.

    At the right entry point, I prefer Canadian bank equity to the preferred. Yield about the same as the preferred and with upside.

  34. Resets are hot, maybe ahead of themselves. Some of the ‘cheaper’ issues are showing parabola up chasing and a few with island top possibilities. Yields down a full 25 bps in a week by using eyeball reckoning.

    1. You answered your own question!

      Rate changes are almost always announced by press release, often same day after close of market.

      EMA, as you may have found out, has yet to reset.

  35. Dr Bob,
    First of all, I am going to have to stop calling you Dr as you are getting requests for ‘diagnosis’!
    On point, your spread sheet is a tour de force indeed!
    Three points:
    1) Col D, Issue DR: I see B and I which mean?
    2) Col AK, Comments: Where are you locating Conversion Features ie: Series XYZ at Reset? I find nothing on TSX or CIBC sheets. I see that as a consideration and part of DD before a purchase ie: conversion to floating. I may have forgotten where to look?
    3) Have modified Sheet in Excel once downloaded for ease of Fixed Header: Click to highlight Cell 14A, click ‘View’ Tab, Choose ‘Freeze Panes’ and click top choice ‘Freeze Panes’. Fixes all rows above Row 14. SAVE! Helps me a bunch during scrolls!
    Thanks again! HNY, JA

    1. Hi Joel – Col D refers to “deemed retractable”. This is one man’s theory (not mine) that certain issues will be required by Basel protocols to be redeemed by the issuer. If wanting to read 30-40 pages on the topic go to prefblog.com. I did not mean to include them and as a practical matter I would ignore them. I do.

      RE: Col AK, I make note of reset issues THAT HAVE ACTUALLY CONVERTED. All (almost?) resets are convertible in principle but most don’t convert.

      The reason to pay attention to resets with a floating “twin” is that it presents a classic opportunity for arbitrage. For example ALA.PR.A is parent to ALA.PR.B and is identical except that A resets every 5 years off the BOC 5-year and the B resets (floats) off the BOC 3-month. One or the other will frequently be mispriced to the point that one should sell one and buy the other. It’s advanced baseball for those that want to play.

      As far as the “Dr” bit, yeah, you gotta stop! The many members of my extended family who properly use the title would give me Hell! Like I told my son-in-law-to-be many years ago, anything but “hey you” works.

  36. Happy New Year to all, folks!
    Bob-in-DE, I would be appreciate for your opinion about these issues
    ALA-PU.TO
    FTS-PG.TO
    HSE-PC.TO
    (tickers are from Yahoo)
    Thank you at advance )

    1. Yuriy – the first and last tickers are common stocks, and #2 is a preferred. It’s a mixed metaphor.

      To go beyond the question asked:

      1) if your interest lies in common stock, almost all the major Canadian companies have actual, real NYSE traded shares. There is rarely a need go go US OTC or elsewhere to buy common. Some of them even pay dividends in US$.

      I don’t follow Canadian common issues to any degree, so I hesitate to opine. For my purposes, I am more likely to invest in the preferred, except for the large banks and large insurers, where I’d probably go for the common. I don’t know if the timing is right now; I just have not looked.

      If you’re looking at preferred, I like (and own) all three issuers. It’s a matter of the particular issue, and the price. FTS-PG.TO is properly known as either FTS.PR.G on the TSX or FTRSF on the US OTC.

      The issue will get you a yield of 6.58% until next reset in Sep 2013, at which time it goes to 5yr+2.13%. Based on the current BOC the yield would drop to the 5.7% range at that time. Pref are BB+ stable by DBRS.

      For your benefit, and others here, I urge that folks stick to using either the TSX symbols or the US OTC symbols. No Yahoo “symbols”. Too darn confusing otherwise.

      You can pull OTC symbols at otcmarkets.com

      Also, I try to include OTC tickers in spreadsheet that I post.

      1. Mea culpa, I had to write the right symbols first so that there was no confusion. All 3 are preferreds, here we are:
        ALA.PR.G is a first issue
        second is FTS.PR.G
        and HSE.PR.C is a third.
        (I don’t know which symbols they have on OTC since I trade with IB who give immediate access to TSX)
        Also I interested how to find which of them is investment grade?
        For example I own ENB.PF.U, is it investment grade or no?

        1. Your 3 best resources will be:

          1. Company’s website. Most give direct access to the prospectus.

          2. The TSX website for pricing and dividend information.

          https://www.tmxmoney.com/en/

          3. For credit info, many companies provide the info or you go to either

          https://www.dbrs.com/
          https://www.standardandpoors.com/en_US/web/guest/home

          I prefer DBRS ratings over S&P, if both are available.

          I own all 3 issues mentioned but bought them considerably cheaper than now. To my eye, they represent fair value but are not raging buys. You should expect price volatility from this group and must accept CA$ exchange risk, unless you hedge it out.

  37. CN Five Year Bond is up 36%…Oct 1 to today Dec 30…folks that is 36% in Q4 alone. Finally the jokers, I mean brokers, at IBRK have my account up and accepted funding…nice…and late.
    I do not have ‘big-averages’ based on a big number of issues, but I see issues over the last two weeks up 7-10% . The hounds are loose chasing the rabbit.
    Yield fear and reset intoxication is high. The resets are running ahead. Look for a recession scare, hence rate softening. Mexico is ‘officially’ in a recession 3Q19 as is much of perimeter Europe and others. What’s the deal with QE and Fed intervention? Figure it out.

    1. Markets turn quickly. In summer, and into the fall, I was making 2-3-4 buys per day. In the entire month of December I have made 4 buys. There are still some “OK” deals, just not compelling as they were.

      All you can do is have your infrastructure in place for the next volatility event. It will come.

      I’m watching soon to reset ENB.PF.C, MFC.PR.N, and EMA.PR.F for possible buying opps.

      1. Dr Bob,
        Agree, patience and sitting behind a rock and using other senses besides watching can be the correct survival mode.
        Have learned a lot about the laddering strategy again this week revisiting the CIBC and RayJ prints I had made over the last year. It started as an end of year file review/purge, but the reminders regarding the pendulum of mixing with floaters and high yield fix perps when they are beat down was a pertinent study. Play the interest rate slosh and IG goal when it is correct.
        You and Tim and The Cohorts here have been a real blessing to our family as we seek lower risk market-prosperity. 2019 was a turning point as we roll into retirement and liquidation of other assets needing placement.
        “God Blesses Us Everyone!” to steal a line. JA

  38. The BOC 5-year has stabilized in the 1.6-1.7% range. Stability equals less volatility, which may be good or bad for you depending on what you like. I am a volatility buyer so I am wait and see for now.

    Tax loss selling for TSX trades ended last Friday (trades must settle by Dec 31 to count as 2019), and that has further taken the volatility out of the markets. I picked off a small number of what I’m sure were tax driven drops, including BNS twice. This is the first and only banking buy I’ve made but if the market wants to give me almost 6 1/2% on a BBB rated financial utility, how can I say “no”?

    Anyone wanting a simple way to track the Canadian reset market should watch BOM’s laddered preferred ETF, “ZPR”.

    https://web.tmxmoney.com/charting.php?qm_symbol=ZPR

    I would not buy the ETF (cost plus I can do better), but it’s a good tracker.

    1. Bob, So I take it the tax rules up north vary from US on tax loss selling. In US it goes by trade date not settlement date.

  39. Current state of Canadian reset market …

    Currently following 137 issues. Average stripped price of 18.41 per share compares to an issue price of 25.00 (a few US$ issues mixed in there). Price percentile is at 47%, meaning that on average the 137 issues are midway between 52-week highs and lows. Prices have move up meaningfully since summer, following the 5-year BOC upward movement.

    Average stripped yield is 5.78% and average reset yield is 6.18% at the present BOC 5-year level. (The “real” yield is somewhere between the two figures.) There are about 10 issues trading above par; the rest are below, so not a lot of call risk to deal with.

    The foregoing is as of mid-afternoon on Dec 27th.

    There are still issues to buy, depending on your personal situation. When looking at individual issues pay particular attention to the reset date. I often buy issue that have either recently reset or are coming up on reset within the next month or so. Remember, the interest rates are reset 30 days (in almost all cases) before the rate actually resets. So, an issue resetting on January 31 will actually reprice on January 1. The date that matters is the 1st, not the 31st.

    As always, your source of market date should be:

    https://www.tmxmoney.com/en/index.html

    To make it easy to follow issues of interest, create an account (free), make a watch list, and get live up dates any time of day.

    Spreadsheet on the 137:

    https://docs.google.com/spreadsheets/d/1OzRcAoQL8_uUTpwZzMSFvXjhpja7x8-1eJun91eM0Tk/edit?usp=sharing

    1. Bob-in-de
      I appreciate the extremely informative data you provided in your spreadsheet.

      Howard

    2. Bob-in-de

      Re: BCEFX

      The U. S. OTC symbol you noted in your spreadsheet for BCE-BR-K is invalid, as best I can tell. Would you kindly recheck if you get a chance.

      Thanks, Howard

      1. Howard – I did check and there is no such symbol as BCEFX. Must have been a dream.

        That said, there are 3 BCE floaters with OTC symbols, BECEF BCCCF BCEFF. All have yields in the 6.45% range. Rated equiv of BB by DBRS.

        #1 and #3 float off prime, so are most stable than floaters based on the 3-month BOC.

    1. Jim, I am no expert but researched best I could before I started buying. For me the damage has already been done. They swiped 15% off the top in divis as a withholding. Come tax time I will file to reclaim as a credit, only to give it right back to Uncle Sam as I am going to owe him money this year.

    2. Canada takes off 15% and you get credit for it all on your US return if your preparer does her/his job.

    3. If you buy Can prefs through a US broker, using a US OTC symbol, the dividends should find their way on to your 1099, like any US issue.

      In a non-qualified account you will see 15% tax withholding. That, too, will be reported on the 1099. You get a US tax credit for the foreign tax withheld. In the end, you pay no more tax on a Canadian pref than you would if the same preferred were a U.S. issue. Using tax software (I use taxact), makes the process painless. I imagine turbotax does, too.

