MFA’s Corner

When Analyzing My Investments, How Do I Categorize MFA?

Over the past several months, we spent a lot of time developing a sample Local Government Investment Policy. As part of that process, we considered what were logical and prudent constraints for a local government investment portfolio. Like the policy we developed, a well-crafted policy includes limits on credit ratings, issuers, types of issuers, and sometimes specific investments. From that perspective, it is key to understand how an investment is classified. Commonly we are asked, “How do we categorize MFA?” The answer is essentially two-fold.

First, you must distinguish between bonds issued by MFA (Bloomberg ticker: BCMFA) and Pooled Investment Funds (PIFs) offered through MFA. Although a local government may purchase BCMFA securities (generally in the secondary markets, through a broker) – it is very uncommon. BCMFA is classified as a AAA-rated ‘Municipality’ (or alternately a ‘Public Sector Funding Agency’). However, local governments are more likely to purchase PIFs offered through MFA.

MFA Pooled Investment Funds contain dozens to hundreds of securities from a variety of issuers – which provides instant diversification. When you buy units of MFA PIFs it is not a single security nor exposure to BCMFA, but rather a very large number of securities which have varying characteristics (credit/issuer-type). You may be asking, “In that case, how do I categorize MFA Pooled Investment Funds?” It is fairly straight-forward to calculate your credit and sectoral (issuer-type) exposures using two documents: (1) your latest MFA Pooled Fund Statement, and (2) the latest monthly Pooled Fund Performance Results document available on our website.

To calculate your credit and issuer-type exposures when holding MFA Pooled Investment Funds, you will need to complete a simple weighted-average calculation. As illustrated below:

If you need assistance with this calculation, we have developed simple calculators to help complete this assessment. Please feel free to contact me or anyone on the MFA team if you have questions about this process.

Lastly, a similar question may be, “What about Pooled High-Interest Savings Accounts (PHISAs) offered through MFA?” MFA offers two PHISAs – one through National Bank and the other via CIBC. Those are exposures directly to those financial institutions and their associated short-term credit ratings (R1-M and R1-H respectively).

Accurately categorizing MFA and completing a simple weighted-average calculation of your Pooled Investment Fund holdings provides a local government investment professional with a clear view of their portfolio’s credit risk and sectoral concentration. This information is important to ensure the risks you are taking are commensurate with the yield you are receiving. •

KYLE DERRICK is the Credit & Economic

Analyst at MFABC. He is a MBA graduate from Royal Roads University. Further, he earned an undergraduate degree in Business

Administration (finance) and holds a Certificate in Economics.