We Make Portfolio Changes
By: Tim McPartland,
We have been very happy with the Short/Medium Duration Income Portfolio and the Short/Medium Duration with Zip Portfolio this year while we have been less than happy with the Blended Income Portfolio so we have started to make some portfolio moves to try to help the portfolio perform a bit better.
1st off we bought 500 shares of NuStar Energy LP 8.5% (NS-A) fixed-to-floating perpetual preferred stock. While this is a perpetual issue and we are mainly into shorter duration issues this issue pays are high coupon and then has a good floating provision with a base fixed rate of 6.766%. Fixed to floating rate preferreds such as this will trade firm compared to regular perpetual preferreds so interest rate risk is modest with this issue. Of course we wish we would have made this decision earlier as we paid $26.05, which is a dollar higher than it traded around issuance, but the 8.43% current yield remains attractive and it is call protected until 2021.
Additionally we bought 500 shares of RAIT Financial (NYSE:RFT) 7.625% baby bonds for $22.87/share giving us a current yield of 8.51%. This issue has a medium duration of 2024 so it carries little interest rate risk. RAIT is a REIT and was a controlling shareholder of multi family REIT Independence Realty Trust (NYSE:IRT) and their financials have been less than stellar in recent years. On the other hand the company has announced significant steps to revive earnings recently and in fact just announced the completion of transactions which will contribute substantially to their efforts. You can read some of the details here. Needless to say if RAIT was an investment grade issue we would not be paid a current yield of 8.51% to hold their bonds.
These 2 moves additionally sopped up some of our excess cash that we have had on hand, but we continue with a cash position of 9.45% which is adequate for bargains if they come. We are considering further moves in the next week and will post them when and if they happen.
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