      Know that Canada had the same concept of QDI and non-QDI that the U.S. has but there are very, very few non_QDI preferred in Canada.

      Qualified accounts (401k, IRA) are different. You should not have ANY tax withheld on divis going into a qualified account. That’s by tax treaty. It’s not at the discretion of the brokerage. You may have to file a form with your broker but under no circumstances should you allow any withholding of tax in the case of a qualified account.

  40. Oops, Enbridge doesnt know how to use their calculator very well. Bob, I think they need to hire you to correctly post their correct their reset notices from now on…
    CALGARY, Dec. 23, 2019 /PRNewswire/ – Enbridge Inc. (TSX, NYSE: ENB) (Enbridge or the Company) announced today a correction to its press release issued on December 10, 2019 in respect of the dividend amount declared on its Preference Shares, Series 9 only. In the press release, the dividend amount payable March 1, 2020 to shareholders of record on February 14, 2020 was misstated as $0.26926. The correct amount is $0.25606.

    1. In December, there were 3 companies that had to revise their reset rates, in 2 cases because they got the date wrong.

      Also, there is ambiguity in the term “10:00 A.M. Toronto time” that results in different companies reading the BOC differently when they should all get the same figure.

      1. I remembered a post a little while back where you posted you caught an error on some and benefitted from it. That was why I suggested they appoint you to be in charge since you stay on it pretty good…And certainly better than they are! 🙂

  41. Buying Canadian preferred off the US OTC ….

    Just to remind, you have to look at TSX prices, volumes and trades when buying off the OTC. Any bid, ask, volumes, or whatever, you see quoted on the US OTC from a US broker will be WRONG.

    Suppose your interest is in BRENF, which on the TSX trades as BEP.PR.G:

    https://web.tmxmoney.com/quote.php?qm_symbol=bep.pr.g

    Prices shown are LIVE (no delay) provided you sign up for free account. You can see bid, ask, volumes, even last 25 trades.

    But understand that prices on TSX are in Canadian dollars, while trades on the OTC will be in U.S. $. So you have to make the adjustment before entering your order on the OTC. C$25.25 closing for BEP.PR.G equates to US$19.19 at exchange rate at this moment. I get exchange rates from market watch, symbol “USDCAD”.

    1. bob-in-de : I’ve looked at a number of these preferreds and the pricing over the past couple of years. For me, I just have to pass now – as it has been a terrible investment for everyone that has owned these securities. To be blunt and fair to all investors: it’s incredible that no investors here don’t have any losses. While the conversation is good, no investors appear to admit to any loss on their investments. We are now going down the road of Seeking Alpha where investors won’t admit their losses. Peter Lynch once said “buy what you know”

      1. Speaking of blunt and fair, concerning your 12/21 post of being “new to looking at some of these” is misleading…. This wasn’t your first post in here. Many months ago you came in here blasting these investments, so you were clearly aware of these already. Nobody in here I am aware of owned these 2-5 years ago. As I mentioned before I rode the wave up last fall, largely rode it down, and bought more when they started sniffing low buy targets we were discussing together as a group and rode them up. Probably shortly after your previous negative criticisms of the issues.

        1. Grid, yes I had looking at these investments a number of months ago and then did not really do any research on them because they were hard to understand (at least for me). When I saw the prices dropping down lower and looked at the charts the past couple of weeks, they got my attention again. But I certainly don’t know much at all about the securities as they are not cut and dry like the U.S. fixed rate preferreds. Some of these investors have been buying them for quite some time and have much more experience than me – so it was helpful to obtain some additional information and knowledge. The difficult part on these investments (for anyone) is predicting what interest rates will be in the future. If I had to predict what the 10 year U.S. Treasury would have been at the end of 2019 – I would have been off by a wide margin. It’s almost impossible to predict, even for bond guys like Jeffrey Gundlach. That is what makes the investment so challenging for me to understand and invest in.

          1. kaptain, TNX is an equal opportunity disruptor of US preferreds. SR-A For example may track TNX daily.

            Hedging via CAD 5 yr reset/US perpetual pairings offers a higher-yielding, lower volatility and potential longer duration than many US-only preferreds, most of which have asymmetrical risk stacked against the investor.

            1. I think there’s also some utility in these issues as they can hedge other parts of the portfolio, which makes it hard to evaluate them in absolute terms. For example, i have a decent amount in WFC/L, BAC/L, and SLMNP, so I bought some naked floaters to hedge that exposure earlier this year. I took some decent losses on EBBNF, EBGEF when rates fell while the other issues rose. I sold them to realize capital losses with the intention of getting back in… but the timing wasn’t great and they ran up in my 30 day window. So, I played that wrong, but I really could use the losses and they did work as a hedge…albeit to the negative.

              After taking took long to post, Alpha8 beat me… so what Alpha8 said…

      2. Kaptain Lou. I agree 100% with you and Peter Lynch. You need to know what you own.

        That includes knowing the market reaction to interest rate changes. Posters on this board have been really HELPFUL. In the Canadian marketplace, 5-year fixed reset issues do not do well in a falling interest rate environment. If you invest in these issues in a falling rate interest environment, market history is that you are investing against the tide. If interest rates rise, you have much greater potential for capital gains as well as dividends.

        Do that make this a useful hedge for some of us? ABSOLUTELY.

        Does this mean a portion of your assets only? It does for me.

        So those who invest in this market expecting the same reaction to interest rates as the US markets, do NOT know what they own.

        1. Steve, Its been a great learning experience for me. It was the learning I thought I knew but didnt that helped the most, ha. I stumbled onto these last fall when I saw EBBNF trading over 7% and interest rates were drifting up and people like Gundlach were saying 10 year was going to 6%. I knew that would kill perpetual fixed at help resets. I had 2022 visions of 10% IG resets ha! The initial trading was easy and very profitable.
          I made several couple dollar share profit trades as it got bouncy while waiting for the second wave of rates to rise…Except that second Gundlach wave never happened. I usually am a quick trigger both ways, locking in quick gains and selling when things look bad, as I have severe loss aversion. And I needed those early profits as the down cycle this year stole that money. But thanks to group discussion and chart reading they got so bad, that a naked reset in zero environment was going to reset at what a fixed perpetual was being issued at today. It just was common sense to double down and make a stand compared to what was out there risk/reward wise.
          I have never played the double down game on drops as that is mostly associated with high risk volatile sectors such as shipping or mall reits, areas I avoid. But this was a unique opportunity being the issues were high quality. The fear was interest rates, not credit quality.
          Now it appears with negative rate fears tamped down and yields still at relative historical lows holding with the gains seems reasonable. My hope is to largely disregard what I have and use as a balancing hedge as you mentioned.
          I thought I would hold here, but I may make one more purchase on a play that rates are stable if not creeping up into a next December reset on an issue. Still thinking though here. And I will also have to decide if that means selling a reset for balance or to increase exposure.

          1. I followed you after you posted (after doing my own research and deciding these had some great potential). I brought EBGEF and ALTGF since they traded in US currency which I felt more comfortable to start with. Then I learned more from Bob-In-DE and others.

            One day, interest rates will again rise. I have no idea when that is. So, in view my Canada fixed-rate reset issues as true longer-term hold issues waiting for that time to occur. I like utility issues. The high rate of interest/dividends pay me to be patient to wait for that time to occur. I tend not to flip too much. In fact, ALTGF is the only issue I flipped which I did at cost. I have reduced EBGEF (3.3% total profit considering dividends minus some capital losses) to buy more utilities.

            I do not want to exceed my self imposed 10% net worth cap on Canada fixed-rate issues.

            I do believe in trying to stay balanced and somewhat conservative

      3. kaptain lou
        If you read these posts frequently, you will see the investors
        either buy for a quick flip ( at a profit ) or hold for the income
        if the flip opportunity does not occur. So there will not be any
        major losses noted. Anyways, this is an ‘upbeat’ website for
        most of us. I believe most/all of the visitors here are actually
        honest; furthermore, there is not much politics discussed,
        which to me is a relief. I have nothing to gain/lose by being
        here, just informational, as I ALWAYS refer to other sources if
        I find an interesting product here. As an example, Brookfield’s
        potential buy of Cincinnati Bell was an interesting discussion
        today, and if anyone had an interest in CBB-B, the talk here
        today made it clear it is a speculation. Thanks, Howard

  42. Here is a nice visual tool that shows many global govt 10 year bond rates:
    https://tradingeconomics.com/canada/government-bond-yield (This is Canada’s)
    Expand out the date to up to 10 year history
    Look for tab at top for forecast! (Big Smile Curve)
    Try other country data by clicking on the country on the right
    FIRST look at the CN and then the forecast
    Make your own conclusions.

  43. Where are the opportunities in Canadian preferred right now? This is through my eyes. The answers, for you, may be different.

    The background: I follow the Cdn prefs grouped by issue type (min, fixed, reset, float) and issuer. Key pricing metrics I follow are what I call price percentile (current price relative to 52-week high and low), stripped yield, and yield at reset (if applicable) coupled with time to reset.

    Min rate issue have seen a huge run up in the last 6 months or so, as have fixed rates. Both groups are trading at close to 52-week highs. There are few bargains here presently, although there may be issues that work for you. It depends, again, on who you are.

    Resets (aka naked resets), have also moved up in price but much less so than mins or fixed. They are about mid way between 52-week high and lows. There are still good values to be found in resets but be selective and have a strategy. Mine generally is to pick up issues as they come up to their reset dates, thereby locking in a known coupon (and yield on cost) for a 5-year period.

    Floaters are also middle of the pack on rates but as a category I don’t see them as having sufficient benefits over resets to make them a priority target. There are exceptions, of course.

    To start with min rate issues, I am ignoring my own advice and closely watching a subset of issues for opportunities. Those being issues that reset in about a year. To understand why, one has to look at the history of the min rate issues. All mins were issued in the post-2015 period, that being when the BOC 5-year rate had collapsed below 0.50%. Resets that had issued previously, and were coming up to reset, collapsed both in price and coupon. Investors in resets, which previously had been viewed as low risk issues, took a serious beating, from which they have never recovered.

