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For a summary of the rankings of our entire convertible debenture coverage universe including the quantitative model prices of, and notes on each issue we follow, click on the table below to view it larger.
Important: the Peanut Power Rankings are provided as information and opinions only and are not intended to be a provision of investment advice or a recommendation of any investment action in any form. As with all information concerning investments, it is highly recommended that an individual consult with a qualified investment professional before making any investment decisions.
Canadian Convertible Debentures Project: In the Media
Our sleepy little blog received some ink in the press last week. On Tuesday, December 4, my interview with columnist, Larry MacDonald, ran in the Globe and Mail, where we talked about convertible debentures among other topics. The column is accessible online here for Globe and Mail subscribers; for those of you without a subscription, the column also appeared on page B8 of the print version of the newspaper. I don't think there was too much in the interview that we haven't already covered here at the Canadian Convertible Debentures Project, but maybe some of you will find it interesting.
Public Service Message: the Financial Post Convertible Debentures List
For those of you out there that are clients of a full-service brokerage firm with a research team that covers convertible debentures, you may be able to obtain a complete list if you ask your broker. Also, as we announced on December 20, 2017, thanks to one our valued readers, we were informed that the TSX publishes a basic list on its website approximately monthly. It's not the same as the old Financial Post list, but hopefully it can still be of use to some of you out there.
Market Commentary - Quick Points (December 7, 2018)
- Ok, let's see what's happened since our last Peanut Power Rankings update in early November.
- Well, the pollsters mostly got it right in the US mid-term elections: the Democrats won the House and the Repulicans retained the Senate. For fans of democracy and the rule of law, the House result was obviously very important. In the last week, the President has been tweeting up a storm to distract from the footsteps he hears that is the Mueller investigation - and the footsteps are gaining on him. If turmoil in Washington is an inevitability in 2019-20, I'm going to guess that the market isn't going to like the added uncertainty.
- The market already doesn't like the United States' (unnecessary, so unnecessary) trade war with China. Tariffs, tariffs, and tariffs are so pre-New Deal 1930's, and this "policy" will serve to hinder economic growth in the next couple of years. Quite frankly, I don't think it's impossible we find ourselves in a recession by 2020. We'll see.
- The arrest of Huawei CFO Meng Wangzhou in Vancouver by the RCMP at the behest of US officials puts Canada in a very awkward spot. Yes, Canada is bound by the terms of its extradition treaties with the US, but this highly publicized incident also seriously threatens trade ties with China, which are needed more than ever with US trade relations already frosty. Not good.
- Also not good for the Canadian economy: oil prices have completely tanked. Hard to believe that just a couple of months ago, US$100 WTI oil wasn't that far off ... now, it's barely keeping its head above US$50, even after a round of OPEC production cuts. Of course, Canadian oil only wished it could fetch fifty bucks a barrel, with WCS flirting with sinking into single-digits(!) until Premier Rachel Notley made the highly unusual (for Canada, anyway) announcement for production cuts in Alberta.
- At least Canadian unemployment is plumbing record lows with a 5.6% print on Friday. However, wage growth has been virtually non-existent, which is bad for working Canadians heading into the Christmas season.
- Just weeks ago, it seemed like a certainty that the Bank of Canada would raise rates in December, but with the plunge in oil and inflationary pressures more or less at bay, Stephen Poloz held the line earlier this week. We're on record (if you read our last update) saying that interest rates may rise somewhat slower than what the market thinks, and so far, that view seems to be playing out. Right now, I'm not sure that it's a slam dunk that the Bank of Canada raises rates in January, either.
- Not surprisingly, interest rates in Canada fell quite sharply all across the rate curve in the past week. This helps the prices of our convertible debentures.
- Speaking of convertible debenture land, I know we sound like a broken record, but in these times of uncertainty, it's still best to concentrate on quality issues from issuers with strong balance sheets. First rule of bond (whether converts or not) investing: make sure you get paid your principal back.
