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... The risk, I suppose, is that the split corporation will fold. If the NAV is still above $10.00 pfd share holder will get all or most of their capital back. Capital share holders are SOL.
Which some did during the financial crises.

More recently, someone bought OSP-PA six months ago, expecting the March 2020 special retraction privildge to let them get out even. Trouble was that by that time, everything had been hammered so much that the preferred were worth $5 instead of the $10 they expected.


... My concern with splits, at least in bad times like now, is the capability of the managers of the split corporation to stay in business.
I'm more concerned about hidden costs and what the portfolio does. At the end of the day, the portfolio is likely the biggest driver.


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I stand by my position that they are intentionally tricky. They are not just complex because of some inherent need for complexity. They are deliberately made to be tricky.

And yes, they are like having units in hedge funds, except they are sold to unsuspecting retail investors.

Pure garbage and any advisor selling these to clients should be ashamed of themselves.
I don't agree. They are decompositions of the company into a 'safer' cash flow driven investment (still equity risk but somewhat insulated, like writing a deep in the money long term covered call), and a more speculative leveraged equity position. Some investors are looking for the former or the latter as part of their risk profile.
 

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... It doesn't matter that you and agent99 understand them; I am not concerned about you.
Strange way of not being concerned about us with comments like:
... So the preferred shares are worth $10 (you say), and yet market participants think it was worth at one point nearly 30% less. I'm not certain that you guys (agent99 and Eclectic12) understand this structure ...
This thing is riddled with hidden risks ...
Dubmac did whatever he did for his mother around Jan last year so I'm not sure what benefit is being provided for whom you are concerned for.


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OK then, so where do we land on this?

That the split structure is weird, but can still be understood.
That seniors are not systematically sold these things.
Most people buying them know what they're getting into.
Most investors understand the risk they're taking in them.
and,
dubmac's 90 year old mother is not the typical buyer [1]

Is that the argument?


[1] did not really buy, but has some advisor stuff them into their portfolio
 

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Uninformed investors buying these things is very much the point of discussion.

It doesn't matter that you and agent99 understand them; I am not concerned about you.
Reading back through this long thread, I see several cmfers that actually did or do own and understand split corporations.
Also others who wished to learn more about them. And some others who have never owned them, yet have strong opinions.

Splits, are just one of many alternative security options investors can consider.
Some far less transparent products are palmed off on the unsuspecting public. Often to the sellers benefit, like mutual funds Dont get me on to bond funds!

With markets on rebound, maybe I shouldn't have sold all my split pfds!
 

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OK then, so where do we land on this?
First off I'd like to apologise for saying the sales to seniors were a misrepresentatio/red herring.. As you suspect, I didn't follow the link to the previous section of the thread.

The drop in value as well as the misleading structure and question as to whether the structure is understood weren't limited to that particular case, though.


... That the split structure is weird, but can still be understood ... Is that the argument?
No ... it's that most of what is being criticised is either misrepresented or operating as designed.

For structure, you've recommended XIU in the past so presumably you are okay with it's structure. If "portfolio - expenses, divided down equally to individual units" is clear, what's so complicated about "portfolio - expenses dividend equally into preferred shares that have a promise of priority on windup and capital shares with no promise"?

Isn't XIU's alleged prospectus that's really amendment #3 to the original prospectus plus amendments #1 and #2, at something over 200 pages more confusing/difficult? DFN's prospectus at something over forty pages seems an example of brevity.


For the preferred shares recent drop despite the long time at or above the promised windup price of $10, the preferred shares should trade for what buyers are willing to pay ... regardless of the four years from now promise and current NAV. I believe XIU traded at a discount to NAV so a disconnect from the NAV isn't an indication of problems. If XIU is trading as designed, what makes the DFN preferred shares trading and discount to NAV suspect or proof of problems?


As for the 90 year old whose advisor made mistakes ... let's try a thought experiment. A bank split was mentioned as a problem, if it was a suite of bank common stock that was mauled - would the advisor be criticised or both advisor and common stock?


Cheers
 
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