The Globe and Mail reports in its Thursday edition preferred
shares, supposedly low-risk widow-and-orphan
stocks, are in a bear market
that looks much worse than
what the broader market has
been through.
The Globe's Rob Carrick writes the S&P/TSX composite index
was down 11.3 per cent for the 12
months to Aug. 31, while the
S&P/TSX preferred share index
was down 19.5 per cent. The
composite has made 15.5 per
cent for the five years to
Aug. 31, while the pref share index
is down about 21 per cent.
Preferred
share defaults are not a problem,
so investors have at least
been getting the dividend payments
they expect. Still, Mr. Carrick says the
decline in share prices has to be
alarming.
He figures what is happening
appears more like a reassessment
of the entire asset class in
light of current conditions in
financial markets.
Interest
rates are low and could
yet fall if the economy continues
to struggle.
The rate-reset preferred shares
that account for 60 per cent or
so of the pref market were
designed to reset every five
years. He notes preferred
shares were annihilated in the
2008-09 stock market crash, but
stormed back quickly as the
financial world settled down.
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