Buying a Bit Tomorrow (Tuesday)

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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.



Tim McPartland

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Tim McPartland
Tim McPartland is a private investor with over 45 years of investing experience. His analysis, research and writing is devoted to the hunt for income producing securities of all types, but in particular specializing in preferred stocks, exchange traded debt and Master Limited Partnerships.
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