    After the rate collapse, to get investors to buy new preferred, most issuers had to offer a bone, which they did in the form of a minimum rate attached to the reset. In all cases, the min rate was set to the original issue coupon, so zero down side rate risk and full upside rate potential. Very sweet!

    Fast forward 4 years and these min rate issues are starting to come within sight of their first reset. 5, in particular, are now a year +/- from reset. Based on today’s BOC, every one of the 5 will reset higher, from 57 to 80 bps. Assuming the BOC holds over the next year, you have quite a deal.

    The fly in the ointment is that 4 of the 5 issues are now selling above stripped par, meaning they have call risk. The risk ranges from 11 to 83 cents per share on a $25 share. Because of the risk, I don’t recommend 3 of the 5 at present prices. Personally, I will be watching all 5 very closely over the next year for any price pullbacks.

    ALA.PR.I (TGAPF) is trading below par right now and worth looking at. It would reset to yield 6.07% if reset at today’s BOC and today’s price. BEP.PR.G (BRENF), would reset to the same 6.07% yield and carries 11 cents of call risk.

    Full list linked below.

    https://docs.google.com/spreadsheets/d/15g43qGtARO19vhAuI-HDQIUjP0DT61DnOkuBbPahDr0/edit?usp=sharing

    Will try to post something in naked rests later this week.

    Disclosures: I have meaningful positions in min rates from ALA, BIP, BPO, ENB and PPL, all purchased at much lower prices than today.

    1. Yep, Bob, I got my eye on one last purchase a year out too. I already own it, but may take one more bite of the apple soon.

  44. I’m new to some of these Canadian reset preferreds, but am always looking for good investments in 2020 as I have substantial dividends coming in over the next month. Can any current investors provide total return information (dividends plus stock appreciation) for their securities in 2019? Most of the charts look pretty bad overall, but perhaps 2020 will be a better year for fixed income. Thank you.

    1. Kaptain, Its all when you bought. Take you a 5 yr Tbill chart and overlap it with basically any reset be it CAD issued in CAD or a CAD off 5 yr US and US denominated issue. They fall when the trend of long end is going down, and rise when yields go up. They are extremely rate sensitive despite how many years of reset protection they have.
      You maximize profits when you buy into cycle of downward rate fears. Im now pretty much up as much in these as I am in US issues. But it took more work and angst. But these unlike fixed US perpetuals will provide price support if not yield if rates continue up. Most of us used the 2016 nadir of low interest rates as the basline and started adding nicely when they started sniffing those points and they have now bounced off those points.
      If 5 yr goes over 2% you will see some more gains to come. If it dove tailed back toward 1%, you likely will see a 10%-20% haircut from here.

      1. Thanks for the information Grid. Looks like I will have to do some more research before considering a purchase. The difficulty with these issues is that is it so hard to predict interest rates in the future. It’s almost impossible to know future interest rates as there are so many different factors involved.

        1. Lou, I have accepted the fact these issues will just rise and fall with rates and fear either way. These are starting to creep into US system now…Consider this comparison…NI-B (US reset with 3.63% adjustment) versus CAD, EBBNF (though Canadian is based off USD, and has a 3.15% reset).
          Both are almost identical credit quality…Which would you rather have generically speaking come reset time…NI-B currently way over par at $27.68 (remember they reset off $25) and a 3.63% reset, or EBBNF with 3.15% reset and presently trades at $19.10?

        2. kaptain, Even the fed can’t predict interest rate movements and of course we are faced with the conundrum of what “should” happen versus what “will” happen. If interested in a CAD reset but concerned about IR risk, you might want to consider hedging a CAD reset against a US perpetual. Down rates will weigh on the reset while elevating the perpetual and vice versa. It takes the guessing out of the equation.

          I’m holding a few of these, the largest equal-weighted hedge is EBGEF v KTBA. Since setting the positions I rarely look at them knowing their functioning a bit like two ends of a see-saw while also providing above average yields for their rating class.

          The returns are higher because of each issue’s perceived interest rate risk. That risk is ameliorated by tethering them to each other, but the higher yield remains intact.

      2. Grid – I agree with your observations on Cdn resets and BOC rates. I have that BOC 5-year chart (and 3-month chart) printed out and on the bulletin board. Everyone buying Canadian resets should.

        When I made a decision to go “big” on Cdn resets I had to decide whether I would play the yield curve (buy when BOC was low and sell when high) or not.

        I decided not. Sort of. I’m going to be a buyer of resets as long as the BOC doesn’t go too high, which is probably 2% max. At current rate of 1.6% I’m only buying as issues come up to reset, so I’ve got a 5-year window before the next reset.

        At lower BOC rates, I am a wholesale buyer. I bought resets very heavily during the summer at BOC rates of 1.15-1.25%, and that worked super well. Significant cap gains and +6% yield on cost for strong credits.

        I am looking at Canadian resets as a long term position. I may trade here and there but mostly plan to hold. For me, the resets represent a good return/risk proposition.

        PS – for benefit of others, know that my situation may not be yours. I don’t depend upon the income from Cdn resets to pay the rent. I won’t need to liquidate if prices crash, or the Cdn dollar takes a dive. I can ride it out. Please consider your own risk tolerances before you follow others into the deep end on reset issues.

    2. Lou – see what I posted today (Sunday).

      If you look at total returns, especially on resets, you will never invest in Canadian preferred. I have never done the calcs and can’t see ever doing so.

      All the calcs I do are forward looking. I look at present stripped price and resets terms to calculate a range of possible outcomes. If the issue is selling at $15 per share that means someone (not me) took a beating. I don’t care about that. Truly, their loss is my opportunity.

      Look at a chart of the BOC 5-year. Very important. After that it’s judgements on the future of interest rates and risk tolerance. Including exchange rate risk tolerance.

      1. Thanks for the information Bob-In-De. I don’t own any at the present time, but the 3 and 5 year charts on some of these Canadian resets look like a train-wreck. However, at a price of $15 in the next couple of months, some of these shares may be worth a look.

        1. Lou – if you bought at 25 then most are a train wreck. (Min rate issues being a notable exception).

          Interest rates moved a lot lower from when most of the resets were issued. That, and my sense that the Canadians have gotten more risk averse in their view of debt issues, explain why you have quality at a large discount to issue price.

          But that is rear view mirror now. If US and Canada rates go to zero (they tend to track closely) then there may be another fixed income train wreck. That’s why fixed income shouldn’t be the whole portfolio.

  45. Anybody having trouble trading BRENF at Schwab? My trades, do not seem to be executed. My higher-priced bids are constantly ignored.

    At one point, they had accidentally removed BRENF from their system. I called and got that corrected, so it was no longer an invalid symbol. Now, I can enter trades but they don’t get executed. I have them checking the routing on this OTC symbol and am waiting for a callback.

    This is a reset with a minimum rate issue.

    Curious if others have had this problem at Schwab. My experience with Schwab is very positive other than this one

      1. I left Fidelity because they do not allow you to BUY reset or floating issues unless via phone. Are they not letting you enter the order online? If so, that would ve normal for them.

    1. SteveA (or anyone), what are the tax liabilities for U.S. residents holding Canadian preferreds? Is there a lot of hassle at tax time, or do you hold them in an IRA? And do Canadian preferreds trade from the same 25 par point as in the U.S.?

      1. James, Not cut and dried here, so make sure you understand… This is a very decent primer to get you familiar with tax issues. Read it a couple times, it soaks in and isnt a bad read short article.
        https://www.schwab.com/resource-center/insights/content/claiming-foreign-taxes-credit-or-deduction
        Now, in tax free in theory they shouldnt be with held, but many are, and it varies randomly issue to issue and even broker to broker. There are reasons for this but its complicated and immaterial…But guaranteed frustrating if it gets done to you. I had mixed success withholding wise in tax free but now, I have them all in taxable. I owe Uncle Sam yearly anyways now, so it reduces my tax bill.

      2. Canadian issues have taxes automatically withheld when the dividend is paid. If you fill out the paperwork with your broker, you can get the withholding down to 15%. The 15% is reported as Foreign dividends paid by your broker and on your tax forms. You get 100% credit on your income taxes. So, in the end, you get the 15% back. No extra work required that I am aware of.

        I would not hold Canadian preferreds in an IRA. We have a treaty where they are not supposed to withhold the taxes when the dividends are paid. In many cases, that does not occur and taxes are withheld anyway. Since, it comes out of an IRA account, you get NO tax credit on your income taxes. You lose the 15% (assuming you filled out the form).

        1. Steve, I guess it varies broker to broker as no form was needed to be filled out by me for it to be 15%. Also there are some trip ups in not getting the full dollar for dollar credit back come tax time. The link I have above explains a bit of it and the amount one can earn without having to file a form to receive the credit.

                1. Sandboxing this for a second, I actually had recently been wondering about the term “this ain’t my first rodeo,” thanks to Tom Selleck’s ads for some reverse mortgage… Knowing the internet’s always 100% accurate, the Grammarist says, “The word rodeo is borrowed from Spanish, originally meaning round up. The idiom this ain’t my first rodeo is generally traced back to the movie Mommie Dearest, in which the character Joan Crawford says, “This ain’t my first time at the rodeo.” A decade later, Vern Gosdin wrote a song called This Ain’t My First Rodeo, having heard the idiom from a local carpenter. It is reasonable to assume that the carpenter did not learn this idiom from the movie Mommie Dearest, as the film was not seen by many people in theaters. This ain’t my first rodeo seems to have been used as a very local colloquialism prior to breaking into mass media.” Interesting, huh?? Zzzzzzzzzzzzzzz

                  1. 2WR, I used the term “Katy bar the door” to my GF who is not a child at 50. She didnt have a clue what I was talking about. So after I explained it, she told me I must be hanging out with too many 80 year olds, because nobody ever uses that term or she would have heard it.

