A Good Time to Rebalance

If you have found yourself overweight in particular securities it is a good time to look at doing a little rebalancing. We had done our rebalancing some weeks ago so we do not personally need to do more right now. Although we need to get our fixed income model portfolios rebalanced.

So many issues have shot higher–for instance the newer NiSourse energy 6.50% fixed reset preferred (NI-B) shot all the way to the $27.50 area yesterday. The chart on this one is crazy–see it here. I know some like Gridbird took the opportunity to sell his position. The issue is still trading in the $26.85 area so if you own 400-500 shares one could let go of 1/2 and look to reenter down the road.

We have had numerous issues shoot higher–the American Homes 4 Rent issues and the Algonquin Power and Utilities notes (AQNA) are 2 that shot up. We simply are holding because even with the nice gains we like the balance of our portfolio now and even though we could lock down a couple extra dividends worth of gains now we don’t believe these are overvalued at current levels so shouldn’t back off too much.

We are not advocating ‘trading’ here–just some opportunistic profit taking in overvalued securities.

19 thoughts on “A Good Time to Rebalance”

    Pacific Gas and Electric (PG&E) may shed more than $40 billion worth of power purchase agreements after the California utility was driven into bankruptcy by liabilities for sparking deadly wildfires, The Wall Street Journal reports.
    PG&E wants the U.S. Bankruptcy Court in San Francisco to rule whether the company must honor $42 billion worth of contracts with about 350 different energy suppliers, mostly solar and wind plants.
    The court’s decision could have a major impact on California’s renewable energy industry and power makeup. Many green energy suppliers only do business with PG&E, California’s largest utility. Shedding those contracts would likely drive those companies under and cripple California’s ability to meet energy goals set by the state government.
    “A lot of companies are in that position, where PG&E is responsible for 100% of their revenues,” Credit Benchmark lead researcher David Carruthers told WSJ. Former California Gov. Jerry Brown signed legislation in September that mandated the state run on 100 percent green energy by 2045. It also bumped a previous target of 50 percent by 2030 to 60 percent. The goals set by government officials were optimistic before PG&E filed for bankruptcy Tuesday. California’s grid operator has paid surrounding states on several occasions to take excess power off California’s grid caused by overproducing solar and wind farms.
    The company’s plans to shed its losses to renewable energy suppliers may fail if the court rules that federal regulators, not the bankruptcy court, have the authority to deem whether such contracts still apply, according to WSJ.

    PG&E filed bankruptcy as the “only viable option” to escape potentially $30 billion worth of liabilities for sparking major wildfires in 2017 and 2018. State investigators found the utility sparked a dozen major fires in 2017 through poorly maintained powerlines and equipment.

    Wildfires in 2018 are still under investigation, including the Camp Fire that killed 86 people and all but destroyed the town of Paradise. The fire is the deadliest in state history.
    Stay away from Cali, Nomad

    1. In Re: Nomad above: How else do you pick up fully developed, new infrastructure for a nickle on the dollar? It’s the oldest game in America and the western world’s historic timeline. Study history. I hope everyone here realizes EXACTLY who they are dealing with and what the potential consequences are when they get in the Markets. I will not delineate the American Financial System Myth (what “we believe is the Market”) to Tim’s groans. Just go over to SA to read up on that. You are bait and food for unconscionable sharks. It’s a long story and it ain’t pretty or fair, especially when you are not in charge of regulation, legislation or personal judiciary.
      Ooops! I started getting political.

  2. Tim, could you point me in the right direction to find the latest rating on a security. I was looking at ZBK and Quantumonline says BB+ and Schwab says BBB. Thanks

    1. Go to the S&P website. Failing that, Moody’s. Registration required.

      Some issues get rated only at time of issue. Larger issues, major players, tend to get annual ratings of all debt & pref securities.

      1. Is it possible to get an account at Fitch as well? I was wondering how KYN-F’s “A Fitch rating,” posted here int III, was obtained.
        BTW, KYN-F dropped at market open today – volume of 41K; dipped as low as 24.93. I added to my KYN-F position. (MY apologies if KYN-F info is already posted in III as I am not fully caught up today.)

      1. Thanks very much, Dave (and others). I had looked on their website, but I guess not thoroughly enough.

    2. Alan, here they are very fresh….Notice the discrepancy between Fitch and S&P. Usually they arent gapped as far apart. Also interesting they notch 3 pegs below their senior unsecured. Typical for most I track its a 2 notch downgrade. Not an indicting comment, just one of curiosity.

      Credit Ratings View Ratings Scale
      S&P Fitch Ratings
      Preferred Stock BB+ (10/3/2018) B+ (9/27/2018)

      1. Thanks Gridbird. Since these are subordinated notes, I guess they would be BBB/BBB- (Fitch). I noticed them because I was looking at Tim’s spreadsheet and they are one of the few rated baby bonds with a maturity less than 10 years. I think they are overpriced now, but I may pick some up if there is a significant pull back.

        1. Oops, yes you are spot on looking at the rating from link for sunordinated notes. Wow, I havent followed Zion much in past 5-6 years. They have really cleaned up their credit rating over the past few years.

  3. Know a lot of people here hate the shippers but some of the CMRE issues look really good here. I personally love CMRE-E at this level after the PFF rebalance yesterday. I know shippers and low risk don’t belong together but as far as shippers go Costamare has a great balance sheet and recently put out a very good earnings report.

    1. Ken, I certainly do not want to be argumentative. Costamare is definitely NOT for widows and orphans: $1.65+ billion of debt, debt to equity ratio of 121.41, cash $113 million, ROA and ROE a horrible 2.72%/5.22%, Equity down -23.15% the last 52 weeks, company would have to pay nearly 10% if they need more financing (preferred) and as with all shippers this is very high risk and always trouble. Stay clear IMHO, Nomad

      1. Thanks Nomad.

        Please name me a shipper not down double digits last 52 weeks, very few exist. They just added to debt with some recent purchases but all put on solid contracts. I wouldn’t touch an entity like TNP (way too much preferred compared to equity) but I’m comfortable taking some risk here. Their cash flows look good, I don’t put huge percentages of my capital in any 1 issue.

        1. Also to clarify this is not a sock-drawer issue. I flip issues way more than the average investor.

        2. Hey Ken…Nothing wrong with doing some shopping in the bargain basement, provided you’ve assessed the risk and you’re willing to hold on for the long term. I still hold shares of SSW-G that I bought at a steep discount several years ago.

          1. Thanks Citadel, It’s all relative. A lot of the IG issues look too expensive currently. And I want no part of TOO, TNP and DLNG Preferreds. GLOP-A, TGP-B and CMRE-E look pretty good here in my view.

            With Fed backtracking on rate increases, income is in favor again. Of course all of these issues were way cheaper back in late Nov/December.

            1. Yes Ken–the IG issues have run right away from us. I was just updating the spreadsheets and noticed the CMRE issues–probably not for me, but watched closely maybe they are for you.

              1. Thanks for all your hard work on the spreadsheets Tim, great data I utilize often

                Yep agreed on CMRE, not for everyone.

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