Adding a Small Position to the Conservative Medium Duration Portfolio

We have added a modest position of the Invesco 2023 High Income Target Term Trust (NYSE:IHIT) to the Medium Duration Income Portfolio.  We paid $9.72/share.

This term trust is a closed end fund and holds 80% or more of investment grade commercial mortgage backed securities (as well as a tiny portion of mREIT preferreds).  The trust does use leverage of 25% which is how they are currently able to pay just over 6% in dividends.

A term trust expires (liquidates) on the date specified–in this case on about 12/1/2023.  Most securities they hold mature in 2023 with a few in 2024 and some as early as 2019.  The key to a term trust is that if holdings are liquidated too early there is a potential for a reduced dividend.  On the other hand the company could choose to pay the cash out as a “return of capital”.

The trust IPO’ed on 11/28/2016 at a price of $10/share and has paid 5 cents per share each month since that time.  Current market price of the shares is $9.72 with a net asset value (NAV) of $9.97.

The goal is to repay shareholders $9.835 as the term ends which is the original NAV.

So with a maturity date of 2023 there is certainly a modest level of interest rate risk in this issue which reduces as 2023 approaches.  And of course there are chances of bankruptcies etc., but with a high proportion of investment grade issues this should be a lower risk.  Additionally since the trust uses leverage any rise in interest rates has the potential to reduce earnings because of the higher cost of leverage.

We personally hold a mid sized position of this issue in our personal holdings which we bought a few months ago.  We paid $9.74/share for our initial purchase and have been quite happy with the fairly tight trading range of the share price.

As always this is not a recommendation, but just what we think and have done.




17 thoughts on “Adding a Small Position to the Conservative Medium Duration Portfolio”

  1. The 1347 Property Insurance issue (PIHPP) has really struggled to get out of the gate. I dont think all the shares have even got to market yet, and a few have trickled out at $24. If this rock sinks more I may make a very small purchase at some point….And if I see a big storm coming to the Gulf, I would sell, lol.

    1. Yes–I am watching them–but I have my small insurer in Atlas Financial so likely won’t need any of these little guys.

  2. Thanks for the update on this one. The leverage seems pretty reasonable. Will be taking a closer look at this one. Due to what it holds, a smaller position is a must if I will hold it.

    Looks like it fell hard into the end of last year. Wowsers!

    1. They had to pay their Texas storm claims. This is a relative infant P&C that is directly entering and growing in high risk areas of Tex.. La, and now Fla. But there are reasons for this. That is where the money is. They also obviously do reinsurance to spread risk. Being an infant type company allows them to slap cummulative on it for capital purposes, unlike the big mature ones, from what I indirectly gathered. A very small play for me even if I do ever buy it.

    2. I couldnt make myself do it, GW, buying this or the CIA issue. Luckily I got a hit on AILLL again today, with the 41 cent coming in less than two weeks. Over past month repurchased enough of this issue to be way out as my lead dog again where it traditionally has been. Not looking cap gains this time, just 6.2% 70 times sleep at night coverage. I told too many retired friends about this one over the years and they bought chunks and stuffed them away. I used to flip this often but its just simply getting too hard to get back in. The float is just too small.

      1. Maybe it’s just me, but the Ameren website shows an ex-date of 4/9/18 for a pay date of 5/1/18 on AILLL, but that doesn’t jive with quantum’s information.

        These Ameren folks need to update that website. A bunch of investor links to info don’t work. Good grief.

        Does this ex-date jive with what you’re understanding is GBird?

        1. Never trust Quantum….Great entry source and point of reference info, without question. But its not original source material. Many pay periods on Quantum will not be correct, and sometimes call dates also. But original source material is always easy to find. Ameren always publically declares the exD and payment dates quarterly after officially declared.
          https://www.amereninvestors.com/investor-news-and-events/financial-releases/financial-releases-details/2018/Ameren-Corporation-Directors-Declare-Quarterly-Dividend/default.aspx

          In addition, the board of directors of Ameren Illinois Company declared regular quarterly cash dividends on all classes of Ameren Illinois Company’s preferred stock. These preferred stock dividends are payable May 1, 2018, to shareholders of record at the close of business on April 9, 2018.

          1. Thanks, G. That’s the same press release I read before writing back to you. I’m close to pulling the trigger on this on but it does still bug me that it’s so far past call with such a high premium. I know you think it’s justified, but I can’t stop saying “but”. Maybe I’ll go in for just a small taste.

        2. GW, my pattern is to lust over high yield, threaten to buy, then come to my senses before I buy. Its just not in my nature to load up in this arena. AHT-D, NSS, GWSVP, OSBCP, ALLY-A, RILYL is enough high yield for me to feast on for the time being, lol…

          1. GB–exactly what I did on CAI–I pulled back–just can’t do it–at least now.

            Tim

        3. FWIW, one of my rules is only invest in what you feel comfortable in. It is pretty illiquid. And last I seen a bid was in at $26.82 or so. My suggestion would be wait and watch. Usually a few weeks to a month after exD a few will get sold at lower price points. I flipped out a bunch at $27.15 and reentered most of my shares between $26.30-40. This $26.61 buy today was just “topping off the tank”. The best way may be to just put a bid in somewhere more closer to $26 and leave a 60 day bid in.
          These illiquids will “waterfall trade” frequently. Meaning somebody will sell a block and it knocks out a bunch of below lead price bids. Then it locks up and wont trade for a few weeks and then the next trade may be 30-50 cents higher depending on stubborness of sellers.

  3. Hey Tim, I might take a bite at the IHIT. I have had very good luck with the Guggenheim funds like BSJJ which buy bonds targeting a certain year when the fund will wrap up. They have a whole series of these for both investment grade and junk bonds. Nuveen also has a set of similar funds, but I bought in a little high on those and am waiting to see if they hit their target price at their end date like the Guggenheim ones have.

    Also, let me know if you need some help with the data entry for the new site. I worked with databases for decades in the direct mail industry and am semi-retired now so I am looking for a little of that sort of work to keep busy. Maybe I can think of a way to speed things up.

    1. Hi Scott–thanks for the offer on data entry. Right now we are closing in on the end until I dream up some other crazy stuff I need to do.

      Thanks for the tip on Those funds–I will check them out as I always need stuff. Right now I have cash coming in from holding too many Arbor Realty baby bonds which have been called and the Newtek baby bonds also just called–I am going to have plenty of powder within 30 days for new buys.

      1. Yeah, I had the Arbor issue that was called too. I also still have the Arbor stock which has done well for me.

        Not a whole lot of things look very interesting right now though as replacements.

        But I always manage to glean something by dropping by here, even if it is just confirmation I shouldn’t buy something that I already decided against — like CAI.

        Thanks for all the hard work. The new site is looking good!

  4. Tim, if I bought a quarter as much high yield issues as I think about buying, I wouldnt own anything but high risk, high yield issues, lol… Its like looking at the old Sears Christmas catalogue as a kid and fantasizing about getting every toy in the book for Christmas.

    1. I understand–same with me. I would rather hold more cash than watch a bad buy go really bad.

      Unlike Brad Thomas I ‘mark to market’ daily–not when I sell.

      1. Tim, have you lost your mind? You mean if you recomend to buy KIM at $25 and do it, and then watch it sink to $14, there is actually a current loss showing?
        Tim, you need to get out of the real world. Investing is much easier staying in fantasy land, lol…. Unfortunately, I am stuck in the real world with you….I mark to market daily myself. No reason to hide from reality.

Comments are closed.