As I mentioned in my note this morning I took a nibble on the RiverNorth Opportunities Fund 6% preferred (RIV-A) yesterday.
This is one which I had a full position in, but because of the safety of this issue going a bit overweight is fairly comfortable for me. The issue is rated A1 by Moodys. I paid $23/share for it which gives me a current yield of over 6.50%.
Please note that safety doesn’t equal a strong share price as most of us know–but in this case I am willing to take this risk for a reasonable reward.
Of course I will add this to my ‘laundry list’ of holdings.
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4% is a full position for me. So, if I take 10% of a full position (like I do in regional banks and others), it is a whopping 0.4%. If the bank collapses, it is a portfolio loss of 0.4%. I do have 10 positions in this category (coincidence not intended) representing a full position of what I consider “the risk set”.
I only have one overweight holding, ALL-B at 150% (6% of investing holdings).
A “good man” knows his limitations (as per Dirty Harry). 87% of all my preferred has at least one investment grade rating from either Moody’s or SP. I do not try to analyze a company’s financials by myself.
Would you consider HFRO-A a “safe” position too? According to your closed-end preferred list it has the same Moody’s rating, a slightly higher yield, and twice the asset coverage. Plus, a bigger discount to par. Yet I don’t see it in your holdings.
HFRO holds commercial real estate and these is also a lawsuit issue hanging over it. I think that is why it has a bigger discount.
https://www.nexpointassetmgmt.com/wp-content/uploads/2024/02/HFRO-Q4-2023-Update.pdf
HFRO and Dondero are the poster child for not trustworthy. This used to be a frequent discussion on the old Morningstar discuss forums.
I understand the concern about CRE, at least for the common. Is that really all that relevant to the preferred? The 600%+ asset coverage allows for a lot of room for portfolio losses.
Those assets are only worth what someone will pay for them, so I’d take that 600% asset coverage with a grain of salt (and maybe a shot of tequila). There may be value there, maybe not. As Maine said, this is Dondero and gang who don’t have the best reputation. If you buy some, keep the position size small.
Do you expect the dividends to be qualified? The summary says variable.
None were qualified in 2023.
What do you consider as a full position? 5% of your holdings? 2%?
Good question…for me personally, a full position that is not a CD, treasury note/bond or cash is 2.5% of my collective portfolio. I guess others would adjust per their risk tolerance. Also need to consider market sectors and such so not to be too overweight in any one sector.
I think general consensus is what yazzer said in the 2%-5% limit range. But this is also inside the confines of other risks to be considered like yazzer also inferred. Credit risk, market risk, liquidity risk, sector concentration risk, etc. etc.
That being said I blatantly violate a couple of these horrifically. I actively look for illiquidity, and also have probably 15% or so in just one company. But then again over half is in CDs and Treasuries at this time too, so that negates some of that risk in total.
I have different definitions of Full, depending on the category:
Risk-free (CD’s and T-Bills) no limit
IG: 5%
Non IG, but “safe” category: 3%
Almost everything else: 2%
“Risky” (generally flippers and traders:) 1%
This is my method as well. I have many little rules for myself. For common stock a full position is 1%, initial purchase is always .1% (so a small 10% nibble to start). For decades a violated that rule constantly, but now I have sold most of those crazy gains 90’s purchases and turned it into income so I can follow my own rules now. IG Corporate Bonds or Preferred’s can go up to 3% if rated A or higher, 2% for BBB ish. CD’s and Treasuries there is no limit. I have many holdings but most are very lightly watched.