I have never been a major fan of mortgage REIT preferreds, but in the last 3 to 6 months I have started to gain a little comfort with them and now own a number of issues. Actually whether I like them or not they offer some of the best yields out there and I can see myself buying more shares—not this week, because I am out of the office, but next week almost undoubtedly I will initiate some new positions. Note that the positions I currently hold are very modest in size so even doubling this sector would not be ‘crazy’.
I have always had a 7% return goal and the last year to year and a half has been ‘easy peasy’–even holding substantial CDs and money markets investors were able to soundly beat 7% as the capital gains on perpetual (in particular) have been fantastic. But now the real work begins and of course much of that will depend on what we see interest rates do (short and longer term rates). We might be able to forecast Fed funds with some amount of confidence–but longer term rates are a bit of a wildcard.–i.e. how are markets going to react to the never ending supply of Treasuries?
So I am moving into more risk–but as conservative as I am I will continue to hold SOME lower yielding money markets and even CDs regardless of lower rates. Maybe I will end up adjusting my goals–but it is way too early to do that–way too early to think one can predict, with certainty, where markets are headed
Are moving to Riskier holdings? How do you feel about that?
Anticipating a cut in rates that would lift all boats, I tiptoed into a position in the beaten down Arbor Realty Trust (ABR) back in August. Currently sitting on a double digit gain plus a ~12% annual dividend. This is definitely a position I would jettison if the markets start to wobble. However, small positions like this allow room in the portfolio for larger positions of lower yielding Treasury notes and ‘pinned to par’ preferred shares to produce a balanced result. Its not a strategy for everyone, but it works pretty well for me (so far).
I’m not really doing anything differently.
For everyone still looking for >7%, I still like (and own a lot of) BANC-F, which seems to be slowly marching its way back to par.
I stay away from mREITs. Maybe I’m just being stubborn, they rarely default but the underlying businesses tend to be lousy (check the 5 year charts of their common) and it scares me off. Though I suppose you’d rather own them in a declining rate environment than the opposite.
What happens to these MREITs if longer term yields continue to rise? Won’t that cause the assets they own (mortgages) to decline in value?
Not saying I don’t own any, and no expert on these, but I wonder how the likes of PMT and NLY are making money owning a big portfolio of low coupon mortgages issued around the pandemic while paying north of 8% for capital. Indeed, they have negative interest margins which explains the high yield.
Is there any MREIT that is not hedged?
Anyone moving to emerging markets bonds (also in local currencies)?
Yes, since mid 2023 actually. Sovereigns (Mexico, Panama, Brazil, Colombia, Romania) are all still IG, subsovereigns (Pemex, Comision federale, PBR) and strong corporates (BRF, JBS, Braskem, Vale, Banorte, Ecopetrol…). Unfortunately, this train has left the station by now, you can’t get > 7% ytm on any of those, more like 6 -7%.
There are a couple of YPF bonds (oil co of Argentina), fully secured on export sales proceeds which yield 8.5%+, BUT this is Argentinian risk, so quite exotic.
Colombia’s bonds are over 7% once you go past 2037 maturity. It’s rated Baa2/BB+. Except for a few near-term securities, all the Pemex bonds are over 7% YTM with the long ones up to 10%. But with ratings of B3/BBB Pemex has some unique risk characteristics as well. The Ecopetrol bonds are over 7% once you go past 2031 maturity. They’re rated Ba1/BB+. I own all of these, and recently bought some Panama bonds, but would never buy YPF or anything else from Argentina. Please do your due diligence on all of these.
I think the train has left the station for south American investments. As international investments go most are bi- annual so you might want to look at ex dividend date before buying. Bea is an expert and you might want to follow her.
Yes, they are almost-all bi-annual payers. However with $1,000 bonds, the buyer pays the accrued interest to the seller, so the ex-div date is not important for calculating yield.
I prefer Argentina with MIlei than Mexico with AMLO
Was easy to move to 7% yoc earlier this year on 6% and lower coupons. I might have to hold onto the 4.8-5% coupons forever, but that also means that I am sitting on giant cap gains forever as well. When everyone was selling and moving to CD’s it was a good time to buy these. I tend to buy when people sell, and sell when people are buying. Most investors go with the flow and they buy or sell too late. This go around though people are buying, but I am now way over 7% on yoc. So, am i moving to riskier assets? No, I have investment grades purchased at discounts.
I raised a ton of cash, but then I took a little and put it into what I would characterize as very high risk investments — i.e. precious metals stocks and some low priced stocks.
I trade precious metals etf’s on price movement like everything else. Buy and hold is a slow profit mostly rangebound with an occasional runup. I donlt trade the physical metals the spreads are higher and you have to deal with safe storage.
