Reviewing Performance for June
By: Tim McPartland,
June was a difficult time for all income investors as interest rates gyrated around as the debate on whether the FED will raise the FED Funds rate in September, December or not until 2016.
The 10 year treasury started the month at a low level of 2.10% and ended the month at 2.34%. Movements based on when the FED would raise rates and generally positive economic news in the United States were tempered by the shenanigans occurring on a regular basis in Greece and throughout Europe. The movement higher in rates did affect prices of almost all income securities, although by varying amounts. Given that rates have moved at a slow pace higher the affect on preferreds and exchange traded debt issues was minimal moving prices down around 1%. Preferred stock Closed End Funds (CEF’s) weren’t as well behaved as they moved lower by 3-4%. Preferred stock CEF’s are now 9% below the yearly high in February. Most of these preferred stock CEF’s are now trading at double digit discounts to net asset value. We are avoiding new commitments to preferreds stock–in particular perpetual preferreds, and in fact we are slowly moving away from the perpetual preferreds. We are positive on exchange traded debt issue with shorter maturities (5 years or so). We are staying away from any further commitments on CEF’s as we think they have substantial downside in a rising rate environment and since all carry leverage of approximately 30% the damage is exacerbated.
REIT’s continue to trend lower being down near 3% for June. We see no reason why this trend would end anytime soon, given the level of sensitivity these shares have to higher interest rates. While we love REIT’s we continue to hold off on purchases excepting where special circumstances present themselves.