Historically, Italy has had a difficult time making collaborations between public and private successful. Fashion broke this taboo, however, with its transversal ability to bring worlds and environments together, it knew how to surpass the historic obstacles and gave the city of Rome two exceptional initiatives of very high cultural and […]
John Nagel has been a participant in the preferred share world for more than three decades. In that time he has been a money manager, a structurer — after the global financial crisis he, along with colleague Tom Jarmai developed the rate reset pref share product, which helped the banks raise billions of capital — and an underwriter. Nagel took his leave from Desjardins Securities at the end of last year, but he has not lost his interest in preferred shares, either as an investor or an adviser.
This week Nagel officially re-entered the fray when he published a list of income-generating preferreds he claims will “allow you to sleep at night.”
Nagel was motivated to pen the list because of some words he recently read in a speech given by Kevin Lynch, a former clerk of the Privy Council and secretary to the cabinet, and a current vice-chair of BMO Financial Group. Lynch said, “Canadians fundamentally believe in peace, order, and good government. But, government can only be as good as the strength of its institutions.”
So Nagel decided to apply his thesis to the preferred share market, specifically the rate reset market where investors are offered a product that comes with a fixed rate for the first five years: after that they are offered new pref shares with the same spread over the then yield on five-year Canada bonds or 91-day T-bills. Those options occur after the issuer decides whether to redeem — or not.
His conclusion: Canadian investors looking for income want their investments to be stable, with a competitive yield, with a good structure (defined as a high spread over five-year government of Canada bonds) while being “able to adapt” to rising rates. “In this uncertain world investors want dividend income from corporations that are strong, (indeed) where the issue is only as good as the institution backing it.”
According to his research, over the past seven months there have been 17 rate reset prefs offerings where the spread is at least 419 basis points. And those issues, which raised almost $6 billion, have all “stood up” following the aftermath of the Brexit vote – meaning they’ve maintained their price levels, which in many cases is above the $25 a share issue price. (In those cases, the yield to maturity is below the coupon rate.)
For those prefs where the spread is at least 400 basis points, Nagel says there is a “quite high” likelihood they will be redeemed for cash when the first rate reset date rolls around. A deterioration in the issuer’s credit quality is his main qualification to that prediction. Nagel is also a believer in those rate resets that come with a minimum reset yield — a new market trend.
His list, all of course subject to caveat emptor: AltaGas (ALA.PR.I; 5.25 per cent); Westcoast (W.PR.K; 5.25 per cent): Royal Bank (RY.PR.Q; 5.25 per cent); Bank of Nova Scotia (BNS.PR.E: 5.5 per cent); TD Bank (TD.PF.G; 5.5 per cent); Pembina Pipelines (PPL.PR.K; 5.75 per cent); National Bank (NA.PR.X; 5.6 per cent); Empire Life (EML.PR.A; 5.75 per cent); Manulife (MFC.PR.O; 5.6 per cent); Royal Bank (RY.PR.R; 5.5 per cent); Bank of Nova Scotia (BNS.PR.G; 5.5 per cent); National Bank (NA.PR.A; 5.4 per cent); Canadian Western Bank (CWB.PR.C; 6.25 per cent); Laurentian Bank (LB.PR.J; 5.85 per cent); Brookfield Office Properties (BPO.PR.C; 6.0 per cent); Pembina Pipelines (PPL.PR.M; 5.75 per cent) and Trans Canada Pipelines (TRP.PR.J; 5.5 per cent.)
OTTAWA — Canada could be in for a long stretch of slow or even no-growth employment.
That pattern already appears to be solidifying in economically critical provinces like Ontario and Alberta.
For now, and likely for many months to come, British Columbia stands alone as the country’s consistent source of job creation.
So, it’s not surprising to see last month’s data showing a flat labour picture overall, one with few employment opportunities and fewer people even bothering to look for work.
June’s jobs report showed little movement: a net loss of 700 positions, accompanied by a slight decline — 6.8 per cent from 6.9 per cent — in the unemployment rate, Statistics Canada reported Friday.
In May, about 14,000 jobs were added to the economy — a bigger number but not a statistically significant move.
“It is typically considered a good thing when a country’s unemployment rate falls, but that is not the case for Canada in June,” Brian DePratto, at TD Economics, said in a research note.
“Beneath the effectively zero change in hiring lies weaker details.”
There was a decline of 40,100 full-time positions in June, Statistics Canada said, but that was offset slightly by a gain of 39,400 part-time workers.
At the same time, the public sector shed 27,000 jobs in June and private positions fell by 10,500. As well, 37,700 more people said they were now self-employed, compared to the previous month.
Economists had forecast a gain in overall employment of at least 5,000 last month, but with the jobless rate rising to seven per cent.
“In terms of growth, I think it’s all about B.C. at this point. And, of course, that’s really been arguably the main regional story over the last year,” said Douglas Porter, chief economist at BMO Capital Markets.
“There’s been a lot of focus on the weakness in Alberta. But I think an equally and offsetting story has been the phenomenal strength in the B.C. labour market,” he said.
“Looking ahead to the second half of the year, it’s pretty tough to see the job market making much significant headway — given the clouds that are surrounding the global outlook, whether it’s Brexit, or Italian banks or the upcoming U.S. federal election.”
Employment in Alberta, already hurting from the prolonged weakness of oil prices, was down 1,900 in June.
But muddying the jobs data was the fact that for the second month in a row, Statistics Canada was unable to collect employment data in the Fort McMurray area of Alberta, where the May wildfires forced the evacuation of residents and shut down oil production facilities in the northern region of the province.
Instead, the federal agency used data collected from “similar respondents from surrounding areas” to estimate of residents’ responses to the labour survey.
Also continuing to suffer from weak employment was Ontario, which shed 4,200 positions. Meanwhile, British Columbia’s labour market continued to thrive in June, adding 16,000 jobs.
By industry, construction lost 29,000 positions and manufacturing fell by 13,000, while accommodation and food services added 20,000 workers.