The Canadian preferred share market size is $60B, the common share market capitalizations of RBC, TD and Enbridge to name a few are all larger than the preferred share market. Due to the Canadian preferred share market’s size the average daily dollar value of transactions is $42.7M, that is 1/10 of the RBC’s volume. The lack of trading volume means brokerage firms do not make enough commission revenue to justify providing research coverage to the market, that is where CPSR steps in. CPSR is solely dedicated to covering the Canadian preferred share market to help add value to an investor’s portfolio.
We’ve asked James Rogers; CPA, CA Senior Vice President & Portfolio Manager, Investment Advisor at Richardson Wealth to comment on why CPSR is a value add to his research strategy. His primary role is to search for, and monitor, quality investments and opportunities for his Team’s clients.
CPSR: Before gaining access to CPSR, what was your preferred share investment process?
James: I would basically search for quality names, not fully understanding how to quantitatively model the rate-reset nature of Canadian Preferred shares. I tried to provide liquidity to the market during sell-offs, however the preferred shares market has been too volatile to have much success at this approach.
CPSR: What were some of the challenges that you faced in your preferred share research?
James: I faced challenges understanding the quantitative nature of the rate-reset feature of Canadian Preferred shares. The Liquidity, or lack thereof, has caused significant volatility in the Preferred share market. Without a Valuation model it is difficult to not let Price volatility affect your investment decision.” (The quantitative feature and volatility that James is referring to is how rate-reset values change when the 5-year yield changes in value, which CPSR captures in its proprietary model.)
CPSR: What features drew you to CPSR research? And how did you benefit from them?
James: In-depth research into both the underlying Preferred issuer/company and the modelling of the value of the dividend stream within the context of 5-year government bond rates and the Preferred’s reset feature. Benefiting from CPSR’s significant deep dive and understanding of the underlying issuer or company. CPSR is an in-depth, extremely high-quality Equity analysis projected onto the issuer’s preferred shares, overlaid with a reset valuation model
Canadian preferred share investors have never had an ideal solution for their preferred share investing needs. Investors have had to dedicate additional research time away from other areas to stay up to date on the Canadian preferred share market. CPSR provides monthly reports on allocations decisions between different preferred share structures and in-depth single company preferred share analysis. Every company that is selected for in depth analysis is selected using our proprietary model that has historically averaged 5.8% Alpha. CPSR’s preferred share coverage empowers investors to look at names across multiple structures, industries, and investment strategies without compromising the quality of the research to help make investment decisions.