Investor Education: Changes in Preferred Shares with Ben Jang
PODCAST September 10, 2020
Host Mark Therriault speaks with Ben Jang, Portfolio Manager at Nicola Wealth focused on debt instruments. In today’s conversation, they discuss preferred shares, which has been a hot topic over the last several months because of changes in the marketplace.
Ben gives a breakdown of this asset class and explains how the changes in the marketplace in the last several years have impacted it. He also touches on the new issue that RBC recently came out with that could potentially replace preferred shares as a whole, explaining the key differences between this new issue vs. rate resets (the predominant player in the current preferred shares market).
[:16] Mark Therriault introduces this week’s episode with Ben Jang.
[:54] Ben explains what preferred shares are.
[1:36] The key differences between a preferred share and a common share and why a company would make a decision to choose to issue one over the other.
[2:55] Why do preferred shares exist? Where do they fit in the market?
[4:15] Are preferred shares a fixed-income investment, an equity investment, or a hybrid of both?
[5:35] With high yield bonds, the company’s credit rating plays a factor in the bond issuance. Is this the same with preferred shares?
[6:39] As the manager of Nicola Wealth’s preferred share pool, is Ben looking at different preferred shares similar to how he views a high yield bond in terms of how to invest in them?
[7:40] Why are rate resets the predominant preferred share right now? Has this always been the case?
[8:51] What is a rate reset?
[11:05] How are preferred shares issued differently than in previous years?
[13:35] By creating the rate resets, does that mitigate the need to create new preferred shares and redeeming the olds ones? Whereas now, it’s on a 5-year turn so there’s not as much interest rate risk for the issuer and the company. How does this affect the investor?
[15:15] Ben discusses the recent changes he has seen in the marketplace and how they impact preferred shares and specifically rate resets.
[18:36] How preferred shares have been impacted specifically this year due to COVID-19.
[20:18] There is a new issue that RBC recently came out with that could potentially replace preferred shares as a whole. Ben speaks about the differences between this new issue vs. rate resets (the predominant player in the current preferred shares market).
[25:43] The big differences between this new RBC note and existing preferred shares from an investor perspective.
[27:32] Does this new RBC note mean the end of preferred shares?
[29:13] Does this new issue drive up the prices simply from the perspective of there being less supply in the shared market?
[30:26] Would Ben say he is optimistic about the preferred shares market in the short-term? What about the long-term?
Ben Jang is a Portfolio Manager at Nicola Wealth. He joined Nicola Wealth in September 2012 with extensive experience working for several multi-billion dollar investment management firms focusing on global equity, GTAA and market neutral funds. Most recently, he was on the institutional portfolio management team of a Vancouver-based firm and was responsible for quantitative strategies and optimization of portfolios.
For his full bio, visit: NicolaWealth.com/Our-Team/Ben-Jang
About the Host
Mark is the Financial Advisor and partner of Nicola Wealth — and host of the Investor Education and Why I Built it segments of The Wealth Exchange podcast.
As a member of the Nicola Wealth Planning Team since 2006, Mark has become his clients’ trusted advisor. He prides himself on providing an exceptional experience to his clients while quarterbacking their financial affairs.
For his full bio, visit: NicolaWealth.com/Our-Team/Mark-Therriault
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