                    1. 2WR and Grid, How about this gem: singing Ring Around the Rosy as kids. Only a few years ago did I recall that song and suddenly realize its origin and the absurdity of us happily singing it as kids in kindergarten.

        2. To echo grid’s comment, under NO circumstance should you put up with any tax withholding if you are holding Canadian preferred in a qualified account. It’s Tax Treaty stuff, and any brokerage should be able to get it right.

    2. I got a trade done at Schwab for BRENF. Yes, they were routing it incorrectly. Is it permanently fixed? I have some doubts. The order was for 100 shares.

      Perhaps, somebody can explain more how OTC works. On Schwab that completed the trade for 100 shares at 12:25pm, the trade is not showing up when you do a stock quote on BRENF with Schwab. Their last trade for BRENF was at 10:57am. Volume for the day was 5,000 shares before the trade and after the trade. It is invisible to Schwab expect it’s in my account. It is also invisible to TMX money whose trade log matches 5,000 shares with a last time of 10:57am. A lag of more than 20 minutes? Doesn’t make sense to me.

      1. Let me add to the puzzle or provide some additional information. ETRADE has only 100 shares of BRENF traded for today. Guess what, it’s at about 12:30. That’s my shares I assume. So TMX doesn’t know about them, Schwab stock quote doesn’t know about them, Schwab traded them (they are in my account) but Etrade is the only one who has them as a recorded trade today when you do stock quotes.

        No I am not making this up !!!

      2. So my trade finally shows up in BRENF stock quote about 2 hours after it was executed. Same time as TMXMONEY

        So much for the age of computers

  46. Regarding IBRK:
    Like everything, hearing and then doing are very different things. An ounce of practice is worth a ton of theory. Such it is with IBRK.
    I took the steps that were encouraging here from other III contributors.
    I opened a paper trading account and even entered my CN five digit-F symbols as CN.pr.$ symbols which is the was they are traded on IBRK.
    I was told by a broker that there is a small fee to have them transferred in a “Northbound Transfer” to the CN trading symbol.
    OK, I opened an account.
    LUCKILY, I began with ONLY transferring my F symbols.
    NO CAN DO. Northbound transfer will NOT accept any PINKS. There is no acceptance of any Pinks at IBKR, no northbound transfer. It was a direct broker lie.
    Keep your F securities where they are and lose the liquidity and direct access to CN exchange that IBRK offers OR and eventually sell via OTC/Pinks again and do what you will with the cash. Of course cash is SOOO easy to try to grab from a client.
    PS: TD still charges full commission on OTC buy/sells.
    Of course, one may send cash and other “acceptable” securities and build the remainder of your positions over at IBRK.
    In reality: I feel like there is a typical broker scum “bring over the $$ and deal with it later chump”, promises and gold stars, but no reality. I am cold on IBRK right now and have personally worked on antiquated black-screen DOS systems which is what the brokerage industry still stands upon. That’s where IBKR is in fact and what you must indeed deal with.
    Now you have heard, measure you actions.

    1. FYI Follow up to the above:
      I spent five hours today trying to get five positions and a large chunk of cash sent over to IBRK and COULD NOT achieve the goal, even just, as in ONLY, the CASH! If you want to experience a bunch of 1974 broker goombas straight out of a Woody Allen movie deal with them, at least you might get a laugh out of it.
      Maybe Schwab will come through after the merger!?

      1. Check out my post about Schwab and placing trades through their global trading group if an OTC symbol doesn’t exist already. That may be a decent alternative.

  47. I just bought TD.PF.D through Schwab so an OTC symbol should be coming within the next couple days. This one resets on 7/31/2020 has a 2.79% spread. If interest rates hold until the reset date, it should yield 5.55% once it resets. Rating is PFD-2H (BBB+ equivalent) after it was upgraded on 5/30/19. I bought for around $15.10 plus the $25 commission which is roughly $19.80 CAD (about 80% of redemption price). I’m definitely liking these Canadian preferred opportunities. It’d be good if we could collectively start work on getting more OTC symbols assigned to these.

    The ordering process through Schwab was much faster the 2nd time. Keith in Indianapolis is awesome and provides excellent service even though I’m a little guy.

    1. Tex, one thing you will enjoy buying OTC is your quoted value will at times be way off what they are worth. Most of mine havent traded in awhile. And if or when they ever trade again, they will show a very nice bounce. And many of them have went exD but haven’t kicked the divi out yet either.
      Today was the first time I looked in a while. I own a slew of Fairfax issues, Northland Power, TC Energy, and an Enbridge issue. Not looking to add or trade here.

      1. I also own several of the Fairfax issues as well as Enbridge Series 15 (ENB.PF.G). I also own a few of the BAM issues, the Thomson Reuters preferred I previously posted about and now TD as of this afternoon.

        Do you mind what percentage of your total portfolio do you have in Canadian? Most of my recent research time has been devoted to Canadian stuff and I feel like there are a lot of good opportunities. Personally, I was thinking 5% wouldn’t be a bad target allocation.

        1. Tex, that is probably a personal question best answered by your own North Star. But to me one could have 5% in Bolivian pork futures and not be unduly at risk, ha. One can find companies to the north with as good or better finances than here. It just depends on your comfort with foreign currency exchange and potential yield chasms between the two countries and its potential impact.
          FWIW, I have about 20% or so invested in CAD issues, and will largely just hold. Basically I maxed out my TD taxable in those resets, so I cant buy more. I dont want them in either of my tax free accounts, and my other brokerages would throw me in jail for trying to buy them there as they dont allow foreign OTC issues to be bought.
          I have better control and access to trading US issues, so that is where I will play. The CAD issues will just stay dormant in my account as far as I know. I really dont even look at price action there anymore, just keeping what I have.

        2. I have a total of 11.5% invested in Canada. 9.2% is in fixed-rate resets. The rest is conventional fixed rates. I limit my fixed-rate reset issues to 10%. I am in the process of adjusting some of my EBGEF into Northland Power and Brookfield renewal, so I will probably be back to my 10% target by end of the year or soon thereafter.

          Now. whats a Candian firm? Some like Emera, own Tampa Utilities. So the 11.5% are issues that trade on the TSX. When I added in AQN which isa my single biggest holding and trades on the US Exchanges, my “Canadian” holdings are 17.5%. Close to Grid’s 20%.

          I like Utilities under the belief that whenever a recession hits, they should lose less money than other sectors. However, the TD issue could make some sense (again is this pure Canadian? I see more and more TD Bank in the United States). So, if you could let us know the OTC symbol of the TD bank issue that would be awesome

        3. I have about 55% of my preferred portfolio invested in Canadian preferreds, up from 0% two years ago. This is about 6% of my total portfolio.

    2. The OTC symbol is TDBKF and I just bought some additional shares on Schwab for no commission so that should be working now.

  48. I was wondering if anyone has had their broker actually create an OTC symbol for a Canadian preferred when one didn’t previously exist. I believe I saw it mentioned previously in this thread that brokers should be able to do it. However, I was curious how painful it was to actually get accomplished. My broker is Schwab so I’m especially interested in any stories about dealing with them.

    I read most of this thread over the weekend and it was an awesome education. Thank you!

    1. Tex – this is 2nd hand but my understanding is that Schwab will create a ticker for you if you are placing an order. Bit of a hassle but it does get done.

    2. Tex,
      I believe that AmyR did this with a Canadian pfd – Grid can fill you in. She had it done at Schwab if I recall correctly. Certainly, it can be done but obviously not in all cases.

      1. Yes, it was Amy…And through Schwab, but maybe their global securities platform? I dont think its them per se, but FINRA or OTC. It may have been a byproduct (the ticker assigned), by them purchasing for her on TSX. But she had to initiate the process though.

        1. Thanks to those who responded!

          I called Schwab today. They will place a trade for you for a Canadian preferred that doesn’t currently have an OTC symbol. It costs $25 commission per trade. However, after you complete the first trade, an OTC symbol will be set up.

          Another alternative would be to set up a Schwab global account. The trades are free. However, there is a 1% fee for the foreign currency exchange.

          At this point, I think I’d be leaning towards just paying the $25. Curious how others are dealing with preferreds without OTC symbols.

          1. Tex – Joel posted below about trading off the TSX through TDA. That’s another option. To my eyes, the best way to trade Canadian preferreds depends on how many issues and how many $ you are thinking to trade.

            If it’s just a few issues or few bucks, you might be able to get the exposure you’re after from among the issues that already have OTC symbols. The opposite end is to go with IBK, if you look to build a sizable portfolio. Without doubt, IBK has the best access to international markets of any U.S. broker. At trading costs and exchange rates others don’t approach.

            If you want to name tickers I’m happy to give you my thought on how to trade them. I don’t hesitate to name names myself as the liquidity in almost all cases is deep enough to adsorb the trading volume.

            It’s only the TSX volumes that matter:

            https://www.tmxmoney.com/en/index.html

          2. Tex, I agree with Bob. I dont deal with any hassles, I got what I need for what I am invested in them with. You rarely find any miss pricing with the sisters. Just maybe a miss pricing in a future interest rate assumption you feel strongly to gamble on maybe that the market isnt agreeing with you on.
            BTW, you may have missed it, but I responded to your earlier SOCGP question today.

    3. So yesterday I decided to experiment with buying a floating rate cumulative preferred from Thomson Reuters which didn’t currently have an OTC symbol. https://web.tmxmoney.com/quote.php?qm_symbol=TRI.PR.B

      I liked the fact that this is floating, cumulative, trading at 50% of redemption price and 5.5% yield. I figured it is a nice way to hedge against all the fixed rate US stuff I own. Also, since Thomson Reuters isn’t a bank, utility, energy or insurance company, it helps me to diversify industries.

      I placed the trade through Schwab which was kind of painful. After making a few calls and getting conflicting information from different Schwab reps, I eventually got connected with the team lead (Keith in Indianapolis – 800-992-4685) who was able to help. They waived the $25 commission due to the hassle which I appreciated.