Silver stocks appreciated by 5%+ today — about the same as a JPM preferred stock would pay in a year. It may be time to risk manage inflation after Powell bent a knee.
Yes and I sold 10-15% of my holdings in Silver etf’s accordingly. Rinse. Repeat.
For you guys that trade or frequently deal with metals, I bought a bunch of gold eagle proof sets in 2006 bcuz the mint didn’t move the price so I paid basically spot plus $20 for proof sets and charged them to a credit card.
Gold was about $700.
I wanted to look at the coins but they ended up in a safe deposit box.
Any idea what the best way is to sell these? I figure on Ebay the buyer will claim non receipt.
losingtrader, you’re in great shape so you don’t have to worry about the buy and sell commission or discount. That is what always got me about PM.
You pay above current cost to buy and you sell below current value. I don’t begrudge that the dealer has to make a profit and he takes the risk of buying too high and has his capital tied up until he can sell at a profit.
Contact several dealers in your area and get a feel for who has the best offer to buy.
The markup and the markdown is what got me to buy bars. No pretty picture that you pay extra for. The spread is less on bars.
losingtrader; APMEX is probably your best bet for a quote to buy your sets, the other would be JM Bullion part of public company A-Mark which is stock-listed, the old Johnson Mathey been around forever. See what they say..looks like they are worth a bundle for sure now. Individual coins would probably? be worth more however if you break the sets up yourself you could affect the worth of ea coin esp if damaged or fingerprinted etc. Or as Charles says check ‘locally’..personally I’d go w APMEX the largest one? just a thought.
in a former life Bea was in rare coin biz 1976-1980 in the 70’s boom, quite a time.. kinda like now gold soaring every day. These have gold and Numismatic (collector) value as well. You have to decide if the time is right to sell or keep of course. I have little physical metal mostly precious metal stocks and etfs. In Roth and TradIRAs. here is what APMEX is selling them for today.. Bea https://www.apmex.com/product/13141/2006-w-4-coin-proof-american-gold-eagle-set-w-box-coa?msockid=1e903ab7442f677f1ecb2fb245986659
Semantics. High yield preferreds are riskier than fixed income or lower yield preferreds but less risky than many common stocks. Less volatile than what most passive investors are in, many of whom don’t know what their funds risk is. The bulk of my investments are above average yielding preferreds. Trading profits more than make up for the occasional default.
I just had a CD @ 4.95% called in…one yrs at Fidelity are selling at about 4.3% while the money market is at about 4.9%…I think I am going to add some risk with EIC, UTG and add to BGH,ARDC and EICC…I have about 60% in CD’s and would like to drop to around 50%..
Current rate on Fidelity MMF SPAXX is 4.72%. Vanguard VMFXX currently reporting 4.98%. You’re basically looking at ~25 day average maturities and a big slug of money in repos in both of the big brokerage MMFs so yields will trickle down from today’s rates.
IMHO, Fidelity is on the way to ~4.40% soon. the 4.83 overnight rate less Fidelity’s huge 0.42 expenses. Vanguard will end up paying more than Fidelity ~4.72 less 0.11 expenses this rate cycle. (Attention Fidelity investors – Who needs Jerome Powell when Vanguard delivers the equivalent of a quarter point Fed Funds rate increase after every Fed meeting. )
Of course, one can buy other stuff. JMO DYODD.
I’m not moving to riskier assets, especially not increased duration assets. I’m no doubt missing something, but it seems to me the U.S. is moving inexorably to a crisis in fixed-income assets, namely Treasuries. With the national debt increasing at some 2 trillion dollars per year, in a period of relatively benign economic conditions, how will this ever change? Although no one knows what precise number it is or when it will occur, at some point debt holders will demand substantially higher rates for assuming the ever-increasing riskiness of U.S. debt. The never-ending money printing must, it seems to me, continue lighting the fire of inflation. There is virtually no discussion of reforming this situation by politicians, or anyone else, for that matter, and so it WILL continue until there is a crisis. And what then? Massive ADDITIONAL money printing to redeem ever-increasing volumes of debt. It is important to understand that the incentives all line up of the side of money printing, as the government inflates away the debt by issuing more of it. I see no way out at this point, and so, again, the only question is when it will happen. It does not make a lot of sense for risk-averse investors to walk around in a minefield which is guaranteed to blow their legs off when they step on a mine some day….
Robert, agree 100%.
The right trade now, albeit the hard trade, is to buy gold.
Nobody knows if Gold is the right trade but everybody has an opinion. Slow profit over the years mostly rangebound and then shooting up every 10 years or so. Problem now is it just made a big runup lately I rarely buy something after it’s already made a big move up you’re late to the party.
