Buying a Bit Tomorrow (Tuesday)

We have been waiting for new issues to come out–preferrably shorter duration notes, to do some buying, but it appears that we could be waiting a long time at the rate these have been being issued.  In the last month only the newer Arlington Asset Investment 6.75% Senior Notes have been issued. This issue is a lower grade than we care to purchase at this time so it isn’t of interest to us. So we are doing the following.

In the 2014 Model Portfolio – Blended Incomewe are going to triple up our very small position in variable rate MLP Alliance Bernstein (ticker:AB). Currently AB is paying a yield of 7.47%.  Now realize that AB is a variable rate MLP–each quarter the distribution will vary, sometimes substantially, from the previous quarter. Alliance Bernstein has slowly been increasing their assets–most recently they stood at $488 billion, up from $475 billion the month previous.  A slow grind higher is all that is needed to be able to increase distributions over time.  Additionally, we are going toinitiate a positon in the Ares Capital 5.875% Senior Notes (ticker:ARU). These are shorter duration notes with a maturity date in 2022. While they have a optional call date starting in 10/2015 we don’t believe these will be called at that time as there is a 7.75% issue callable about the same time. ARU is trading at $25.53 so there is a 1.5% risk, but we are willing to take that risk. Current yield on ARU is just 5.75%, but it is investment grade. 

The 2014 portfolio has almost 16% cash and these purchases will sop up some of this cash balance.  Going way back to prior models we know that carrying a cash balance this large, over time, will hinder performance towards goal so we need to get some dollars deployed.