      The trade was processed Friday. I was told that it will be sent to FINRA which will start the process for them to create an OTC symbol. I was told that this doesn’t necessarily mean that the symbol will be picked up by other brokers. When the OTC symbol is created, I should see it in my account. I will post it on here when it is available.

      I should hopefully be able to purchase more and sell commission free once the OTC symbol is established. I only bought 150 shares as this was an experiment to see how the process would work with Schwab.

      1. No first hand experience but your experience in getting an OTC ticker for a Canadian issue is the same others have relayed to me. Painful but it happens.

        TMSOF shows as added by FINRA on Dec 16. It shows on Vanguard (not that they will allow trading in any “F” issue), and it shows and is tradable on TDA. Not tradable on IBK (no trading in OTC issues) but can be traded under its TSX ticker, TRI.PR.B

        It’s the sole outstanding preferred issue by a remarkable company. The security itself is a pre-2000 issue, callable at $25 per share (not that there is any call risk), and floats at 70% of Canadian Prime. It was issued as a floater and as such is not convertible back to any reset, as most Canadian floaters are.

        Stripped yield at today’s last was 5.77%.

        Roy Thomson founded the company and from nothing grew it to one of the largest media empires in the world. Roy Thomson Hall, which is the principle live performance hall in Toronto, bears his name.

        He was made Peer of the United Kingdom with the hereditary title of Baron, as well as a a Knight of the British Empire (GBE), both extraordinarily rare honours for non-UK citizens.

        I consider the common, at the right price, to be one of those buy and hold forever stocks.

        1. Thanks Bob. I bought a small lot just as an experiment to see how it worked with Schwab. I picked up a few additional shares through Schwab and they traded commission free.

          Seems like the cost to get an OTC symbol is $25. I’m hoping it will be a lot easier next time.

          I’m a tax CPA so I’ve used TR products for my entire career. That stuff is really sticky. Plus I need some floating and cumulative to hedge against all the fixed rate stuff I’ve got. It was a fun pickup for me.

          Now I feel like the floodgates are open for me to buy CA prefs that don’t have OTC symbols. Hopefully others will obtain some additional OTC symbols too!

  49. Is anyone actually getting good RESULTS using IBK in trading CN issues, especially on NON-F symbols?

    1. Joel – if by “results”, you mean good execution, IBK is the way to go. You are trading directly on the TSX, looking at actual TSX bid/ask, volumes, etc. You use TSX symbols; the platform won’t even recognize U.S. OTC symbols.

      Best to fund with minimum $25k US, then convert all to CA$. Else, you are effectively creating a little short position every time you buy a CA$ issue.

      IBK is running a promo now, worth $1,000 in IBK stock on a $100k account. See my post from a couple weeks back.

  50. Upcoming Issues on Naked Reset Watch:

    Brookfield Office (REIT) TSE:BPO-A 1/1/2020 P-3 (BBB) – GOC 5Yr + 3.15%
    Canadian Imperial Bank TSE:CM-P 1/31/2020 P-2 (A) – GOC 5Yr + 2.24%
    Toronto-Dominion Bank TSE:TD.PF.C 1/31/2020 P-2H (A) – GOC 5Yr + 2.25%

  51. Update on Naked Reset Watch:
    Manulife (Insurance) TSE:MFC-M 12/19/2019 P-2H – GOC 5Yr + 2.36%

    Announced: Nov 20,2019
    From: 3.9%+2.36%
    To: 3.8%+2.36%

    Coupon Change: -0.1%
    Strip: 5.52
    Yield to Call: 12.18

    Price – 17.46 (52 Week Low/High = 14.99/20.39)
    Action: No Buy
    
TC Energy (Pipeline) TSE:TRP-A 12/31/2019 P-2L – GOC 5Yr + 1.92% (TNCAF)

    Announced: Dec 2,2019
    From: 1.68%+1.92%
    To: 1.56%+1.92%

    Coupon Change: -0.12%
    Strip: 6.36
    Yield to Call: 16.98

    Price – 13.92 (52 Week Low/High = 11.77/15.10)
    Action: No Buy
    
Fairfax (Insurance) TSE:FFH-C 12/31/2019 P-3H – GOC 5Yr + 3.15%

    Announced: Dec 2,2019
    From: 1.43%+3.15%
    To: 1.559%+3.15%

    Coupon Change: +0.129%
    Strip: 6.68
    Yield to Call: 12.68

    Price – 17.85 (52 Week Low/High = 15.61/21.44)
    Action: Review for Consideration

  52. Another data dump today, this time dealing with relative yields among same-issuer preferreds. The issuers include ALTA, BAM, EMA, ENB, PPL, SLF and TRP. Some have issues with all 4 rate structures (min rate reset or “min”, naked reset or “reset”, fixed and floating); some just 3. The comparisons to make are the rates among different rate structures of the same issuer, rather than issuer-to-issuer comparisons.

    https://docs.google.com/spreadsheets/d/1cG90GqC1D-WIonOhzY9CS0M2-Hp9DNffNaiBqVtkZ9g/edit?usp=sharing

    To make it a easier on the eyes I have bolded the numbers of interest.

    Starting with ALTA, do you want the 5.57% (stripped yield) min, the 6.80% reset, or the 7.43% floater? The min is very safe from a rate pint of view. The reset is offering 123 bps more yield, but with rate risk due to the reset. The floater offers 63 bps more than the reset and 170 bps more than the min but will give you a very bumpy ride.

    BAM offers 4.80% for the min, 5.51% for the fixed, 6.01% for the reset and 6.40% for the floater.

    The others you can read off the spreadsheet, but the pattern is the same. The higher risk rate structures pay more. The question is is it enough? To a good degree the answer is specific to the individual. Also, the answer may change over time as these spreads are not constant. If one could follow the min-reset spread over time, it varies widely. It’s one of those risk-on or risk-off things one sees so often in finance.

    Spreadsheet notes:

    This analysis is as of November 23, but the results would not change if updated.

    For the resets, one has to eyeball a true yield. You have the current yield, based on the present coupon, and a prospective yield, based on where the issue would reset at the date’s BOC 5-year. The “true” yield is somewhere in-between.

    1. Bob in DE – I’ve looked at these issues, but always some risk with securities that I am not familiar with. Can you provide me with any information on total return this year on Canadian resets (interest/dividends received plus or minus capital appreciation)?

      Thank you.

      1. Luo – what I did with my last 2 posts (with spreadsheets) is provide the data on prices and yields. Data on issue prices versus present prices for resets, and a comparison of resets versus other rate structures.

        It’s obvious from a comparison of issue and present prices that someone took a bath. It wasn’t me and I hope it wasn’t you.

        Next post will be my take on how things got where they are and whether we are looking at opportunity or a sucker’s bet. The answer lies in the history of the resets, Canadian psychology, and a bit in bond math.

        That said, all of the companies in my last post (and almost all in every post) are large, big-time companies. Most are household names in Canada and all are well-known in the financial community. Almost all have real NYSE listings for common (not OTC listings) and are SEC reporting. Very easy to research.

        The average preferred issue in Canada is a much stronger credit than the average U.S. issuer. Skanky companies just can’t do preferred issues in Canada. There are a few exceptions among the split corps, which I have covered in a separate post some time ago.

        In any event, the weakest credit I follow is a BB. I prefer to stick to IG rated issues (no shortage of them) but I make exceptions for companies that are exceptional in one way or another, or don’t have a U.S. comparable. Altagas and Faifax Financial, are two such exceptions

        Regarding credit ratings, up to recently I have displayed S&P Global listings for Canadian preferred, and DBRS ratings in the few cases where S&P ratings were not available.

        I’m reversing that. DBRS, the old Dominion Bond Rating Service, is more reliable than S&P. The S&P and DBRS ratings are identical in most cases but where there is a difference the DBRS will be the lower (more conservative) rating.

        1. No bath for me either, Bob! Solidly in the green, but it wasnt a straight line up. Made easy money a year ago, then had to trade and sweat out the cycle and then repurchase lower. Took 50% knowledge and 50% luck!
          We usually agree on most points very tightly, so I dont respond when you post. As far as immediate catalyst goes we are mostly in no mans land I believe. No downward collapse fear as 0% interest mania has subsided. But also a prolific pattern of upward rate failures the past 10 years are keeping a tighter lid on any crazy upward price pressures either….For time being.
          What I own is what I own, and am not looking to trade here like I do with US issues.

    2. Awesome. Thanks one more time for another great spreadsheet. Makes another great reference/guide to use for yield hunting.

      I’ve noticed your sheets don’t have NPI on them. Any reason for that?

      1. LI – the last sheet was about comparing rate structures of same issuers, to isolate rate structure premiums. NPI has issues in but 2 of the 4 rate structures, so didn’t make that list.

        I also wanted to keep things to the more recognized name for this occasion.

  53. Wow, Dr. Bob, that is an amazing spreadsheet. Thanks so much for sharing.

    I’m not smart enough to know what direction rates will take next. So I use Canadian resets as a pure rate hedge to US uncallable securities. Their share prices should in theory have equal but opposite reactions to changes in rates. So positions in WFC-L, BAC-L, SLMNP, RLJ-A, and KTBA get their rate risk hedged with Canadian resets. You can also use Canadians to hedge US prefs with long call protection or ones trading below par where a call is unlikely even in a lower rate environment.

    Also, I think with Canadian resets you really want to focus strictly on high grade prefs BB+ and above. And I limit exposure to the riskier energy and midstream sectors. I especially like the super high credits from the likes of SLF and MFC. If rates go down, those are the preferreds that are least likely to suffer from spread expansion.

    The other day Gridbird pointed out how record low spreads pose a threat to US pref investors. While the 10 year is in the same place as several years ago, at that time prefs had 75 bips or so higher yields because spreads were wider. If we return to a wider spread environment, the prefs that will have their spreads widen the least will be very high grade like SLF and MFC.

    PS – a lot of my strategy depends on continued high correlation between US and Canadian markets.

