Income Issues Continue to Lose Traction
By: Tim McPartland,
Income issues of all sorts continue to lose ground as interest rates fluctuate in the 2.40% area (the 10 year treasury). It seems that the market is ‘pricing in’ higher rates for September, instead of the conventional viewpoint that it will be December.
Preferred stock closed end funds have taken the largest knock with prices now off 8-9% from their highs in February. The preferred stock ETF’s are off just 4%. This indicates that the premium is coming out of the closed end funds–buyers are not overpaying for the income stream, as well as reflecting the 30% leverage that most of these closed end funds carry. Remember that leverage is wonderful on the way up, but extra painful on the way down. Fortunately we own very little in the way of CEF’s.
REIT’s continue to work their way down. As a group the REITs are off .81 basis points today–now just 6-7% off their 52 week lows and around 15% below their 52 week highs. We think there are a few special circumstance lows being put in amongst the REITs. 1 we are looking at for a possible purchase today is CorEnergy Infrastrucure (ticker:CORR), an owner of energy infrastructure. This is a unique REIT which has just announced a acquistion of a Gulf of Mexico gathering pipeline. We will write more on this soon. Excepting special circumstances we think the group has further to fall.
Utilities continue to lose ground–now just 2-3% off their 52 week lows and almost 20% off their 52 week highs. We continue to look here for a purchase with a number of decent issues now at 5% or better yields, but like the REITs we think the sector is vulnerable to further declines as rates creep higher.
Overall, as we have written about before, to make our 7% target gain this year will be extremely difficult as rates creep higher and security prices fall we will be dependant upon our dividend and interest stream to counter the share price losses and the income stream may not be adequate to keep our heads above water.