Income Investors Continue to Prosper in March
By: Tim McPartland,
After seeing a sharp advance in income issues in February we felt that preferred stocks and exchange traded debt issues would have somewhat flat performance in March. Little did we know that income investors had different ideas and continued to swarm into issues driving the average issue up by another 1% (on top of dividend income received).
The Yield Hunter 2015/2016 Blended Income Portfolio outperformed the general markets with a gain of 1.75% (including dividends). The portfolio had a gain of 5% over the course of 15 months. While not as stellar as one would hope this is over a time from where the S&P500 is off .11% and the Total Bond Fund (NYSE:AGG) is up 3% (counting dividends received) so relatively speaking one should be happy with this performance. During March we purchased just 2 new securities in this portfolio as we needed to re-invest proceeds from the Tortoise Energy Infrastructure 4.37% (NYSE:TYG-B) redemption. We purchased more of the conservative issue Tri-Continental (NYSE:TY-P) $50 preferred stock which has a 5% coupon and we purchased shares in the new KKR&Co 6.75% (NYSE:KKR-A) preferred issue. Our intention next week is to sell our Bank of America common shares as well as the Emerson Electric common. Both of these pay meager dividends and have performed poorly and after giving them more than adequate time to get turned around it looks like dead money to us.
The conservative Short/Medium Duration Portfolio is back on track after having some soft months early in the year. This portfolio which was launched on 10/31/2014 (17 months ago) is up 7%. Amazingly there have been just 2 sales from this portfolio during the 17 month time frame, although 4 additional securities were called by the issuer. While the performance is 1-2% below our hopes the portfolio is doing mostly what was expected—a reasonable income, with low volatility and very minimal trading. What more can be expected from a relatively conservative portfolio?
During March we recorded a total of 10 new IPOs of preferred stock and/or “baby bonds”. There were 4 new banking or insurance preferred issues, 1 new preferred from a closed end fund, 2 issues from REITs, 2 preferreds from MLPs and 1 new “baby bonds” from a utility company. It has been amazing to watch the performance of these new issues as the quality issues have moved strongly higher. REIT Sunstone Hotel Investors sold a 6.96% preferred issue (NYSE-SHO-E) on March 4th which has now topped $27/share. It has been difficult to gain any advantage by buying on the OTC Grey market as shares which I would normally expect to trade in the $24.50 – $24.75 area on the Grey Market hardly fall below par. Obviously there is strong demand for income issues and maybe after all of our time writing about the OTC Grey Market there is just too much competition there to allow us to buy bargains.
For now it is our plan to simply continue to collect dividends and interest and make an occasional buy when cash builds up in our accounts. We have been in a Goldilocks market for some months now as the 10 year treasury continues to trade ever lower (now at 1.72%) All investors should be watchful for a softening U.S. economy—interest rates are not continuing to fall because there is strength in the domestic economy – the markets sense weakness and one should pay heed to the interest rate complex.