  54. Naked resets ….. a gift or a graveyard?

    Be warned, regardless of my thoughts on these issue they have the potential to loose value. And, in all but 4 cases, you are dealing with Canadian-denominated issues, so there is currency risk from an American perspective. Or currency diversification, if you prefer to look at it that way.

    Below I have linked a spreadsheet with 80 “naked” resets, those being resets with no minimum reset rate. Banks are excluded, for reasons that are beyond this post. What’s left is 80 issues, which make up perhaps 80-90% of the universe of non-bank naked resets.

    https://docs.google.com/spreadsheets/d/1tpNE7Io0WknftAUY4RKxZOwggHHmSDRM0xKBL_npbvs/edit?usp=sharing

    A number of recent post here have either made comments or asked questions about the prices and yields of these issues, and sought to understand why they trade where they do, at the yields they do. This is my attempt to address those posts. Today, it’s mainly data for you to chew on. Next post, when gotten to, I will give my thought on the “why”.

    For background, know that all issues came out at $25.00 per share when issued and currently sell at an average of $16.65, a decline of 33% from the issue price. That’s a big drop. The “worst” of the issues sells for just $11.02 per share, a decline of 56% since issue.

    Some other numbers: The average initial coupon was 4.41%. Today, the average coupon is 4.06% and would reset to 4.15% if all issues magically reset based on the current index. The “real” coupon is thus somewhere between 4.06% and 4.15%, and I shall just arbitrarily take it too be 4.10%

    In other words, since issue, because or resets, the average coupon of these 80 issues has dropped by some 31 bps (4.41-4.10). In comparison, the index off which these issue reset has dropped from an average of 1.71% to today’s 1.52%, a drop of 19 bps. Reasonably consistent to my eye.

    Given that change to the index, some drop in price is expected. But 33%?

    Because of that drop, the average stripped yield has increased substantially, from the 4.41% at issue (the original coupon), to 6.07% today, an increase of 166 bps. But that figure is somewhat understated by the fact that there is some built-in coupon increase due to coming resets. The real difference, compensating for the upcoming resets, approaches 175 bps.

    On the surface, that’s 175 bps of “free money”.

    So why has the average price dropped (and yield increased) among these issues by so much? Lowered credit quality is one possible explanation but I’ll save you the time and tell you it ain’t the case.

    So, what else might it be and what does that imply for futures pries and yields on Canadian resets? And for the growing stable of U.S. issues coming with the same 5-year reset structure? Dominion Energy, just yesterday, was the latest to come with a reset.

    My thoughts later this week.

    PS – all data above was as of 23 November, when I did this analysis.

    1. Dr Bob and Reset-Students,
      I too have spun every element of these resets in ‘inter-related space’ that I understand as an investor. That continues. I will add these comments kind of like working with corollaries and axioms in geometry:
      1) The five years treasury of CN or US is a market perception of base inflation over that five years. That’s all. The only expectations are these: rates and inflation will be up in five years or same or lower. I preserve principal for spending if needed. That’s all, three options. WHY GUESS the direction of rates? Just to feel smart.
      2) We spend our funds in the future inflation adjusted. We hope to at least break even by gaining that inflation return by ‘indexing’ to an instrument like treasury rates. Then, there is a company risk outlook premia added too. That is return ON investment in a company. Add them together = reset rate.
      3) We can not take into account the actions of institutions like the Fed or recessions or other temporary affects on asset prices like treasuries, but historically we can rely on the market to set that rate. This is why you ladder, stagger resets. Indeed you can forget the Fed long term and ONLY follow actual market rates. Byebye CNBC.
      4) If in five years, the rate resets at a higher inflation expectation then the reset has served its purpose. If the rate goes say to zero, that also means it has served its purpose in an outlook of little or no inflation with a very low reset which, nonetheless, should have served its purpose. It is lower, so you don’t “need” more money. (Hard to swallow!)
      6) The above is the rote mechanism. The result we actually look for is a conditioned or behavioral desire to “get ahead” by chasing yield. That is human nature.
      7) Investors have perceived and been conditioned to expect Fed intervention and sideways or lower for longer. This depresses resets.
      The perception looks at dwindling reset at lower rates when that may be an element of fact of the five year outlook. This is also a temptation to companies to reach for packing the balance sheet with cheap money at every tranche perhaps altering the investment grade quality.
      8) By laddering and holding to maturity, one can allow the ‘market facts’ to be incorporated in the future automatically. Tough love! Diversification by number and industry can help with credit risk/quality. This is a fact that most investors or traders think they can do better…making course changes. Notoriously inaccurate.
      9) The mechanism of resetting is structurally very sound. So we get bored in our investment computer ‘hobby’. Like paint drying.
      10) The biggest risk is identified by Dr Bob above: retention of Investment Grade. Because busineses are fluid and run by the same human minds, the management makes all kinds of adjustments along the way (no judgement as to whether their adjustments are right, neutral or wrong). That is why the diligence must be focused on the ability to continue to perform DURING the five, ten or your life cycle and continue to earn investment grade. Diversification may help here. Trading becomes a tool rarely deployed.
      11) Resets reflect an easier investment and portfolio profile to my mind. Obviously, the current deep price values reflect either down or lower for longer rates at reset dates. BUT, That has begun to shift. How can I use that when I am conditioned to get higher fixed rates which my mind can project; I hate the unknown. Can I accept income that is only inflation adjusted or do I need to reach?
      12) The current reset environment reflects little investment landscape change over the next five years compared to the last eleven years of experience. What could possibly happen and what rote tools can I use to control that? Answer: Laddering, diversification, reinvestment and a KNOWN SPEND DOWN PLAN! This is not discussed much, focus is on the accumulation phase and fodder for another treatise.
      13) Preferreds are NOT a field where one bulks up ones principal UNLESS it is left alone and allowed to compound over a term which also allows for future ladder deployment from generated income. This is best deployed in a tax shelter. Preferreds are an income instrument.
      14) Preferreds can be managed for capital gains, a different treatise entirely; now we are trading. It’s hard to make a lot of correct decisions in a row as rates fluctuate.
      15) Conclusion: Resets are boring but have a “automatic ghost” built into them IF the company continues to perform, diversification is employed and management is focused upon reallocation of income and avoiding credit downgrades. Sounds kind of like a personal insurance company annuity or private ETF with no fees!
      PS: caught me at coffee time! JA
      PPS: Thanks Tim and admin over there. Happy Holidays to All!

      1. Joel, some sound thoughts. I would bite back in a few thoughts though. Canadian resets are anything but boring. In fact they have been considerably more volatile than fixed issuances have. Going forward who knows, but look at the previous 5 yr charts for all. And at reset time there is no guarantee it will be anywhere near price at previous reset.
        Also I wouldnt say they are tethered to inflation. They are tethered to the 5 yr “bond” plus the credit spread market deems at time based on credit risk bucket assigned to issue. Inflation has in past been totally ignored. There has been times in past where inflation was over 6% and 10 year was under 3%. Oz behind the curtain can have more determination in market yields than inflation does if they so desire.

        1. Yes indeed, my diatribe is a place to begin as a perfect 101 classroom tool. It is apparent that ‘Oz’ is really part of our life. As you mention, looks like the ignition of real inflation may not be accurately reflected in a treasury of any sort and this is what they want to achieve as per their statements. There are ALWAYS caveats. I am ratcheting an approach forward like this very slowly.
          Also, Using all the trading tools we have shared for CNs, I followed every detail presented here. plus TD’s direct advise, example here:
          “HSEPRECN a simple and understandable variation on TSX’s symbol. Call us with that and establish your price like you have been doing off of TSX account, we will place the trade after giving you a B/A, IE: HSE.PR.E 19.80 to 13.01. We will place your order for the internet rate via our broker, the order shows up on your Trade Status where you can change price and duration of order by your screen entry.”
          This filled at 19.89. It can be a GTC, but did not get clarification if there is a fresh commission if it rolls into next session.
          You Guys all helped me.

      2. Joel – good of you to take the time to comment.

        I would focus the readers’ attention on your point #8, regarding laddering and diversification. If you want to get into Canadian resets this is the way to go. The diversification is for the usual reasons and the laddering is a means to deal with the inevitable ups and downs of interest rates.

        My personal plan is to (eventually) own the whole time spectrum, meaning the entire 5-year reset ladder. I’m buying in now at the long end but as time goes by it will fill in. And I will have a complete 0-5 ladder.

        At that point it becomes a perpetual motion machine. With no call risk (a few exceptions) you just turn the dividends into new buys as needed.

        A quicker way to do the same thing is via the ETF, ZPR.

        https://www.bmo.com/gam/ca/advisor/products/etfs?fundUrl=/fundProfile/ZPR#fundUrl=%2FfundProfile%2FZPR

        It’s a TSX issue and I don’t know if it can be bought through a U.S. brokerage, other than IBKR. The convenience will cost you 50 bps. It’s a very simple strategy to replicate. If it were a U.S. sponsor the cost would be 10 bps, but this is Canada! There are reasons the Canadian banks make so much money. It’s called FEES.

        1. QUITE ambitious! My laddering will be sparser by number.
          As a side note: After years of talking outloud around my wife she has asked to be tutored as to what and how all of our accounts work. Our rationale is, “what happens if you kick or stroke out on me?”
          Well since we retired a year ago she has gone from, “Rates go down, bond prices go up” to really digging in on getting the details and is quite adept! I know I have tread on possibly dangerous soil, but it beats a broker! The curve goes out to infinity I suppose! JA

        2. ZPR is a very interesting concept. Thanks for sharing. However, the yield of 5.37% seems low. Pretty easy to construct a portfolio with a significantly higher yield while maintaining quality among credit risks.

        3. I continue to limit my total investments in naked Canadian resets to about 10% of my net worth. I own Fortis, Emera, Enbridge, Northland Power, and Bell Canada( float off the Canadian prime – so it’s more a true floater than a fixed rate reset).

          I do own some Canadian fixed in some investment-grade companies; Great West, Sun Life, and Canadian Utilities. Looking to add to these on pullbacks.

