Today we purchased a full position in the High Yield Portfolio of the mREIT Chimera Investment Corp 8% Fixed-to-Floating rate preferred.
This issue was issued about a year ago and does not enter its floating rate period until 2024. We had to pay more than we really would like to pay ($25.69), but the issue goes ex-dividend tomorrow so we will pick up a quick dividend.
This issue was chosen for a few reasons. Being fixed to floating rate is helpful in the potential face of rising interest rates. Additionally Chimera is a moderately sized mREIT with good management–financial performance in the last couple of years has been reasonably good. The REIT is internally managed which is almost always a positive versus being externally managed. The spread when the floating rate period arrives is 5.791% which is a decent spread.
Be aware that while this is a fixed-to-floating rate issue the floating period being 6 years out will provide only very modest volatility protection for the next few years–thus the issue is susceptible to capital losses if (when) interest rates move higher.
With this purchase the model moves to 64% invested and we will be adding a baby bond in the next couple of days to take us to near 75% invested where we will take a pause before determining the next move.