- As for our Peanut Power Rankings, we've added two new issues to the list, the Innergex 30-Jun-2025 4.75% convertible debentures (INE.DB.B, ranked #7) and the Invesque 30-Sep-2023 6.00% US$ convertible debentures (IVQ.DB.V, ranked #11).
- I know lots of you reading this blog have an interest in the Hydro One Instalment Receipts (H.IR, ranked #22). Interestingly, the Washington state regulator rejected Hydro One's proposed takeover of Avista earlier this week citing political interference. Hydro One shares and the instalment receipts both spiked on the news. As we understand it, the instalment receipts will continue to accrue coupon interest until the deal is finally closed or officially put to bed. At Friday's close price of $21.40 per Hydro One share, the instalment receipts (which closed at $32.10) are just a hair below the conversion price, but the model is currently pricing the receipts as slightly overvalued. I'm not sure what's going to happen to the Avista deal in the end, but with the Ford regime installed in Queen's Park, political meddling going forward is real and present risk for Hydro One. For investors interested in utilities, there are other options out there - just my opinion.
Picture of the Day
City Hall and Nathan Phillips Square. Toronto, Ontario. Copyright © 2018 Felix Choo / dingobear photography. Photo available for licensing at Alamy Images. Photo may not be reproduced without permission.
Drop Us a Line
Thank you for reading this blog. As always, if you have any comments or questions about convertible debentures or this blog, please leave us a comment at the bottom of the page or email us at convertibledebs@gmail.com.
In addition, for media, sponsoring and/or financial institution inquiries, please email us at convertibledebs@gmail.com. Thank you for your interest!
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Any reason why IVQ.DB.U didn't make the list? I own both, IVQ.DB.V and U. I do prefer the 20 month shorter duration of the U, and I picked it up under 80.
ReplyDeleteThanks for the mini update, quite timely with the fall in the markets and all the tax selling.
Truth be told, time constraints. That and the fact that the Series 'V' debentures have a slightly lower conversion price, higher coupon rate, and more time to maturity, so I thought maybe readers might be more interested in it. I'll try to include the Series 'U' debentures for the next update. Thanks for reading.
DeleteGreat blog, a question for you. For investors who do not have the time to research the credit metrics on individual issuers, what are your thoughts on something like CVD or CXF for exposure to the space?
ReplyDeleteHi Daniel, thanks for your comment, great question.
DeleteTruth be told, I had started a post on convertible bond ETFs almost a year ago, but never finished it. I think this is something I will revisit in the New Year.
But back to your question for now. Without getting into the specifics of how CVD and CXF are constituted, I think a big benefit of convertible debenture ETFs is of course the instant diversification. For smaller accounts that may have difficulty getting a diversified portfolio of convertible debentures by selecting individual issues, going ETF is definitely an alternative to allow one to participate in the space with a diversified basket of convertibles. I think an investor who is potentially interested in CVD or CXF should, however, be comfortable with how the ETFs are constructed (i.e., Are the passive or active? Is there an associated index they are benchmarked to?), and understand variables such as the costs involved (it looks like CVD and CXF have MERs of 0.50% and 0.73%, respectively). I guess the bottom line is that the cost-benefit of going ETF vs. an individual active strategy depends largely on an investor's personal circumstances. Personally, for myself, I prefer an individual active strategy since I feel I can better tailor a convertible debentures portfolio (based in part on the Peanut Power Rankings) that fits well with the rest of my fixed income and equities exposure, but of course I acknowledge that others' mileage may vary.
Without doing a bit more research, I can't opine at this time on CVD and CXF specifically though it looks like over a five-year timeframe, CXF has performed better but is also higher cost than CVD. As I mentioned above though, this is good fodder for a future post. Please stay tuned, it might take a little time but maybe we'll have some additional info on CVD and CXF here on the blog in the not too distant future.
Thanks for continuing to read this blog, happy investing!
Thanks for your comments. Totally agree.
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