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.
661 thoughts on “Canadian Chat”
Its been hard for me to get excited about preferreds this year as percentage wise I am scraping near my bottom percentage wise if you back out the ALL-B/NSS types that really arent true preferreds. Anyhow, I am sticking my toe back into a Canadian reset. OTC ticker ERRAF which is a preferred from big hold co ute Emera which owns several US utilities. Taking a reset flyer trade. Its present $18.72 pricing nets to a pedestrian 6.3%. But come end of July it resets to, of course, 5 year CAD plus 2.65% adjustment effective starting mid August going forward. Of course rates could be anywhere north or south by then, but if present yield and pricing held one would get a relative juicy 8.23% at 5 year reset. The Series C preferred is a BB/BB+ ish rating.
Grid what do you think about the big drop in EBBNF today? Kinda took me by surprise
Charles, I have noticed a lot of the Canadian resets have dropped recently. Including ones resetting in a couple months. Which is interesting since this helps possibly increase the next reset yield.
Part of the large percentage drop on EBBNF had to do with playing catchup with actual trading on TSX.com under ENB.PF.U . Its actual percentage drop should have been more in the 2% range similar to EBBGF today were EBBNF more actively traded….. But here’s what I wonder – on a current yield basis, these two are trading in the same 7.70% range…. Given these are IG with both Moody’s and S&P, what makes these so cheap? Is it because of the oil pipeline company aspect? Is it because they’re Canadian? It certainly can’t be because of the 5 year reset type could it since both have so recently reset? And it’s not because of them being CDN dollar as these are both USD denominated. So what other non/bank IG perpetuals offer such a huge current yield? Are there more in Canadian Land? I don’t pay attention to CDN dollar denominated issues at all so maybe these are easier to understand cheapness wise within the larger universe of CDN issues or maybe even if merely compared just to the CDN Enbridge issues, I don’t know.
As you know, 2WR, you have to live with Canadian reset trading goofiness if you want to own. Having said that it certainly isnt surprising its dropping considering a couple I track such as an Emera and Fortis reset. As at present yield they would reset over 8% in a couple months.
Another Enbridge reset, ENB.PR.H will be resetting in about 6 weeks to about 8.75% if current rates hold. So that gives you another reason why this one has dropped.
You mean that at current price ENB.PR.H would give holders an 8.75% current yield right? Reset = 5 yr CDN Treas + 2.12, right? And ENB.PR.F just reset @ 5.538% and is trading now at 17.03 for a 7.98% current yield, so I guess, H looks cheap. Still, this is the input I was wondering about – where the CDN ENB resets are trading so thanks….. Yes I guess that makes sense why the USD issues have fallen too because of where the CDN issues trade, but in isolation vs the US market alone, they all (EBGEF, EBBNF, EBBGF) seem to be cheap, don’t they?
Keep in mind their value will be anchored from north of the border since that is their stock registered home. So I really doubt you can compare them since the US market doesnt seem to value/trade them like CAD ones do. As the US reset market matures further down the road they may trade more like the more mature CAD market…or not, who knows.
As a newbie to Canadian resets, I am just wondering: is there foreign tax holding when purchasing EBGEF, EBBNF, EBBGF?
Yes there is Sailing. For me this means I always buy in taxable accounts so I can fully claim it back tax time on Foreign Tax Credit Form 116. Its braindead easy on Turbo. If you purchase in a tax free account legally there is not supposed to be a withholding. But a few get screwed up and withhold anyways. And then you are screwed as you have no recourse other than to yell at a brick wall to try and get problem fixed. It happened to me a couple times, others were ok. Now, I just buy and file the tax credit and get it then.
Great insight, thanks, Grid!
Sailing also keep in mind some Enbridge issues like what 2WR has do not have currency risk. Most CAD issues that will be part of what you are dealing with. Just a minute ago, I toed into Fortis Series G which will also reset over 8% possibly in coming 2 months. I bought those at $12.30 USD through ticker FTRSF. Its 5 year CAD plus 2.13% adjustment.
Grid, I use IB and Fido, but FTRSF can’t be found in IB and it seems Fido charges $50 foreign settlement fee per transaction. Which brokerage do you use?
Sailing, I use TD. They are pretty good with CAD OTC issues. Of course TD used to be a Canadian outfit. They do charge 6.95 a trade though for OTC.
Sailing, can’t you just use the CAD ticker with IB?