          I also own a very small position in Brookfield Renewable but it is a 5-year reset with a high minimum floor – so I consider this to be more of a fixed with the potential to increase in the future.

          All total about 13% of my net worth. I have not done laddering with the resets, unlikely that I will.

          Thanks for your spreadsheets and posts.

    2. Wow, this is an amazing spreadsheet. Thanks so much for sharing.

      I’m not smart enough to know what direction rates will take next. So I use Canadian resets as a pure rate hedge to US uncallable securities. Their share prices should in theory have equal but opposite reactions to changes in rates. So positions in WFC-L, BAC-L, SLMNP, RLJ-A, and KTBA get their rate risk hedged with Canadian resets. You can also use Canadians to hedge US prefs with long call protection or ones trading below par where a call is unlikely even in a lower rate environment.

      Also, I think with Canadian resets you really want to focus strictly on high grade prefs BB+ and above. And I limit exposure to the riskier energy and midstream sectors. I especially like the super high credits from the likes of SLF and MFC. If rates go down, those are the preferreds that are least likely to suffer from spread expansion.

      The other day Gridbird pointed out how record low spreads pose a threat to US pref investors. While the 10 year is in the same place as several years ago, at that time prefs had 75 bips or so higher yields because spreads were wider. If we return to a wider spread environment, the prefs that will have their spreads widen the least will be very high grade like SLF and MFC.

      PS – a lot of my strategy depends on continued high correlation between US and Canadian markets.

      1. Landlord, After going “hot”, “cold”, then “warm but not hot”, on my CAD issues, I have finally settled into a long term hold for basically your reasons. Im not diversified or spread out over a 5 yr continuum though. Just holding a decent sized chunk of Northland Power, a bigger chunk of Fairfax spread out over 4 issues, and some TC Energy. Have just recently trained myself to ignore them and let them be.
        If somebody shouts out some big value drop I will peak my interest again, but am not going to hunt for anything and focus on leaving them alone, ha.

    1. Yes, Tex, a whole lot of big issues repriced on Monday. This includes 5-year resets BPO.PR.A, ENB.PF.A, FFH.PR.C, FTS.PR.M, HSE.PR.C, and TRP.PR.A.

      This is an opportunity to lock down yields for the next five years.

  55. IBKR Promotion …..

    If anyone out there contemplates setting up an IBKR account to trade Canadian issues (or anything else), this is a good time.

    They are offering a 1% bonus, in IBKR stock, up to $1,000 (i.e. a $100k account). Only catch appears to be a 2-year hold period on the stock.

    You need to be referred to get the bonus. If interested send me a PM through SA (same nic) with your email and I will send you a copy of the terms provided by IBKR.

    1. Hi Bob-in-DE,
      I am very interested because I am right now is opening account with them. I sent you message on SA.
      Thank you very much!

      1. Sergey – I got your message at SA. I have to fill out an online form to send to IBKR. Need 1) first name, 2) last name, 3) email, and phone #. It does not need to be a US phone #.

        Send info through SA message system and I will get it done.

  56. Ran a little experiment today:
    – used FXFLF which has been mentioned here as a CN reset on Dec 1, 2019.
    – have a user account on TSX where I got CND to USD rate of .7539 it’s right at the top of the page.
    – It opened at $17.41 x .7539 = $13.13.
    – Experiment: Placed limit order at $13.24 for 100 shares on TD Snap Ticket for electronic order entry via Greys. 1% plus above the open.
    – On TSX, the stock topped mid-afternoon at $17.51 on 500 shares x .7539 = $13.20, so my offer was 4 cents higher than the best offer of the day and within the volume constraints. Never filled.
    – I sent details to TD and really expect an amateur email broker response and will let you know what they say.
    – Any inputs as to a METHODICAL success? Like I said I am still dabbling in the approach to confidence. Thanks in advance to the group mind. JA

    1. Joel – if you had the bid in for the full trading day your order should have executed. More than 22,000 shares traded on the day, so not a liquidity issue.

      Only thing I can suggest (in addition to asking broker, which will get you nada), is check during the day. Both the CA$ price and the exchange rate can move and make your in-the-money bid go out-of-money.

    2. Hello Bob

      FWIW, Just filled an order for FXFLF on TD Ameritrade today for $13.15 US. Placed it off their Think Or Swim platform.

    3. I am quite new to Canadian preferrers and learning by reading the notes here (thanks for sharing). One thing I have noticed that mystifies me is – for many shares — the drop over time from $25 C to the $ 10-15 range. Conceptually I would have thought a drop in interest rates (push price down) would be roughly offset by a corresponding drop in relevant discount rate (push price up).. Certainly there are time lags (5 year resets) and changes in credit quality, but the drop in prices appears over “dramatic”.. While many current issues mentioned on this site do appear to be reasonable investments, I wonder if anyone can shed light on how floating instruments can drop by 40 percent in value. As an aside, what a wonderful site..

      1. LP, I believe the reason these preferreds have fallen so far from par is two-fold. First is very small spreads at IPO. Not unusual to see junk rated preferreds with less than a 300 bps spread to the 5 year treasury. Second, is I think Canadian reset preferreds are undervalued. They shouldn’t trade this far below par. Third is that once a preferred goes substantially below par and experiences high volatility it takes a very long time before the market will trust it again. Preferreds like that trade at a permanent discount simply due to having a volatile history. I’m guessing there are many Canadian investors who have been burned badly by this asset class and have said “never again” to preferreds.

        1. Many thanks for logical and clear explanation.. makes sense to me.. I think the market “distaste” does provide an opportunity to capture value.

    4. In response to my posting above:
      1) No emails accepted regarding “trading discrepancies”, must call.
      2) Call reply was: call and place trade with a broker after you get an ask from the broker, you are paying a commission anyway on Greys.
      3) I really was not too interested in the actual trade, but the methodology. OK

      1. Joel, I own 4 different Fairfax issues. I will use FRFGF (Series E) as my example since I bought them yesterday…I followed same procedure as you… Converted to USD, matched to ask price, etc….But after an hour or so nothing happened. I had had my bid at $10.14. But when something doesnt smell right, I have used this trick that has worked every time for me. I then set my bid above ask to $10.20, and it hit immediately…At $10.12, which was below original standing unfilled bid. This evidently forces someones hand to compete and sell at a lower price or lose the transaction.
        Its not unusual…I did that with INBKL this week. I would have a standing bid unmolested. But then started playing a game. Sending market order bids under 100 share transactions. Several hit immediately well under original bid I had sitting before I pulled it. With free commissions I can play this game on illiquids when something doesnt smell right.

        1. Seems to be a human hand in the chain somewhere. I think I can move it forward from this point.
          There are some very tantalizing planning elements to these reset issues CN and US.
          I like the overall inflation expectation the five year should automatically perform if it can be left to perform that duty without manipulative interferences.
          Also, the real deeper value based on below par price alone; lower denominator factor in just about any security. Hard to miss that.
          It may help me get more toward longer term holdings instead of trading too much. I know I have made mistakes with that in the past. There have been good trader opps in this current year, esp since I began some major allocations beginning in Oct of 2018. I’ve got a scad of non-qual, sh term divs and cap gains, but the house always gets their cut! I will kind of come full circle with tax filing reality for 2019.
          I have learned alot here at III so thanks to All! JA

          1. Well to me, the fact they are under par doesnt mean they are a deal. It still boils down to the adjustment yield in relation to purchase price, plus the assumed TBill yield. Of course the yield and currency conversion is out of our hands. Probably the most salient reason for the older reset CAD issues that are all under par is the fact one doesnt have to worry about redemptions or prices backing up as call date approaches. They certainly will hedge out any future rate hikes if they occur.

          2. Joel – I agree, there is evidence of a human hand in OTC trades. Not just Canadian issues but all OTC.

            I have experienced many incidents where I had a bid in and shares traded below my offer.

            Grid’s methodology of going above the ask price seems the best. Seems to shake the tree.

            1. I agree as well, happened just yesterday. I had a limit order in slightly above the ask but it never filled. Trades took place below my offer. After a couple of hours, as the trading day was coming to a close, I increased my offer price and the order filled at about my original limit. Maybe this means I should be putting in market orders and trust they will be filled at best price, but I’d rather play Battleship with limit orders, I guess. Rational?

              1. I’ve been stymied on trading several OTC pfds. Last week, for the first time, I put in mkt orders for BAC-L, WFC-L, and SLMNP. All immediately gave me reasonable fills. Of course, the spread on these was not too bad. Nothing like, for example, DMRRP and several others I track.

                JMO

              2. I advise against market orders unless it’s a very liquid issue, and even then I don’t like them.

                If your limit order is well above market you still have an upper limit. There are too many algos out there looking for the split second when there is a market order but no ask.

  57. I’m a beginning student regarding Canadian preferred resets. SLF.PR.G/SUNFF caught my attention a few days ago. I like the very high credit quality, the historically low price, time to next reset, and the low value of the index at the previous reset. I’m not able to get a feeling for what is likely to happen in the event of a significant rise in rates. I’m hoping someone will be able to provide some insight.

    1. I am also a beginner with about 5 months of experience in Canadian issues, I own a very small starter position in SLFYF paying about a 5.3% dividend. I would expect a drop in the market price with a significant increase in rates. I have the same expectation for the US marketplace.

      When I look at the 5-year chart of the stock price this has traded between $13.60 and $22. The current price is $17.10. It seems to have a range most of the time between $16 – $18. Looking to buy more below $16.

      In terms of opinions on the rate increases, my suggestion would be to look at the 5 year US or Canada TBILL (they track decently) and match them up against the stock price for the same period. This will allow you to see for yourself how it behaves in periods of rate hikes and rate cuts.

