Slater Monthly Recap – August 2022

The Canadian Preferred Share market was up and down in August, but ended the month on a positive note. The S&P/TSX Preferred Share Total Return Index (the “Index”) gained 1.12%, while Series F of Lysander-Slater Preferred Share Dividend Fund (the “Fund”) and Lysander-Slater Preferred Share ActivETF (the “ETF”) outperformed the Index with total returns of +1.23% and +1.27%, respectively.

The Bank of Canada and the U.S. Federal Reserve (the “FED”) continued to emphasize their intent to raise interest rates to help fight high inflation. This resulted in the 5-year Canada bond yield rising from 2.64% to 3.33% over the course of the month. Analysts expect the Bank of Canada to raise a further 50bps in September, which would place the overnight rate at 3.0%, a level last seen in 2008.

Rising interest rates should support valuations in the rate reset sub-sector, where coupon rates are expected to be increased on upcoming reset dates. Both the Fund and ETF have an approximate 76% weighting in discounted rate reset Preferred Shares at the present time.

Three rate reset Preferred Share issues were called for redemption in August, bringing total Preferred Share redemptions to approximately $7.5BN year-to-date. First, Capital Power called in its $150MM 4.12bp reset spread issue (“CPX.PR.I”) for September 30¹, and then announced it would replace the funds with a 7.95% hybrid note.

Next, Altagas called in its 200MM 3.58bp reset spread US-Pay issue (“ALA.PR.U”), and then launched a 7.35% subordinate note². Finally, Artis REIT called in its $80MM 4.06bp reset spread issue (“AX.PR.A”), which had been trading at $24.80 prior to being called³. Both the Fund and ETF held an approximate 1.0% weighting in AX.PR.A.

In August, both the Fund and ETF reduced their rate reset exposure slightly, from 80% to 76%. Specifically, we reduced our exposure to 225bp spread bank rate resets by approximately 4% and added to higher-spread TD and BMO $1,000 par value institutional Preferred Shares for diversification purposes. Both the Fund and ETF now hold an approximate 6.6% weighting in $1,000 par value Preferred Shares.

We believe that both the FED and the Bank of Canada are nearing the end of their monetary tightening cycles, and interest rates will stabilize. This, we believe, will set the stage for an end-of-year rally in the Preferred Share market. 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. 3 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.

This document may contain forward-looking statements. Statements concerning a fund’s or entity’s objectives, goals, strategies, intentions, plans, beliefs, expectations and estimates, and the business, operations, financial performance and condition are forward looking statements. The words “believe”, “expect”, “anticipate”, “estimate”, “intend”, “aims”, “may”, “will”, “would” and similar expressions and the negative of such expressions are intended to identify forwardlooking statements, although not all forward-looking statements contain these identifying words. These forwardlooking statements are subject to various risks and uncertainties that could cause actual results to differ materially from current expectations. Readers are cautioned not to place undue reliance on these forward-looking statements. While Lysander and Slater consider these risks and uncertainties to be reasonable based on information currently available, they may prove to be incorrect.

Nothing in this document should be considered a recommendation to buy, sell or short a particular security. Any specific securities discussed are intended as an illustration of the portfolio manager’s security selection process. The portfolio manager may sell these securities at any time, or purchase securities that have previously been sold. The positions may increase or decrease in value after the date hereof, and the portfolios that hold such positions may accordingly gain or lose money on the investment. The statements by the portfolio manager in their commentaries are intended to illustrate their approach in managing the funds, and should not be relied upon for any other purpose.

®Lysander Funds is a registered trademark of Lysander Funds Limited.

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