I guess I could use CAD ticker in IB, just never done that. I will give it a try, I am using IB Lite though, I bet it won’t be 0 commission for CAD tickers
Thanks Alpha. I was missing a 1! I actually never see the form as Turbo does all the work for me!
thanks Grid – finally a place to put some of my CDN money mkt $$
Buck, I bought a couple hundred more of FTRSF today. I like the risk reward set up now as economy seems to be holding up which should prop CAD rates up also until reset time for both these two issues in July. But who knows, as one needs to put on their big boy pants when owning CAD resets as they have shown to be volatile over the years and sometimes confounding trading pattern wise. Such as….now? The preferreds traded down a buck or so past month all while CAD 5 yr is up close to 50 bps the same time.
Grid my humble uneducated opinion from reading Globe & Mail is the pref market in Canada is a sick decaying market (similar to Leafs fans) and there is little interest in it by institutions nor professional investors anymore as institutions are now using the Limited Recourse Capital Notes (which of course puny investors like me cannot buy). Consequently very strange trading patterns can happen with the remaining pref shares and if a CDN PREF ETF has to liquidate some holdings due to redemptions even stranger things can happen. There is little if any info especially on the rate reset market due to such limited trading. So your tips are TRULY appreciated as I try to eke out more returns to pay for my wife’s ongoing Amazon purchases for the grandkids.
Buck, Interesting, I havent followed macro dealings of CAD preferred market. Have you ever seen this link before? It has some good info on it CAD reset wise.
This has some good info too on it.
Leafs cost me $300 on their season ending loss. But they did earn me $500 on first round series win.
thanks a lot for your ideas and symbols Grid ! (much appreciated!) I have taken a look at pref website and truthfully I’m a bit overwhelmed by all their data. Mind you I dropped high school algebra when I kept getting my X’s and Y’s confused with my X’s and O’s from my football play book. As Jethro Boudine would say on the Hillbilly’s “I’m going put my ciphering hat on” and take another look at the site. Hope you enjoy your long weekend and have great weather like we are in SW Ont. Had two late frosts this week and next 7 days we are going to be getting mid to high 80’s (go figure).
Buck, the main thing is it shows various companies resets and tickers with their reset adjustment that is tacked onto the 5 year. Also if you look their are a couple of fixed Canadian preferreds. I believe Fortis and Canadian Utilities have fixed ones with yields over 6% now. That isnt the worst thing in the world either.
Most of the other info is just gaining knowledge about something we dont have control over anyways.
For me, I look at relative pricing deals, the spread at purchase and best guess on the 5 year at reset. For example the Emera issue. I know the adjustment spread is 2.65% and the current price is $18.75. If 5 year is 0% worst case, then the yield would be a yield of 3.53%. But if 5 year CAD hangs in around current yield this will reset over 8% for 5 years which is very good for a utility. Fortis Series G would actually be even higher at reset at present 5 year. Though its spread is just 2.13%, its price is lower too. Some try to plan the angle of hoping for a call. These two for example, in my opinion are at the very back of the bus in terms of getting a call do to low adjustment yield. But the current pricing also has baked that in to some degree. Who knows the future, but one thing is certain. They are quite a bit cheaper now than a month ago. Anything else is a guessing game.
CB, You said, “there is little interest in it by institutions nor professional investors anymore”
Alpha, there is always an interest in anything…at the right price, ha. Just look at the “experts” who suddenly become interested in issues on the expert market at certain price fleecing levels.
The relative value is definitely there. Will it be extracted is another issue. But consider this. NiSource, Emera, and Fortis have basically same credit rating. If they all reset today NI-B would reset to a nice ~7.5% while the Fortis G at my purchase price yesterday would be about ~8.5%. Of course other variables come into play that effect ultimate outcomes such as currency conversion.
I read the article Buck referred to. Very good article. However, I dont consider the CAD preferred market “dying” as they referenced. I think the correct term would be “more limited”. This would be the same case if US financials could issue LRCNs as financials comprise about 75% of the US preferred market. The US market would become more limited too. If we step back (and remove the tiny niche ones you and I focus on) and look at US preferred market in total sans the financials we would largely see this…. A couple of fair quality REITS and a tiny handful of ute issues surrounded in mass by crap quality issuances. So the US would be considered a dying market too without the financials.
Grid, Love the superior yield/risk profiles of CNs.
The article appears useful for those of us that largely ignore the media as it will melt some from the buy side.
Alpha, The LRCN has chewed up a part of the CAD subordinated market quickly. In 2017 before they existed Reset preferreds were 70% of the market and Fixed coupons 22%. Today, resets are 41% and fixed 14% and LCRNs are 25%. But LCRNs are different beasts. Largely institutional with a $100,000 minimum buy in for an issue.
