An endorsement from an industry professional is something special - especially when that professional is formally a competitor!. Norbert Schlenker of Libra Investment Management writes:
I never recommend active management. Until today. Read about my experience with James Hymas as an active manager.
Past performance is no guarantee of future results, but I had done my due diligence. His philosophy harmonized well with my own in most respects. As best I could tell, he and I both believe that it is of long run benefit, particularly in fixed income, to:
- Commit funds to an asset class as part of a diversified portfolio, and remain fully invested.
- Focus on security selection and relative value, not timing and absolute value.
- Measure performance relative to an appropriate benchmark.
- Get paid to supply liquidity instead of paying to consume it.
I have good reason to be pleased with these results, and am convinced more than ever that Hymas is capable of delivering alpha from his management of Canadian preferred share portfolios. I am happy that I hired him 18 months ago and will continue to use his services.
On a final note, I loathe advertising and I disdain active investing. I realize that the above smells very much like the usual ad for an actively managed fund. I intend no such thing. I am just a happy client, happy to see that my default investing philosophy is wrong in this instance, and happy to recommend Hymas's services to others.
Publications are also available via PrefBlog:
James Hymas has written the following articles of interest to those investigating preferred share investing:
- How Long is Forever, an examination of the investment merits of high-premium perpetual preferreds.
- Corporate Bonds ... or Preferred Shares?, a comparison of historical rates of return. (Spreadsheet)
- Perpetual and Retractible Preferred Shares : so, what's the difference?
- A Call, too, Harms: Implications of Yield-to-Worst
- Yield Ahead: Calculating Yield-to-Worst for preferred shares. See commentary!
- Dividends & Ex-Dates : An explanation of the terms "Ex-Date", "Record Date" and "Payment Date" ... required for yield calculations!
- Are Floating Prefs Money Market Vehicles?: Many assume they are ... and many regret it!
- Note: There is an error on the table "DBRS Downgrades": the issues GT.PR.A, STQ.E and SXT.PR.A should have been reported in the "Split-Share" column - they are not Perpetuals
- Using Credit Ratings When Buying Preferreds: An introduction to Credit Ratings
- Closed End Preferred Funds: Effects of Calls: Examines the characteristics of the underlying portfolios held by DPS.UN, PFD.PR.A and PFR.UN and predicts the effects that calls on issues held will have on the NAV and distributions of these funds.
- Note: The "Y" axes of the two charts at the bottom left of the first page were mislabelled.
- The "Y" axis of the chart "Projected Absolute Net Dividends" should be labelled "Projected Annual Dividend (dollars)"
- The "Y" axis of the chart "Projected Relative Gross Dividends" should be labelled "Projected Relative Dividend (Current = 100)"
- The following "extras" are provided here:
- Split Shares: An introduction to the preferred shares issued by Split-Share Corporations.
- Interest-Bearing Preferreds: An introduction to preferred securities
- Retractible Preferreds and Bonds: Preferred Shares do not exist in isolation! Yields should be compared to corporate bonds.
- Perpetual Hockey Sticks: Using concepts from options analysis to create risk/reward profiles for preferred shares.
- Modified Duration: Modified Duration is a very good estimator of the interest-rate risk implicit in a fixed-income instrument ... provided you know its limitations! See Commentary!
- Claymore Preferred Share ETF Analysis: CPD on the Toronto Exchange. A little detail regarding its composition that can be used as a template for future analyses. Post a comment!
- Portfolio Construction: Most of my articles focus on a specific aspect of security selection. This one tries to step back a little and provide perspective. Post a comment!
- Perpetual Misperceptions: There are many misperceptions amongst investors regarding perpetual issues. This article addresses two of them. Post a comment!
- Preferred Pairs: There are many preferred shares that are very similar to each other; or even convertible into each other at specified times. When buying one, check the price of the other!
- Convexity can lead to unusual behaviour for preferred shares when the yields change - and means that a perpetual priced near par is riskier than either a premium or discount issue. Comment here!
- A Collateral Proposal: Money Market Funds sponsored by banks are, in practice, guaranteed by that bank. This practice should be reflected in their capital ratios. Comment!
- When Will Preferreds Recover? 2007 was a rotten year for preferreds. In this article, I attempt to explain why. Leave a comment!
- A Vale of Tiers: Not all bank debt is the same - it comes in layers with very different risk/reward characteristics. In this article, I describe the various levels. Leave a comment!
- Trading Preferreds: There's more to implementing a successful plan than just deciding what to own! In this article, I show how you can minimize your total trading costs. Comment!
- Credit Ratings: Investors in a Bind Credit ratings have been in the news during the Great Credit Crunch of 2007-08! In this opinion piece, I suggest how the system may be improved. Comment!
