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Canadian Preferred Shares (ZPR)

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Canadian Preferred Shares (ZPR)

  • Yields continue to rise with the Government of Canada 10-year Benchmark Bond recently hitting 1.5% - a pre-pandemic level not seen since January, 2020. This has been largely driven off the U.S. yield curve, where we have seen a continued steepening in the curve. Long-term rates have risen on a number of factors including, further optimism of an economic reopening, growing inflation concerns and expectations that the Fed will have to taper its asset purchase programs at some point.
  • The quick rise in yields led risky-assets to pare back gains. Since rates began rising in mid-February, the S&P 500 Composite has fallen 3.0% and the S&P/TSX Composite has fallen 2.2%. The bond market has also felt the effects of higher yields with the FTSE/TMX Canada Bond Universe falling 1.0% over the same period. Preferred shares have continued to hold steady. However, the BMO Laddered Preferred Share Index ETF (ZPR) has gained 0.83% since mid-February, and jumped 9.0% on a total return basis year-to-date.
  • Despite Canadian preferred shares being the top-performing asset class since the market bottomed out in late March of last year, we believe there are still tailwinds that remain, such as:
    • The likely rise in rates, which will continue as the economy approaches a re-opening, leading to further inflation/reflationary pressures
    • Ongoing issuance of Limited Resource Capital Notes (LRCN) and Hybrid bonds, where capital is used to redeem outstanding Canadian preferred shares  
    • Interest rates remaining low on an absolute level, particularly on the front end, which favours yield-oriented assets such as preferred shares. 

ZPR Statistics - Duration 3.11 | 5-Year | 0.91% | Date: March 5, 2021

Reset Year Issues Weight Average Reset Spread Average Coupon Avg Premium > 0% Current Yield Implied Current Yield YTC YTM YTW YTE
2021 32 16.81% 414.31 4.96% -3.57% 18 5.11% 5.20% 17.95% 5.04% 2.66% 2.66%
2022 38 19.89% 342.44 4.60% -5.45% 14 4.90% 4.59% 10.15% 4.79% 4.21% 4.24%
2023 35 20.81% 272.41 4.88% -10.79% 3 5.55% 4.10% 11.72% 5.42% 5.33% 5.43%
2024 47 22.37% 272.23 4.31% -12.78% 10 4.99% 4.20% 9.17% 5.22% 5.06% 5.17%
2025 36 19.04% 278.12 3.66% -14.25% 3 4.31% 4.34% 8.14% 5.44% 5.14% 5.38%
2026 5 1.08% 207.73 2.71% -40.01% 1 4.46% 4.98% 14.61% 4.93% 4.88% 4.88%
Portfolio 193 100.00% 310.53 4.45% -9.93% 49 4.97% 4.46% 11.23% 5.19% 4.56% 4.65%
Level 1 Issues % Average Reset Spread Average Coupon Avg Premium > 0% Current Yield Implied Current Yield YTC YTM YTW YTE
Communications 10 3.03% 127.31 3.71% -30.44% 0 5.32% 3.08% 45.68% 5.11% 5.11% 5.11%
Consumer, Non-Cyclical 4 0.91% 471.66 6.21% 0.74% 3 6.17% 5.58% 6.13% 5.77% 5.52% 6.00%
Diversified 2 0.54% 280.02 3.82% -23.10% 0 4.94% 4.83% 11.64% 8.24% 7.90% 8.24%
Energy 40 22.67% 306.57 4.40% -18.87% 5 5.47% 4.91% 12.58% 6.22% 5.69% 5.81%
Financial 102 60.36% 315.81 4.42% -5.85% 28 4.69% 4.31% 9.15% 4.53% 3.80% 3.87%
Utilities 35 12.49% 326.32 4.80% -8.68% 13 5.27% 4.57% 10.85% 6.30% 5.83% 5.96%
Portfolio 193 100.00% 310.53 4.45% -9.93% 49 4.97% 4.46% 11.23% 5.19% 4.56% 4.65%
Credit Rating Issues Weight Average Reset Spread Average Coupon Avg Premium > 0% Current Yield Implied Current Yield YTC YTM YTW YTE
P1 7 2.03% 248.51 3.71% -10.38% 0 4.09% 3.79% 11.67% 4.87% 4.70% 4.87%
P2 124 77.21% 304.47 4.36% -8.92% 37 4.81% 4.33% 9.44% 4.94% 4.20% 4.30%
P3 62 20.76% 339.14 4.88% -13.68% 12 5.68% 5.00% 17.87% 6.13% 5.87% 5.96%
Portfolio 193 100.00% 310.53 4.45% -9.93% 49 4.97% 4.46% 11.23% 5.19% 4.56% 4.65%
Level Issue % Average Reset Spread Average Coupon Avg Premium > 0% Current Yield Implied Current Yield YTC YTM YTW YTE
Banks 50 39.60% 318.55 4.43% -2.77% 22 4.53% 4.18% 4.73% 4.32% 3.34% 3.43%
Commercial Services 4 0.91% 471.66 6.21% 0.74% 3 6.17% 5.58% 6.13% 5.77% 5.52% 6.00%
Diversified Finan Serv 1 0.17% 544.00 6.5% -0.40% 0 6.53% 6.37% 8.73% 6.62% 6.62% 6.62%
Electric 31 11.42% 324.54 4.78% -8.79% 12 5.25% 4.56% 11.10% 6.42% 5.91% 6.05%
Gas 4 1.07% 345.28 5.05% -7.54% 1 5.50% 4.72% 8.16% 4.94% 4.94% 5.03%
Holding Companies-Divers 2 0.54% 280.02 3.82% -23.10% 0 4.94% 4.83% 11.64% 8.24% 7.90% 8.24%
Insurance 28 11.16% 293.93 4.25% -9.38% 3 4.68% 4.24% 12.06% 4.76% 4.28% 4.39%
Investment Companies 1 0.18% 396.00 5.85% 3.16% 1 5.67% 4.72% 4.48% 5.63% 4.48% 4.48%
Media 1 0.18% 200.00 2.79% -40.20% 0 4.67% 4.86% 214.09% 4.91% 4.91% 4.91%
Oil & Ga 4 1.33% 314.54 4.09% -29.17% 0 5.72% 5.70% 13.54% 5.76% 5.76% 5.76%
Pipelines 36 21.34% 306.07 4.42% -18.23% 5 5.46% 4.86% 12.52% 6.25% 5.68% 5.81%
Private Equity 12 5.65% 303.19 4.23% -12.49% 2 4.81% 4.49% 17.34% 4.62% 4.55% 4.55%
Real Estate 9 3.26% 354.78 4.83% -20.74% 0 6.11% 5.63% 39.04% 5.90% 5.90% 5.90%
REITS 1 0.34% 393.00 6.00% -3.52% 0 6.22% 5.01% 8.25% 6.28% 6.28% 6.28%
Telecommunications 9 2.85% 122.76 3.77% -29.83% 0 5.37% 2.97% 35.14% 5.12% 5.12% 5.12%
Portfolio 193 100.00% 310.53 4.45% -9.93% 49 4.97% 4.46% 11.23% 5.19% 4.56% 4.65%


