PIM: Diversified Income Portfolio

Paul Borisoff - Nov 02, 2017

The Diversified Income Portfolio* was up 2.2% in October – and is now up 9.0% in 2017.  In comparison our benchmark was up 1.9% in October and is now up 3.8% in 2017.  Over the most recent 12-month rolling period the portfolio is up 10.7% compared to our benchmark which is up 4.4%.

* These returns are reported as a composite, time-weighted, rate-of-return (gross of fees, net of transaction charges) for all accounts in this mandate.  Long-Term Returns/Benchmark Numbers will be reported in our Quarterly Updates.

The Canadian bond market (FTSE/TMX Canada Universe Bond Index) bounced back 1.6% in October – keeping with its recent zig zag pattern month-to-month.  Year-to-date this market is now up 2.1%, while over the last 12-months it is down 0.5%.  The S&P/TSX Composite High Dividend Index (40% of our benchmark) was up 2.2% in October – and is now up 6.3% in 2017 and 12.0% over the last year. 

Recent Portfolio Changes:

On October 4th we added to our FuelCell Energy Series B Cumulative, Perpetual, and Convertible Preferred Shares at $284.98 per share (17.5% yield) – increasing our position to 2.3% of the portfolio (our average cost is now USD ~$281.87 – which we paid for in Canadian dollars at ~$0.805 CAD/USD).  These FuelCell Energy Series B Preferred Shares closed at USD $400.00 on October 31st – and including the boost provided by the Canadian dollar sliding back to $0.7759 CAD/USD our position is now up +47.3% at month-end (and is now a 3.3% position).  

At USD $400.00 FuelCell Energy Series B Preferred Shares yield 12.5% and have a liquidation preference of $64 million ($1,000 per share) over the common shareholders in the event the company is wound up at some point in the future.  Additionally, if an entity acquires 50% or more of the total voting power of all classes of capital stock (directly or indirectly) the Series B Preferred shareholders can require the company to redeem the shares at $1,000.  Note, ExxonMobil continues to aggressively promote their relationship with FuelCell Energy (as of today the official Twitter page of @exxonmobil continues to feature a FuelCell Energy Fuel Cell “Box” - and nothing else) and has released multiple new social media video campaigns in recent weeks, and TV commercials featuring “Inside this box could be the future of carbon capture.”  Note, while ExxonMobil has been granted multiple patents incorporating Molten Carbonate Fuel Cell Technology into multiple aspects of the oil and gas industry, and other industries, it is FuelCell Energy that owns or controls most of the base global Molten Carbonate Fuel Cell intellectual property

The recent move higher in FuelCell Energy Series B Preferred Shares is starting to reflect the significance of the company’s $1 billion plus of new and incremental global project awards in recent months, improving balance sheet, and the fact that a path has finally emerged for near-term profitability.  Additionally, FuelCell Energy and POSCO Energy are expected to finalize their Strategic Agreement to Globalize the Stationary Fuel Cell Market soon (announced in March this year) which may clear a path for ExxonMobil to acquire a significant stake in FuelCell Energy – which I believe is highly likely at some point.

We also doubled our position in Enbridge (to 2.0% of the portfolio) at $48.70 per share (5.0% yield) in October (our average cost is now $49.00 per share) – and current consensus 12-month price target is $61.47 per share (Bloomberg).  Enbridge operates the world’s longest crude oil and liquids transportation system, and has been ranked on the Global 100 Most Sustainable Corporations Index for the past eight years.  Of interest Enbridge is the sole owner of FuelCell Energy’s Series 1 Preferred Shares and has worked with them in the past on their SureSource “Recovery” power plant targeted at harnessing unused energy at natural gas letdown stations.

Pending New Addition:

We are planning on adding a new 1.0% position in a Surge Energy 5.75% 31DEC22 Convertible Debenture ($2.75) settling on November 15th via a $40 million financing transaction to finance a property acquisition described as accretive on all key metrics announced on October 26th.  Surge Energy (~$520 million market cap) has since surged to $2.22 from $1.96 when this deal was announced (up 13%) – leading us to expect a very strong start to trading for this new position on the 15th.


At month-end the portfolio’s cash position was sitting at ~5.1% and our convertible debenture exposure was approximately 36.7%.  Total Cash and Fixed Income exposure including our four 3rd party specialty fixed income manager positions was ~69.5% at quarter-end.  

We continue to strongly believe that the portfolio’s composition and flexibility offers a substantially improved risk/reward trade-off compared to an “income portfolio” relying only on government bonds and pure stock market exposure to drive returns and income.

Please do not hesitate to contact me if you have any questions or concerns.


Paul J. Borisoff
Senior Vice President,Portfolio Manager, Senior Investment Advisor

Canaccord Genuity Wealth Management
609 Granville Street, Suite 2200, Vancouver, BC  V7Y 1H2
T: 604.643.7083 | TF: 1.800.663.1899| F: 604.601.5942
E: paul.borisoff@canaccord.com | borisoffcoxwealth.com