Updating and Tweaking the Short/Medium Duration Portfolios

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We have taken a closer look this weekend at the 2 short/medium duration portfolios and have determined that we have to make some moves this week.  Additionally we have updated the “yield to worst” (or “yield to maturity”)  of these models as most issues have moved past the “1st call date” (the date at which they are 1st optionally redeemable) which means we had to tweak the formula to calculate “yield to worst” as there is a different formula after the 1st call date then before the 1st call date.  You will notice that most issues are now showing negative returns on the “yield to worst” as they are trading above $25.  Given the situation of most preferreds trading above $25 this is something we will have to live with in these models as there are limited choices of short/moderate duration securities that will allow us to make our 7% goal.

Here are some moves we will be making this week in the 2014-2017 Short/Medium Duration Income Portfolio.  1st off we will sell the Oxford Lane 8.125% Term Preferred Stock (NASDAQ:OXLCN) on Tuesday.  These shares are trading at $25.90 with a 1st call date of 6/30/2017–a month from now.  We believe there is a small chance that the shares could be partially or fully called soon.  Why not lock in this 90 cent capital gain and move on?  We will move on.

We will buy 400 shares of Eagle Point Credit Company 7.75% Term Preferred (NYSE:ECCB) which has a 1st call in 2021.  We have to pay a premium for the shares as they trade at $25.81.  We don’t like to pay above $25, but honestly there is little choice and this price allows us to still reach our goals (7%) .  This issue has a mandatory redemption in 2026 and a failure to redeem feature which tacks on 2% to the coupon if not redeemed on time. Additionally, we will purchase 400 shares of the new B Riley Financial Corporation 7.5% Senior Notes due 2027 when they begin trading which should be any day now.

With the 1 sale above and the 2 purchases we will lower our cash position very substantially which has been our biggest problem–too much cash.  This model will wrap up its 3rd year in October and it looks like barring any unforeseen developments should end up just shy of our 7% annual target for the 3 years.  Our slight shortfall is entirely caused by carrying too much cash–sometimes we have had 20% cash.  Remember that this model is not traded and is very static in nature–just the way we like it.

In the 2015-2017 Medium Duration with Zip Portfolio we will sell the same Oxford Lane issue that we are selling in the other portfolio.  This will also put us in the same position as the other Medium Duration portfolio–too much cash.  To make matters even worse we should be selling both of our “zip” positions–Independence Realty Trust (NYSE:IRT) and New Residential Investment (NYSE:NRZ) since they both have nice capital gains and the intent of even owning “zip” is to buy low and sell to capture capital gains.  We will hold on until we can get our cash invested this week and then consider unloading the “zip” positions.  We have owned IRT twice in 2 years was previous sold for a nice gain and re-bought after it fell back in price.  We have also bought and sold Stag Industrial (NYSE:STAG) as a “zip” issue.  These zip issue had done exactly what they were intended to do–add gains above and beyond normal fixed income portfolios.

We will be buying the B Riley issue noted above for this portfolio as well as the Atlas Financial Corp 6.625% note due 2022 (NASDAQ:AFHBL).  Just as in the other medium duration portfolio this will reduce our cash substantially and allow an improvement in performance.  This portfolio looks to be tracking about an 8% annual gain (the portfolio wraps up its 2nd year in  2 1/2 months) which is exactly what we hoped for as compared to the pure fixed income portfolio.  Again with the exception of the “zip” issues (usually 2 REITs at any given time) the portfolio is not traded.  A truly low maintenance portfolio and 8% is nothing to sneeze at.

 

 

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