Source: BMO Global Asset Management, as of March 5, 2021.

Canadian Preferred Shares (ZPR)

  • Yields continue to rise with the Government of Canada 10-year Benchmark Bond recently hitting 1.5% - a pre-pandemic level not seen since January, 2020. This has been largely driven off the U.S. yield curve, where we have seen a continued steepening in the curve. Long-term rates have risen on a number of factors including, further optimism of an economic reopening, growing inflation concerns and expectations that the Fed will have to taper its asset purchase programs at some point.
  • The quick rise in yields led risky-assets to pare back gains. Since rates began rising in mid-February, the S&P 500 Composite has fallen 3.0% and the S&P/TSX Composite has fallen 2.2%. The bond market has also felt the effects of higher yields with the FTSE/TMX Canada Bond Universe falling 1.0% over the same period. Preferred shares have continued to hold steady. However, the BMO Laddered Preferred Share Index ETF (ZPR) has gained 0.83% since mid-February, and jumped 9.0% on a total return basis year-to-date.
  • Despite Canadian preferred shares being the top-performing asset class since the market bottomed out in late March of last year, we believe there are still tailwinds that remain, such as:
    • The likely rise in rates, which will continue as the economy approaches a re-opening, leading to further inflation/reflationary pressures
    • Ongoing issuance of Limited Resource Capital Notes (LRCN) and Hybrid bonds, where capital is used to redeem outstanding Canadian preferred shares  
    • Interest rates remaining low on an absolute level, particularly on the front end, which favours yield-oriented assets such as preferred shares. 

