When You’re Snoozing, You’re Losing Income
By: Tim McPartland,
We have written before that when you are not invested you are cutting your income stream. When we write these things we include ourselves in those that unnecessarily lose income to what really amounts to laziness (or maybe we are distracted–that sounds better).
Today a reader sent a note and asked why we didn’t add the recent new issue baby bonds from Medley LLC (Medley LLC is the operations arm of Medley Management (NYSE:MDLY)) to our portfolio as it has been sold down to the $23/share area and has a relatively short duration of 2026. Our response to the reader is that there was no reason other than laziness (actually we said we have been busy–that sounds better).
So we have reviewed Medley Management LLC (MDLY) and see they have recently been investment grade rated . Now we know that high quality perpetual preferreds have taken a heavy beating recently, but with the shorter duration of a baby bond maturing in 2026 the 6.875% issue (MDLX) should not have taken such a heavy beating–but it did and is now trading just over $23 with a current yield of 7.42%. This issue fits perfectly into the 2015/2016 Moderate Duration Income with Zip Portfolio. You will recall this portfolio has primarily holdings of term preferreds and baby bonds with maturities that are medium in duration–none maturing after 2029. In addition we try to add just a little “zip” by owning a REIT or 2. We very rarely “trade” within this portfolio. A few issues have been called for redemption and Independence Realty Trust (NYSE:IRT) and Stag Industrial (NYSE:STAG) ran up strongly a few months ago so we booked profits–but have since bought back IRT.
This portfolio has an excellent return earning 9.94% in 13 months. For a low volatility portfolio this is superb! Obviously it could have been better if the portfolio wasn’t 15% in cash. The intent is to keep these portfolios almost always invested!!! Obviously we have been lazy!!
We are buying an overweight 300 shares of MDLX tomorrow (Thursday). The 7.42% current yield with the opportunity to possibly pick up a little capital gain in the weeks ahead seems a reasonable investment. You will note that we already hold baby bonds of Medley Capital Corp (NYSE:MCQ) which mature in 2019.
Further reading on this issue can be found on Seeking Alpha here where “Arbitrage Trader” has dissected the issue nicely.