Rearranging Short/Medium Duration Portfolios

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As we noted in a writing on September 6th the Short/Medium Portfolios have performed well in the last year, but there were some opportunities to do some rearranging to capture some large gains.

Both of these model portfolios were set up to minimize volatility while still garnering a “fair” return all while making very few trades.  Of course the definition of “fair” is different for each investor, but to us it is around 7% in this low interest rate environment.

When we wrote on September 6th the 2015/2016 Short/Medium Duration Portfolio with Zip had a 12 month gain of 10.44%–excellent for a lower risk portfolio. Of course shortly after the article was written all markets headed south and for a short time that gain dwindled to 8.75%.  At this moment it is back to 9.35%.  The temporary loss of momentum in the portfolio was caused by a general reset of preferred stocks and exchange traded debt prices 1% lower.  Additionally the 2 REIT issues that provide the Zip to this model instead provided Unzip as the shares fell back 5%.


We had mentioned that we would be harvesting the gains in the REITs (IRT and STAG) and also selling the Ares Capital Note issue (NYSE:ARU) as it was trading 4% over the call price and was within the call period. We have now harvested all of the profits in the REITs as well as in Ares Capital.  As expected the portfolio current yield is now a lowly 4.87% as the cash generated from these sales has left us tremendously under invested.  We will be attempting to purchase 2 issues in the coming days to bring the current yield higher, but we are unsettled on these (although we have it narrowed down to just 4-5 possibilities).  Remember that we are looking for shorter duration term preferreds or exchange traded debt issues as well as either a REIT or MLP to provide us with Zip.

The 2014/2015/2016 Short/Medium Portfolio has a number of issues that are in the high $25’s and they are callable now. The portfolio also includes the same Ares Capital (ARU) which we sold from the Zip portfolio–unfortunately we did not get it sold when it was near $26 so we continue to hold it.  Saratoga Investment has a 7.50% note issue (NYSE:SAQ) which we hold and is trading at $25.93–it became callable in May which means it is a bit dicey holding it now and we are considering whether to take the risk of holding it longer or forgo the nice interest payment and trading it.  Additionally Homeowners Choice has a 8% note issue (NYSE:HCJ), which we hold, and it became callable in January and is trading around $25.80.  These issues have a 1-2% risk if they are called now. We will decide soon whether to let these go.  We don’t mind holding callable issues if they are around $25.50 as these present little, if any, risk as they would be redeemed at $25/share plus accrued interest/dividends–but when they are near $26 there is some profit to be taken.  These decisions would be automatic if there were reasonably decent issue available that fit our needs (our needs are maturing in the next 1-12 years).

So this is where we are at with these 2 portfolios–we will post again when we take further action.

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