      1. Though I am far from an expert on Canadian resets having only done work on the US Dollar based ENB preferreds, I suspect that if you SLFYF and Jim’s SUNFF are typical Canadian 5 year resets (I know nothing about either specific issue), your assumptions of what they will do when interest rates surge higher would prove to be wrong… Think about it for a moment – what is it that has brought them to large discounts to par since issuance? It”s the lowering of interest rates since they were issued AND the anticipation of “lower for longer” that pervades right now as far as future expectations for interest rates are concerned…. If Canadian preferret resets are also going to go down when interest rates go up, than boy have we gotten ourselves into bad investments…. When “lower for longer” is no longer the prevailing interest rate assumption these preferreds will begin to anticipate a higher reset rate and rise in price just as now they anticipate lower resets and are cellar dwellers be they have good relative current day current yields right now or not. Apologies for jumping into Bob-in-De and Grid’s areas but had to chime in.

        1. 2WR: You have articulated perfectly why these reset hummers are, for me, a game for whippersnappers, i.e., those who can pay far closer attention to their details than can fogeys like me.

          So I mostly stay in my lane and continue buying EPD, for example, which seems to go down no matter which way the wind is blowing. Something I can, apparently, really count on. lol

          JMO

          1. Camroc – I hear you but I know from previous posts that we have fogeydom in common…. At least I’ve shied away from LPs, but 12 days ago I strayed out of my lane and bot some common from one of the banks where I’ve loved the preferreds and it’s down 5%, That’s hard to have been able to accomplish in this environment where stocks only go up, but I’ve done it! Yay me!!

        2. I agree with you. These two issues do not float and do no reset. They are fixed rate. So I am more comfortable with the assumption they will fail in value if rates increase.

        3. I’m thinking that a portfolio split between US/Bermudian fixed-rate issues and Cd resets should, theoretically, have pretty stable value over time since the former move inversely to interest rate changes and the latter move in the same direction. Whether they move proportionately, though, I have no idea – has anyone seen research on this? I’m about 55% fixed-rate and 45% 5-year Cd floaters. Thank you for your thoughts on this.

            1. Tim, You got the theoretical concept down. But in reality depending on market conditions its possible it will not…Remember there is another variable (well there are a bunch actually) and that is the corporate credit spread from treasuries. Fixed issues trade more accurately off credit spreads than 10 year. Take Dec. 2018, the credit spreads blew out , all while treasuries yields went lower. Thus fixed preferreds followed the credit spreads not the treasury yields, so preferreds dropped in price.
              Also remember this. Even in a perfect normal trading atmosphere, the fixed perpetuals in theory cannot compensate moving upward that a reset can falling if yields dropped. The “callability” and corresponding date to call will anchor the preferreds in a manner that a reset will not have. Take in general this year…Resets have been down 15-20% or so this past year. Perpetual fixed in general did not climb 15-20% in general. In fact some have dropped because of various reasons (approaching call date, financial problems, etc).
              Personally I like owning a mixture of resets, fixed, and term dated and do…But they will never totally offset each other in total trading harmony though.

              1. Thanks for the response, you’ve given me a lot to think about in your comments. Much appreciated.

      2. Steve – on your SLFYF position, you’re right of course that price would move down if rates went up. It’s a fixed rate issue and will behave just like a US fixed rate.

        Consider pairing it with SUNFF, a 5-year reset from the same issuer. If rates move up, SUNFF should move up as well, very especially in the next 6 months, before it reprices at end of May, 2020. it will act as a hedge, albeit an imperfect hedge, on rate changes.

        In the end the strategy comes down to whether you are wanting to protect yourself from rates going up, or rates going down, or both. Issue selection flows from that decision.

        1. Yes, my error I have a spreadsheet that tracks issues. For some reason (typo?), I had SUNFF as a fixed rate. It should have been SNLFF.

          Agree with what you wrote.

    2. Depends whether you are looking to collect five years of yield regardless of price bot AND THEN getting a reset to 5yr+spread to catch you up with the current interest rate environment OR a call at that time. OF course the reset may be down in a low rate environ.
      For Me: I am at a point where I am a ‘coupon clipper’ for five years and will accept the reset since the 5yr bond will reflect Inflation environment or ‘spendability of the div’ at that future environment also.

    3. Jim – for some context, Sun Life is a major Canadian insurer. It is one of the largest companies of its kind in the world. Credit quality is extremely high.

      SLF has 5 fixed rate preferreds outstanding, 3 5-year resets, and 2 floaters. The 2 floaters were spun off from two of the resets and have identical terms, except that they reset every 3 months off the BOC 3-month rate rather than the BOC 5-year rate as do the resets.

      For an American buying off the OTC, your investment universe consists of 2 fixed rate and 1 reset, as follows: SLF.PR.A/SLFYF, SLF.PR.F/SNLFF and SLF.PR.G/SUNFF.

      Based on yesterday’s close, the 5 fixed rate issues have yields (stripped in all cases) of 5.32% to 5.36%. Closely bunched, as they should be. No call risk.

      Resets are more complex. One has to look simultaneously at the current coupon, the “spread”, the current BOC 5-year rate, and the time to reset. Plus, of course, the present price.

      From those data points, I derive the current yield, and the yield if the coupon rests to today’s BOC rate. For good measure I also test the yield if the BOC reset at 1% and at 0%. Four yield numbers for each issue.

      https://docs.google.com/spreadsheets/d/1IwaRlmByElLlTP7SSMkdFJaR3HU3uVpL-Q6nrASCIyI/edit?usp=sharing

      Inasmuch as SLF.PR.G is the only one of the 3 available to you, I’ll focus there. My impression is that the coupon is a bit meager relative the the reset risk. Here, I’m comparing the 5.35% that SLF.PR.G would reset to versus the yields available on the fixed rate issues. Most rests will give you 50-100 bps premium over the resets but in this case it’s zero.

      I would also be a bit concerned about the time to reset. You’re in the “danger zone”. If rates tank before the reprice date, and you’re buying at today’s price, you are saddled with a low yield for 5 long years. You are very exposed on interest rate risk for the next half year.

      I would offer 2 ways to play this, with the reset risk in mind: 1) wait to buy SLF.PR.G until closer to the reprice date, when the reset rate becomes more certain, or 2) pair your purchase of SLF.PR.G with one of the fixed rate issues. The two will behave opposite to each other if the BOC rate moves and the loss in one will be offset (roughly) by the gain in the other.

      The explanation to the forging is that, when rates rise, fixed rate issue go south in price but resets (usually) go up. The closer the reset date, the more up one can expect. Just know that the actual price movement doesn’t always comport with the theory. Sometimes, when an issue should be going up in price it goes down. There is a good deal of irrational price movement in Canadian preferred.s

      Always check out the chart, and look at it besides a chart of the BOC 5-year, which you can get at moneywatch.

      https://web.tmxmoney.com/charting.php?qm_symbol=SLF.PR.G

      Lastly, appreciate that the “reprice” date for Canadian preferred is 30 calendar days before the reset date. Check prospectus for details. The reprice date is the date to be aware of for trading purposes.

      1. Thanks so much Bob. You’re a genius! By the way, I went to H.S. in New Castle. I’m assuming you are in the Diamond State.

      2. First, I second the notion that Dr. Bob is a genius. 🙂

        Second, if you’re not limited to OTC issues and can buy directly TSX, it appears that SLF-I is the best buy. It would have the highest SY if reset today and it would be above what the fixed preferreds pay today. In the meantime, you enjoy a 5.2% SY which is only a tad below the fixed rates. The only downside is the long 2.12 years to reset. So, you’re exposed to the risk/reward of rate movements until that time. If rates go higher, you stand to gain in price per share. If rates fall, price will go down. If you think the direction of rates is a 50/50 bet, then your “average expected” outcome is that rates are the same in 2.12 years as today.

        SLF is a uniquely strong credit among preferreds. I don’t know actually know of any preferreds with a higher credit rating (doesn’t mean it doesn’t exist). I think scarcity value in owning such a highly rated preferred. I have a life insurance policy from them partly because they are such a strong and well respected life insurer. That reputation is a competitive moat (in an otherwise commoditized business) that can’t be crossed by another company overnight.

        While it’s a diversified international company, I like that it’s based in Canada as I view Canada as a more stable country with less political uncertainty than the US.

        1. Thank you LI, but my wife would disagree.

          To extend the point, (almost) all of the major Canadian financials are exceptionally strong credits. This goes for the big banks, big insurance, and even some of the non-bank, non-insurance financials. Several reasons for this but the end result is an almost uniformly strong financial sector.

          Now, the miners and the industrials are a different matter.

  58. Wondering if anyone can shed any light on some of the Fairfax Financial preferreds outstanding. And benefits of one over the other? I picked up Series K ‘FRFFF’ at $14. I’ve done well following Prem Watsa in the past. Seems like a decent holding. I know with a lot of these you have to be careful not to do market orders due to how thinly traded they are. It would appear like a pretty low risk way to earn 6%+ but I’m a novice in this game so want to try and avoid any pitfalls. Appreciate any insight.

    1. RE: FRFFF

      FFH has 6 5-year rests outstanding, 5 with OTC tickers. Differences are the time to reset and the spread. Can’t look at nominal yield alone as that yield may be good for many more years or it may be changing in a month.

      https://docs.google.com/spreadsheets/d/1ud4OggnxACBIF-Rbfj68hAVKv8OubFgdTDfjOAjMcoI/edit?usp=sharing

      The “best” issue requires context. For me, for my portfolio, FXFLF is the object of my current interest. Reprices in 13 days, to BOC 5-year plus 3.15%, locking down a 6.73% yield for the next 5 years. (Assuming the present price and assuming the BOC stays put for 13 more days.)

      I find no fault with FRFFF, but do point out that as the FFH issue with the longest time to resets it will be the most responsive to changes in the BOC rate, both up and down. It’s a tiger, in other words.

      As you indicate you are new to Canadian resets I urge you to look at the price charts for issues of interest. Look at TMXmoney, not OTC prices. Appreciate the potential price volatility with resets and the benefit of being diversified with respect to reset dates. Not being so diversified has been the graveyard of many an investor.

      For buying Canadian preferred, look at a post on this thread that I did about a week ago.

      1. Thank you Bob. Have spent the last few hours reading through all the comments from the last few months and really appreciate your insight. Thank you also for the google docs and suggesting to create free TMX account – highly useful.

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