There were some corporate developments in September: Enbridge Inc. announced that it was buying Spectra Energy of Houston, Texas in a $28 billion transaction. For preferred share investors this was noteworthy because Enbridge is already one of the largest issuers of preferred shares and Spectra is the parent company of Westcoast Energy, which has a number of series of preferred shares outstanding. If the takeover is consummated as planned in early 2017, we will be treating the two issuers as related but separate in our concentration and diversification analyses. Another corporate development saw Element Financial Corp. shareholders approve the plan to split the company in two. The Element Financial preferred shares will become preferred shares of Element Fleet Management, the more creditworthy of the two successor companies.

On a long term basis, preferred shares continue to offer substantial value versus alternative asset classes. From a shorter term perspective, however, we believe the preferred share market may move sideways for the next month or two. The experience following the recent Bank of Nova Scotia issue suggests that new issue concessions will lead to selling of existing issues that keeps the overall market from appreciating very much. In addition, the average preferred share yields only marginally more than the long term 5.00% average, so that suggests the market is fairly valued rather a screaming buy. Accordingly, we are comfortable with slightly higher than normal levels of cash in order to take advantage of potential new issues as well as opportunities that arise in the secondary market.

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