ZPR Statistics - Duration 3.11 | 5-Year | 0.91% | Date: March 5, 2021

Reset Year Issues Weight Average Reset Spread Average Coupon Avg Premium > 0% Current Yield Implied Current Yield YTC YTM YTW YTE
2021 32 16.81% 414.31 4.96% -3.57% 18 5.11% 5.20% 17.95% 5.04% 2.66% 2.66%
2022 38 19.89% 342.44 4.60% -5.45% 14 4.90% 4.59% 10.15% 4.79% 4.21% 4.24%
2023 35 20.81% 272.41 4.88% -10.79% 3 5.55% 4.10% 11.72% 5.42% 5.33% 5.43%
2024 47 22.37% 272.23 4.31% -12.78% 10 4.99% 4.20% 9.17% 5.22% 5.06% 5.17%
2025 36 19.04% 278.12 3.66% -14.25% 3 4.31% 4.34% 8.14% 5.44% 5.14% 5.38%
2026 5 1.08% 207.73 2.71% -40.01% 1 4.46% 4.98% 14.61% 4.93% 4.88% 4.88%
Portfolio 193 100.00% 310.53 4.45% -9.93% 49 4.97% 4.46% 11.23% 5.19% 4.56% 4.65%
Level 1 Issues % Average Reset Spread Average Coupon Avg Premium > 0% Current Yield Implied Current Yield YTC YTM YTW YTE
Communications 10 3.03% 127.31 3.71% -30.44% 0 5.32% 3.08% 45.68% 5.11% 5.11% 5.11%
Consumer, Non-Cyclical 4 0.91% 471.66 6.21% 0.74% 3 6.17% 5.58% 6.13% 5.77% 5.52% 6.00%
Diversified 2 0.54% 280.02 3.82% -23.10% 0 4.94% 4.83% 11.64% 8.24% 7.90% 8.24%
Energy 40 22.67% 306.57 4.40% -18.87% 5 5.47% 4.91% 12.58% 6.22% 5.69% 5.81%
Financial 102 60.36% 315.81 4.42% -5.85% 28 4.69% 4.31% 9.15% 4.53% 3.80% 3.87%
Utilities 35 12.49% 326.32 4.80% -8.68% 13 5.27% 4.57% 10.85% 6.30% 5.83% 5.96%
Portfolio 193 100.00% 310.53 4.45% -9.93% 49 4.97% 4.46% 11.23% 5.19% 4.56% 4.65%
Credit Rating Issues Weight Average Reset Spread Average Coupon Avg Premium > 0% Current Yield Implied Current Yield YTC YTM YTW YTE
P1 7 2.03% 248.51 3.71% -10.38% 0 4.09% 3.79% 11.67% 4.87% 4.70% 4.87%
P2 124 77.21% 304.47 4.36% -8.92% 37 4.81% 4.33% 9.44% 4.94% 4.20% 4.30%
P3 62 20.76% 339.14 4.88% -13.68% 12 5.68% 5.00% 17.87% 6.13% 5.87% 5.96%
Portfolio 193 100.00% 310.53 4.45% -9.93% 49 4.97% 4.46% 11.23% 5.19% 4.56% 4.65%
Level Issue % Average Reset Spread Average Coupon Avg Premium > 0% Current Yield Implied Current Yield YTC YTM YTW YTE
Banks 50 39.60% 318.55 4.43% -2.77% 22 4.53% 4.18% 4.73% 4.32% 3.34% 3.43%
Commercial Services 4 0.91% 471.66 6.21% 0.74% 3 6.17% 5.58% 6.13% 5.77% 5.52% 6.00%
Diversified Finan Serv 1 0.17% 544.00 6.5% -0.40% 0 6.53% 6.37% 8.73% 6.62% 6.62% 6.62%
Electric 31 11.42% 324.54 4.78% -8.79% 12 5.25% 4.56% 11.10% 6.42% 5.91% 6.05%
Gas 4 1.07% 345.28 5.05% -7.54% 1 5.50% 4.72% 8.16% 4.94% 4.94% 5.03%
Holding Companies-Divers 2 0.54% 280.02 3.82% -23.10% 0 4.94% 4.83% 11.64% 8.24% 7.90% 8.24%
Insurance 28 11.16% 293.93 4.25% -9.38% 3 4.68% 4.24% 12.06% 4.76% 4.28% 4.39%
Investment Companies 1 0.18% 396.00 5.85% 3.16% 1 5.67% 4.72% 4.48% 5.63% 4.48% 4.48%
Media 1 0.18% 200.00 2.79% -40.20% 0 4.67% 4.86% 214.09% 4.91% 4.91% 4.91%
Oil & Ga 4 1.33% 314.54 4.09% -29.17% 0 5.72% 5.70% 13.54% 5.76% 5.76% 5.76%
Pipelines 36 21.34% 306.07 4.42% -18.23% 5 5.46% 4.86% 12.52% 6.25% 5.68% 5.81%
Private Equity 12 5.65% 303.19 4.23% -12.49% 2 4.81% 4.49% 17.34% 4.62% 4.55% 4.55%
Real Estate 9 3.26% 354.78 4.83% -20.74% 0 6.11% 5.63% 39.04% 5.90% 5.90% 5.90%
REITS 1 0.34% 393.00 6.00% -3.52% 0 6.22% 5.01% 8.25% 6.28% 6.28% 6.28%
Telecommunications 9 2.85% 122.76 3.77% -29.83% 0 5.37% 2.97% 35.14% 5.12% 5.12% 5.12%
Portfolio 193 100.00% 310.53 4.45% -9.93% 49 4.97% 4.46% 11.23% 5.19% 4.56% 4.65%


Source: BMO Global Asset Management, as of March 5, 2021.

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