Its not really surprising though as prior to LCRN, the “Big 6” CAD banks comprised almost 30% of the market based on what I read. So if they are using LCRNs now, the preferred market would have to shrink…I might a little more, basically gambling 5 year stays up a few months longer.
Buck, file this under “nobody knows nuttin”. This Globe article was from 10 weeks ago. Yet yields are significantly higher since then and yet Emera and Fortis reset prices are actually lower now than then. And resets are less than 7 and 10 weeks away now for the two.
Globe Advisor spoke recently with Nicolas Normandeau, vice-president and portfolio manager for fixed income at Fiera Capital Corp. in Montreal, about the preferred share market.
What’s your outlook for preferreds this year?
It has been a good start to the year. Spreads are tightening and rates are increasing a little bit from December levels. The average yield is getting more attractive, and there’s a huge potential upside on your average coupon. If the five-year rate stays high, investors can reset with a much better coupon. The real reason to buy preferreds is for the upside – if rates stay high or go higher – which isn’t impossible.
Im not going real deep here myself. I got 800 of the Emera C and 400 of the Fortis G. I really wished I had it reversed though. But Fortis B/A spread really narrowed after I bought Emera. But if you chart watch, they like the other CAD utes will largely rise and fall in tandem anyways. I just persoanlly like Fortis’s credit profile better, but whatever. I really cant do anymore being I have intentionally boxed myself in with CDs, TBills, IBonds, and some 10 yearish ute bonds bought last fall at higher yields oddly.
And most of my “preferreds” are now issues I dont want to sell such as NSS, ALL-B, GJT until rate hike mania subsides. Though being with sin, I have gotten to a max full position of PCG preferreds pushing to max when I was able to get a lot near 7.5% while the Series A still languishes below 7% for some reason.
I’m interested in the Emera issue. What’s the corresponding reference on the TSX?
Thanks in advance.
Greg, the TSX ticker symbol is EMA.PR.C
Greg, Its a bit harder having to use OTC being I dont have direct access to CAD issues. But today, I decided to try to buy 200 additional shares. Current bid/ask I seen $18.55/$19.12 CAD. I put a USD bid in at $13.77 and it transacted within a few minutes.
thanks for the comments everyone. Nice to get feedback. I guess one smart thing I did was buy most of the US funds back about 10/11 yrs ago when the CDN $ was at par and slightly above the US$. So for me I have a nice 30% cushion . Now to get ready for the Leafs “final” game of the season unless they can play a full 60 minutes.
Canuck, Same answers as above. I set up and maintain a SEGREGATED Canadian dollar account at IBKR. It’s easier that way. Actually, it is a USD account by titling and I purposefully started with all funds in CAD and all divs received/maintained as CAD. That is ALL I will keep in there, then what Fryman is saying is accurate.
That account has done very well and bloated with reinvestments back into CAD issues that pay out in CAD (altho there are a few issues from Canada that pay out in USD, but must be bot with USD also, but you don’t have to go thru US OTC-pink ) The currency, FOREX, tool is a breeze to use just like a normal trade. Remember that the first currency in the pairing, ie: USD:CAD is the one you are buying or selling>convert to/from the second.
Nicely, all the details are reported in a very organized 1099 with detail spreadsheets at tax time.
If the USD really gets smashed at some point I am hoping that the commodity country floats the entire portfolio as a general tide UP, it happened historically, but right now I am not using that account for any spending, just compounding.
I have a math question and just wanted to run it by others for their thoughts. As a retiree I’m looking to maximize income for living expenses and have appx 25% of retirement portfolio in US$$. If I use an ave 30% exchange rate and a 4% coupon on US$ prefs or bonds (assuming the funds will eventually be converted to CDN$ for income purposes) to me this is equivalent to a 5.2% after the exchange rate gain. On the flipside for US investors a 4% yield on a CDN pref or bond would only be 2.8% when converted back to US$ under same scenario. Am I missing something? thanks for any comments on my musing
CB – Why would this not be just a simple dollar exchange rate question, nothing more? Wouldn’t the answer be readily available by simply putting the numbers into something like https://www.xe.com/currencyconverter/convert/?Amount=1&From=CAD&To=USD? 4% is going to be $1 paid on a $25 par either way. so isn’t that essentially all you need to figure out the answer? Personally, dealing with exchange rates is always confusing to me… As a US guy, I never know what I’m supposed to be rooting for in exchange rate variations…. ha
Canuck – I think you need to keep both the investment and dividend in the same currency for apples to apples comparison. A $US 25 pref paying 4% is $1 US. However, that $US 25 stock cost you $C 32.50 and is paying you $C 1.30- same 4%. One Canuck to another, but I have to bring my lowly $C to the $US!
Hope this helps!