Strange Sector Rotation Continues

There is a strange rotation going on in the income investing segments of the markets. Today in particular, utilities, REITs and MLPs got pretty well creamed while preferreds and exchange traded debt moved up. In the last couple of years these markets have moved mostly in tandem–until the MLP’s took their shellacking. In giving some thought to this we believe that investors are simply moving out of what they believe are overvalued sectors–there is no other reason for this divergence–certainly there is no real or perceived economic weakness in the U.S. We have felt some pain from these movements in the various models, but regardless there is simply no way to try to invest around sector rotation. Obviously we just have to ride it out.

Today oil inventories were released and the inventory build continues, although at a slower pace–just a 4.9 million barrel build versus 6.3 million barrels the previous week. These numbers helped to knock down West Texas crude prices to under $50/barrel once again–there is no reason prices will not remain under pressure. Rig counts are dropping nicely, but production rising. No bargains to be had in the oil patch yet. Many of the MLP’s and energy related preferreds have jumped nicely from their lows–but more pain is coming as loan ‘redeterminations’ begin in earnest this month.

The next 2 days could provide more fireworks as Greece worries continue. Obviously the Greece debt issue is just theatre and it will be resolved–but it will be used as an excuse to push prices both higher and lower over the coming days.

Yesterday as we had written about we added shares of new issue Triangle Capital 6.75% notes (ticker:TCCB) to the 2015 model. It fits with our drive to shorter durations with a 2022 maturity.