Purpose
HIMIPref™ has been developed to provide investors of all kinds with detailed analysis of the Canadian preferred share market, quantifying the bewildering array of features embedded within preferred shares to provide reliable measures of expected future returns on the various instruments and to utilize these measures of expected returns in order to develop trade recommendations that may be executed with a high degree of confidence in their ultimate success. In order to provide a full solution for the investment needs of practitioners, there are also account management features included in the software, that allow portfolio bookkeeping and trade confirmation functions to be exercised.
Analytical Philosophy
HIMIPref™ has been developed through development of the following fundamental assumptions:
- Preferred shares are fixed-income instruments and must be analyzed accordingly
- The validity of this assumption is strongly dependent upon the credit-worthiness of the issuer. The worse the financial situation of the issuer, the more the shares will behave as equity instruments - so HIMIPref™ restricts analysis to high-quality preferreds and portfolio construction strictly limits the lower end of this range.
- Shares are evaluated presuming a certainty that the issuer will meet its obligations as defined by the prospectus. The chance that it won't is accounted for by credit spreads
- The preferred share market is weakly efficient.
- It is assumed that a fair value for each instrument exists and is calculable by reference to similar instruments.
- It is presumed that divergences from this fair value will occur, but the market price for each instrument will not be too far from this fair value and will sometimes be higher, sometimes lower.
- Temporary divergences from fair value are generally due to the liquidity requirements of the market; supplying liquidity to the marketplace is a profitable endeavor (see Who Gains from Trade? Evidence from Taiwan, Barber, Lee, Liu & Odean).
- After-tax returns are most important to investors.
- All analysis of cash-flows and of the yield curve is performed on an after-tax basis (tax rates may be set to zero, to provide a pre-tax analysis).
- Trade recommendations are derived with a view to maximizing returns to the investor, after taxes and after expenses.
- The marketplace is structurally stable
- The priorities of investors will remain constant over time.
- The manner in which these priorities are expressed (e.g., a preference for floating rate shares, or for retractibles) will change slowly
- There is more "noise" than "signal" in the short-term variance of market prices.
- Overall trends in the market-place cannot be predicted with any accuracy.
- HIMIPref™ does not "take a view" on the market
- Portfolios are constructed with reference to the available universe, not to any external or macro-economic influences
A further discussion of the general philosophy guiding the analytics may be found at the Hymas Investment Management Inc. Philosophy
Implementation
HIMIPref™ is implemented on a client-server model. The "front end" of the programme is downloaded from this site, www.prefshares.com, and installed on the client's own equipment. For further details regarding installation, see the downloads + instructions section.
Client Data
This installation allows for the input of local data regarding the portfolio(s) to be managed, with customization of - portfolio holdings
- commission schedules
- tax rates
- constraints on portfolio holdings
- custodian particulars for each account
- dealer particulars for every trade.
These data are stored and maintained on the client's own machine - information is transmitted to the HIMIPREF™ server only if, as and when needed. All client information is stored in a single directory on the client's machine (which may be specified by the client), to allow for back-up and restoration at the client's convenience. The client programme communicates with data and calculation modules on the server (referred to as "Web Services") to analyze the preferred share universe in both general terms and with particular reference to the client's specific situation. Tax rates are very important in the analysis of the universe; additionally, portfolio constraints and holdings are required for trade analysis.
Reporting
HIMIPref™ produces a plethora of reports — it has been designed as an analytical research tool as much as a day-to-day portfolio management expert system. Accordingly, there are two levels of reporting used to present results: - Major Reports: These are full fledged documents which are controlled by a menu. Most may be printed, and all allow a selection from a wide-array of relevant data in order to provide the user with precisely the correct data required in order to make a decision or to understand the analysis more thoroughly. Major Reports will usually be "clickable" a right-click on the datum of interest will display a Report Box with further details of the calculation of that particular number.
- Report Boxes are sometimes accessible directly from a menu, but are usually accessed by right-clicking on a datum of interest in a Major Report. Report boxes may be stored or printed, and all have a "Help" button which will refer the user to the relevent section of the Glossary.
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