The Canadian Preferred Share market continued its winning streak in May, marking seven consecutive months of gains. The S&P/TSX Preferred Share Total Return Index (the “Index”) gained 3.13% during the month. Series F of Lysander-Slater Preferred Share Dividend Fund (the “Fund”) and Lysander-Slater Preferred Share ActivETF (the “ETF”) outperformed the Index, with a total return of 4.20% and 4.18% during the month, respectively.

Approximately $2 billion of Preferred Shares was redeemed in May1. We believe the proceeds of redemption were largely redeployed back into the Preferred Share market (as they were in April), contributing to the sector’s strong performance. A further $800MM of redemption proceeds is expected to be available in June, which should result in continued upward price movement in the secondary market2.

Following our discussion of Shaw Communications Preferred Shares (“Shaw”) last month, Rogers Communications’ (“Rogers”) offer to acquire Shaw was met with overwhelming approval. Prior to the announcement, which was made on May 20, 2021, each of the Fund and ETF held 0.25% of its portfolio in both SJR.PR.A and SJR.PR.B. The shares, which were trading at $23.60 and $23.50, respectively, at the time, immediately rose to a small premium, where we sold all the positions. Rogers followed up by exercising its right to require Shaw to redeem its two series of Preferred Shares. As such, Shaw’s $450MM of Preferred Shares will be redeemed on June 30, 2021, adding to the large amount of Preferred Shares that will leave the market in the near term.3

Other top performing holdings in each of the Fund and ETF included: Cenovus Energy (CVE.PR.G up 15%; 0.8% weighting; and CVE.PR.E up 8.4%; 0.8% weighting), and TC Energy (TRP.PR.G up 5.4%; 3% weighting; and TRP.PR.E up 10.7%; 0.5% weighting). WTI Crude rose to US$68 a barrel on the expectation that there may not be enough oil production to satisfy near-term demand once the global economy reopens. This is very positive news for Canadian producers whose common equity and Preferred Shares have rallied in response.

Year-to-date, the top performing sub-sectors, on an average total return basis, have been: fixed resets with reset spreads under 225bps (up 34%), fixed resets with spreads of 225-300bps (up 28%), and floating rate Preferred Shares (up 30%)3. Both the Fund and ETF hold over-weighted positions in 225-300bp fixed resets and floating rate Preferred Shares, compared to the Index. It is worth noting that the straight perpetual sub-sector has underperformed with an approximate 6.5%4 return YTD. We believe that the yield pickup on straight perpetuals is still very attractive, and look for their performance to catch up over the coming months. The Fund and ETF each hold a 20% weighting in straight perpetuals.

As an active manager, we continually seek out the best opportunities in the Preferred Share market. With multiple positive catalysts on the horizon, we remain optimistic about the Fund’s and the ETF’s performance potential this year.

1, 2, 3, 4 Bloomberg Finance L.P.