Portfolio Manager with Flaherty & Crumrine, Eric Chadwick, provides an overview of the US Preferred shares markets and the relative yield attributes and correlation to other income generating categories the vehicle provides.
A Investment Grade Income – “High Yield Bonds” refers to the ICE BofA US High Yield Index. “Non-Distressed High Yield Bonds” referes to ICE BofA US Non-Distressed High Yield Index. “Leveraged Loans” refers to the Credit Suisse Leveraged Loan Index. “US Preferreds” is comprised of 50% of the ICE BofA 8% Capped Hybrid Preferred Securities Index (P8HO) and 50% of the ICE BofA 8% Capped Corporate US Capital Securities Index (C8CT) prior to 4/30/2012, and thereafter of the ICE BofA 8% Constrained Core West Preferred & Jr Subordinated Securities Index (P8JC). “Canadian Preferreds” refers to the S&P/TSX Preferred Share Index for yield and credit risk, and the iShares S&P/TSX Canadian Preferred Share Index ETF (CPD) for duration. “US Corporate Bonds” refers to the ICE BofA US Corporate Index. “20+ Year US Treasuries” refers to the ICE BofA 20+ Year US Treasury Index. Preferred index yields are indicative current yields (dividend rate divided by market price); all other listed yields are yield to maturity. After-tax yield assumes an Ontario taxpayer in the highest tax bracket.
B US Prefs Offer Low Correlation – Source: Morningstar Direct as at 2020-09-30. “US Preferreds” is comprised of 50% of the ICE BofA 8% Capped Hybrid Preferred Securities Index (P8HO) and 50% of the ICE BofA 8% Capped Corporate US Capital Securities Index (C8CT) prior to 4/30/2012, and thereafter of the ICE BofA 8% Constrained Core West Preferred & Jr Subordinated Securities Index (P8JC). Other indices used were the S&P/TSX Preferred Share Index, FTSE Canada All Corporate Bond Index, FTSE Canada All Government Bond Index, ICE BofA US Corporate Index (C0A0), ICE BofA US Corporate High Yield Index (H0A0), Credit Suisse Leveraged Loan Index, ICE BofA US Treasury Index Index(G0Q0), S&P 500 Index, and the S&P/TSX 60 Index. The correlations are calculated using monthly returns over trailing 15 years.
C History of Outperformance – The Flaherty & Crumrine Preferred Securities Composite includes institutional accounts managed by Flaherty & Crumrine Incorporated (“FCI”) which invest in preferred and other fixed in-come securities and have a primary investment objective of achieving a high level of pre-tax income and which are not actively using any hedging strategies to shelter the portfolio from the effects of changes in long-term Treasury rates. The indicated rates of return are the historical annual compounded total returns and reflect the reinvestment of dividends, capital gains, and other earnings when appropriate. FCI Composite performance from 2020-06-30 – 2020-09-30 is represented by Brompton Flaherty & Crumrine Investment Grade Preferred ETF.US Preferred market benchmark is represented by an equally-weighted average of the performance of the ICE BofA Hybrid Preferred Securities 8% Constrained Index and the ICE BofA US Capital Securities 8% Constrained Index through June 2015 and by the BofA 8% Constrained Core West Preferred & Jr Subordinated Securities Index from July 2015 through the present. Canadian Preferred Market Benchmark is represented by the S&P/TSX Preferred Share Index.
D Consistent Alpha Generation – Alpha, beta and correlation are calculated using monthly returns on the Flaherty & Crumrine composites and preferred market benchmarks. The 10-Year US Treasury was used as the benchmark rate. The Upside (Downside) capture ratios are calculated by taking the total return on the Flaherty & Crumrine composites during months when the preferred market benchmark had positive (negative) returns and dividing that by the total return on the preferred market benchmark for those positive (negative) months.
E FCI Performance Ratings – Source: Morningstar. BPRF Ranking is based on total return as at 2019-12-31. Since inception period 2018-10-18 – 2019-12-31. Brompton Flaherty & Crumrine Investment Grade Preferred ETF 1-year (2019-01-01 to 2019-12-31) absolute ranking out of 73 funds in the Canada Fund Preferred Share Fixed Income category which includes Canadian-domiciled open-end and exchange-traded funds that invest must invest at least 90% of their fixed income holdings in preferred shares. Ranking accessed 2020-01-13. Performance and rankings are subject to change daily.
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