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Flaherty & Crumrine? (FFI-UN)

Mark Jr.

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First off, I have been hesitant to go bargain hunting in US equities because I'm paranoid about a catastrophic decline in the USD vs CAD.


Flaherty and Crumrine operate some funds which invest in preferred shares and senior debt of US companies. For Canadians, they have a fund

operated by the Brompton Group which holds these same instruments, but claims to hedge the USD exposure.




Like everything else under the sun, it got smashed down during the meltdown, and as a result, these units are now yielding north of 18%.


Their NAV is 6.94, they closed today at 7.05. They're maintaining a distribution, currently .11 monthly, albeit down from .125 in March. They've already announced the June distribution.



Portfolio summary available here: http://easyurl.net/101


Top holdings (as % of porfolio and % of NAV)

Liberty Mutual Insurance Co., 7.697% October 15, 2097 12.5% 20.1%
Axis Capital Holdings Limited, 7.50% Pfd. 12.2% 19.6%
Cash and short-term investments 11.3% 18.2%
Southern Union Company, 8.25% November 15, 2029 8.4% 13.4%
Delphi Financial Group, Inc. 7.376% May 15, 2037 6.7% 10.6%
Comerica Capital Trust II, 6.576% Capital Securities 5.7% 9.1%
USF&G Capital I, 8.5% December 15, 2045 Capital Security 5.3% 8.4%
Dominion Resources Capital Trust I, 7.83%, December 1, 2027 4.9% 7.8%
Capital One Capital III, 7.686% August 15, 2036 4.5% 7.1%
Everest Reinsurance Holdings Inc., 6.6% May 15, 2067 4.3% 6.8%
CIT Group, Inc. 6.1% March 15, 2067 3.7% 5.9%
PartnerRe Finance II Inc., 6.44% due December 01, 2066 3.5% 5.6%
First Tennessee Capital Trust I, 8.07% due January 06, 2027 3.4% 5.4%
First Midwest Capital Trust I, 6.95% December 1, 2033 Capital Security 3.4% 5.4%
Dominion Resources Inc., 7.5% due June 30, 2066 3.4% 5.3%
Astoria Capital Trust I, 9.75% November 1, 2029 Capital Security, Series B 3.2% 5.1%
Pulte Homes Inc., 7.375% June 01, 2046 2.8% 4.4%
Wisconsin Energy Corp. 6.25% May 15, 2067 2.8% 4.4%
RenaissanceRe Holding, 6.08% Pfd, Series C 2.5% 3.9%
Corporate Backed Trust Certificates , 6.3% Series GS 2.4% 3.8%
Noble Energy Inc., 7.25% August 01, 2097 2.4% 3.7%
SATURNS Goldman Sachs Group, Inc. Debenture Backed Series 2004-2, 5.75% 2.1% 3.3%
Realty Income Corp., 5.875% March 15, 2035, Senior Unsecured Notes 1.8% 2.8%
USF & G Capital, 8.312% due July 01, 2046 1.7% 2.6%
Webster Capital Trust IV 7.65% June 15, 2037 1.7% 2.5%



So basically, this seems a way to get into a basket of income producing preferred shares and bond issues that normally would yield around 5% or 8% that is now seriously undervalued with a corresponding higher yield.


What I'm wondering about is the USD to CAD hedging. I'm deeply suspicious that it could hold up against the kind of declines I think could be in the offering (don't laugh, but I am braced for the USD fall significantly against the CAD, let's just say I won't be surprised to see it go significantly below par)


Other than that, none of the names I see in this summary ring any bells of banks receiving TARP funds or being taken over by the FDIC. Anyone else ever looked at this one?



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There's some interesting on-going discussions on preferreds and closed-end funds on the board. You can use the search feature to find them. I don't think this particular fund has been discussed, but it is similar to other close-end preferred funds.


I believe many financial and REIT preferreds are and have been mis-priced. The yields in individual preferreds are dropping and values rising, but as you noted there are still some high yield closed-end funds. Many of these funds are leveraged and often trade at a discount, or premium to their net asset value.


I'm holding the financial preferred ETF (PGF) and because it closely tracks its underlying index it has moved along with its preferred basket. I also hold some closed-end preferred funds and they appear to be lagging their holdings, which changes the premium/discount.


It appears to me there's more opportunity in the closed-end funds, but it could take a long time to realize their full value.


Best / Eric

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Guest Broxburnboy

Re: American dollar exposure


I wouldn't bet on the CDN appreciating too much against the USD. It is the express stated intent of the Bank of Canada

and the current government to keep the Loonie weak vs. the greenback. The governor of the bank has stated his intentions

to keep interest rates frozen (low) for the next 12 months, to emphasize this commitment. Look for interest rates to rise on the US side (prices of treasury debt are dropping) as government sells more than the market will bear. Canadians will benefit for the years of surplus federal budgets by lower domestic interest rates rather than an appreciation vs. the USD. At least this is the plan.. things could go off the rails if the fiscal and monetary shape of the US economy weakens drastically or suddenly.



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