- Analysis of Perpetual Resets: This class of preferred share is gradually getting bigger and needs to be understood. Comment!
- Credit Stratification: In bad times, companies become more exposed to "headline risk" ... as well as the genuine risk that they really are different. A review. Comment!
- Split Shares and the Credit Crunch: A review of the effect of the credit crunch on the credit quality of split-share preferred backed by financial issues. Comment!
- The Swoon in June: June 2008 was a bad month for preferred share investors - and worse, untheoretical! I attempt to explain the phenomena. Comment and read the bonus material:
- BAs or BDNs - What's the difference? No one knows! Leave a comment!
- The Claymore Preferred ETF and its Index: The index keeps changing. How? And what are the effects on performance? Comment!
- Split Shares & Monthly Retractions: The monthly retraction feature on split share preferreds is normally a joke - but in late 2008 the feature suddenly became very attractive! Comment!
- Preferred Shares: Where Are We Now?: 2008 was a horrific year for preferred share investors. Here's a review. Comment!
- OSFI and the Third Pillar: OSFI needs to review its practices if it is to earn the confidence of the capital markets. Comment!
- Bonds are often misunderstood as an asset class. In this first article, Bond Characteristics of a continuing series, I attempt to define them and highlight some of the investment trade-offs. Comment!
- Some Preferreds to Float Your Boat: A review of historical return of Preferred Floaters and observations on contemporary pricing. Comment!
- Yields of Bonds and Strips ... Yield calculation conventions lead to interesting relationships that should be understood ... but all too often are not. Comment!
- FixedResets After One Year: A review of the first year of trading in this new structure - and some peculiarities and pitfalls! Comment!
- Preferred Shares and GICs. Some investors seek to avoid "risk" by restricting themselves to a five-year GIC ladder. Such portfolios can be riskier than one thinks! This essay is introduced by the shorter essay A Brief Introduction to Preferred Shares. Comment!
- Credit Spreads and Default Risk. It is a common fallacy that corporate bonds yield more than governments due solely to their potential for default, but this is not true. Comment!
- Break-Even Rate Shock: I attempt to quantify the cost of inflation protection for FixedResets vs. PerpetualDiscounts. Comment!
- The Future of Money Market Regulation: In my essay A Collateral Proposal referenced above, I advocated the consolidation of MMFs onto their sponsors' books. Recent proposals go farther. Comment!
- The Bond Portfolio Jigsaw Puzzle: Bond portfolios should be constructed and maintained from the top down, adding pieces with useful characteristics as the dealers & issuers make them available. Comment!
- Contingent Capital is a potential new attribute of bank security that will almost certainly be applied to subordinated debt, innovative tier 1 capital and preferred shares. This article discusses the current debate. Also available in draft version with footnotes. Comment!
- Bond ETFs: Bond ETFs have gained in popularity in the decade since their inauguration in Canada, but there are subtleties in their investment characteristics that are often misunderstood. See also the draft version, with footnotes, tables and a chart. Comment!
- Predatory Trading: Pegged Orders have the ability to allow retail investors to compete more effectively with institutions ... if their brokerages let them! Comment!
- The Annuity Decision is more complex than celebrating the onset of retirement! In this article, I examine some of the investment characteristics of annuities. Comment!
- OSFI and the Bond Indices - OSFI wants to debase the bond indices, putting retail investors at risk. Comment!
- IIROC's Slush Fund. Why does IIROC have so much money to spend? Where does it go? Where should it go? Comment!
- Split Share Credit Quality has a host of influences, many of which can be quantified - as this article explains. Comment!
- Security of Income vs. Security of Principal: Long-term bonds and preferred shares have characteristics, often ignored, that will make them of interest to retirees, among others. Comment!
- 6 safe places for returns in a low rate world (Toronto Star, 2012-10-14). Comment!
- It's all about sequence ... the influence of whole-unit NAV on split share credit quality. Comment!
- OSFI's Academic Foray: OSFI published a paper in March 2012, discussing equity mean reversion in the context of insurance company capital requirements. It wasn't very good. Comment!
- Implied Volatility for FixedResets: Making sense of the differing yields between various FixedResets from the same issuer
- A calculator is also available. Comment!
- Implied Volatility in Perpetual Preferreds (with addendum "Portfolio Management Implications of Implied Volatility in Perpetual Preferreds") Making sense of the different yields between Straight Perpetuals from the same issuer
- A calculator is also available. Comment!
- Implied Volatility for FixedResets - 2016 edition An updated version of the essay referenced above Comment!
- FixedReset Notes - October 2016 Discussion of the factors affecting FixedReset performance with contemporary data. Comment!
- DeemedRetractible Review - September 2016 An important essay detailing my arguments with respect to the "Deemed Maturity" of insurance issues. Comment!