Slater Monthly Recap – June 2022

The Canadian Preferred Share market was not spared from global market volatility in June.  As a result, the S&P/TSX Preferred Share Total Return Index (the “Index”) lost 5.29%. Following suit, series F of Lysander-Slater Preferred Share Dividend Fund (the “Fund”) and Lysander-Slater Preferred Share ActivETF (the “ETF”) lost 5.32% and 5.31%, respectively, on a total return basis.

Inflation was once again in the headlines and the Bank of Canada (“BoC”) and U.S. Federal Reserve (“FED”) raised interest rates by 50-75bps. The BoC and the FED have stated that they will continue raising interest rates until inflation is under control, which, according to some analysts, will result in recession.

Most of the volatility in the Preferred Share market can be attributed to the 5-year Canada bond yield, which fluctuated between 3.10% and 3.62% in June. We feel that a range of 2.5%-3.0% would be healthier for the Preferred Share market, and believe the 5-year yield may settle in at that level over the next few years.

Not surprisingly, CIBC called in its $800 million 3.38 basis point spread rate-reset (CM.PR.R) for the end of July1. The bank subsequently issued an $800 million 7.15% Limited Recourse Capital Note (“LRCN”), which has been trading above par since it was launched. This was a further example of a trend by the Canadian banks to reduce their exposure to traditional retail-owned Preferred Shares, in favour of LRCNs, which are issued to institutional investors. The goal is to reduce balance sheet volatility.

Year-to-date, over $6.7BN2 of Preferred Share product has been called for redemption, and we expect a further $2.6BN to be called by year end.

In June, the Fund and the ETF sold their 1.3% holdings in floor fixed-resets, and added to lower-spread fixed-resets, which were relatively more attractive. We believe both the Fund and the ETF are now well positioned for a market recovery. We look forward to a much better second half to 2022 due to a stabilization in interest rates and continued Preferred Share redemptions.

As an active manager, we continually seek out the best opportunities in the Preferred Share market for our fund investors based on market conditions.

1, 2. Bloomberg Finance L.P.

Lysander Funds Limited (“Lysander”) is the investment fund manager of Lysander-Slater Preferred Share Dividend Fund and Lysander-Slater Preferred Share ACTIVETF (collectively, the “Funds”). Slater Asset Management Inc. (“Slater”) is the portfolio manager of the Funds. This document was prepared by Slater as portfolio manager of the Funds. In this document, “we”, “us”, and “our” means Slater. This document has been prepared solely for information purposes. Information in this document is not intended to constitute legal, tax, securities or investment advice and is made available on an "as is" basis. Neither Lysander nor Slater make any warranties or representations regarding the information herein. Information in this document is subject to change without notice. Neither Lysander nor Slater assume any duty to update any information herein. Certain information in this document has been derived or obtained from sources believed to be trustworthy and/or reliable. Neither Lysander nor Slater assume responsibility for the accuracy, currency, reliability or correctness of any such information.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Investment funds are not guaranteed, their values change frequently, and past performance may not be repeated. The indicated rates of return are historical annual compounded total returns including changes in unit value and reinvestment of all distributions and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Different series may have different fees payable which may result in series of the same fund having a different rate of returns. You will usually pay brokerage fees to your dealer if you purchase or sell units of the ETF on the Toronto Stock Exchange (“TSX”). If the units are purchased or sold on the TSX, investors may pay more than the current net asset value when buying units of the ETF and may receive less than the current net asset value when selling them.

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