Dan,
I understand the sentiment for gold. My problems with gold: (1) It pays no interest, like fixed-income, and no dividends or organic growth, like stocks. So the holder of gold has no wind at his back, ever. It is a 100% speculative, price-appreciation-only win scenario. (2) Because of (1), the LONG-TERM record of gold is that it has preserved real purchasing power, but only over the very long term. And again, no growth over time, just purchasing-power preservation in real terms. Moreover, gold can do horribly for long periods (even 20 years), even when there is substantial inflation. During those periods, the real returns on gold have been abysmal. So anytime you own gold, you are running a non-trivial risk of really bad returns for a longer period than any normal person can endure. Bottom line for me–gold is too speculative, too risky on both nominal and real terms, and has no reasonable expectation of substantial, positive, real returns over the long term. That means the negatives generally outweigh the positives for gold most of the time. Is the current period an exception when gold will likely do well going forward? I don’t have a clue, but buying gold after a long period of good historical returns (2001 to current), and buying at a historical high price seems to me to not be buying at a time when the positives likely outweigh the negatives. (My humble opinion only, of course.)
Robert
You are 100% correct on all counts about gold.
Except one.
It can be a fun/productive trading gamble
Bought GLD and GDX in January.
Both up >18%
W. 18,
Very astute move, and congratulations on your perspicacity. Wish I had your sense of timing. (Can you teach me? Please?) Still, there may be one little fly in the (fun/productive) ointment–stocks are up about 23 1/2 % YTD, so…..Anyway, thanks for your comment, and may your success continue!
P.S.. It looks to me as if you bought about in the mid-range of gold’s 5 year range, so that doesn’t seem unreasonable, although perhaps still somewhat speculative… (Heads or tails, sir?)
I held 500 oz of physical silver bought for $19 in 2012 – it was dead money but just sold it at $30 about a month ago. Meh, not very exciting but came out ok in the end.
Like it or not, treasuries and the USD will be in high demand until some other country takes it’s place. Who could it be? Looking into the future, europe is in even worse condition and china is still mostly closed to outsiders.
If some other country suddenly became safer and more liquid, funds would immediately flow there. Not in our lifetimes.
You must be new to the site to say there is “virtually no discussion” of this – in fact it is discussed endlessly.
If you are really open to learning what you are missing, here’s a recent article that covers the case against the debt apocalypse:
https://www.nytimes.com/2024/06/06/opinion/national-debt-us-taxes.html
TLDR: “America, with its huge economy and relatively low taxes, isn’t facing a fundamental problem of fiscal sustainability.”
David, There is a solution that no one talks about. Well yes, in all the talk it’s been mentioned before. Throughout history there have been examples of governments doing this and companies do it all the time.
Companies do what is called a reverse stock split. Governments can do it too.
Of course this would ruin faith in the government and the money and create more inflation.
That was coming from the same source (nyt) that proclaimed inflation would be transitory, and the Inflation Reduction Act would pay for itself.
Appreciate everyone’s input on this site!
Maintaining 7% as a target.
So yes, moving up in risk, but believe that the increase in risk is moderate.
Have recently put funds into these issues…
ATCOL, EICA, EICB, OXLCP, SBBA… Do your own DD
Taking solace in the fact that the 10 year Treasury has moved-up a little since the Fed lowered rates by 0.5%
Short answer, no. I am not moving to more risk. The time for more risk was the last 12-16 months, for me personally, during the “chaos”. Now I am buying IG preferred UTEs. 6% is fine.
Not moving to riskier assets because I never left them If anything I am trimning some positions to take the profits. They’ve already made their move up so buying now is late to the party. though still may be worth buying for the higher dividends
Are You Moving to Riskier Assets?” The answer for me and all the trusts and portfolios of institutional assets I take on to manage is an absolute and resounding NOOOO.
Like a hurricane that is heading to an area where you and your family are, leave and live to fight a new day. Everything can be replaced except each human life. I have the largest amount of cash or cash equivalent assets as a percent of an overall portfolio right now than I’ve had in the last 10+ years. Years ago, as an Institutional Money Manager my companies usually required my staff and I to go to the Berkshire Hathaway annual meetings. On a few occasions we had a private audience with Warren and I was fortunate to be able to asked him about his (loss/bad decision) investment in US Air and Salomon Brothers. It was almost like all the air in the room got sucked out because Buffett paused soooo long before he answered and it was very very uncomfortable. His answer was an old Dan Hicks song “How can I miss you when you won’t go away”; as I’ve gotten older and reflected on my question, I realize now that could have been directed at me too🫣, but it probably was an acknowledgment that those investments would haunt him for many years. The moral of the story, why take on more risk than you really need too. Are you achieving your goals with a bit lower and safer asset? Look at the spread(s) between safe and risky then contemplate if the added potential loss of principle and the stress of own the specific security is worth the ultimate reward.
Wishing you all profitable investing, I am Azure
2wr
I am absolutely with Azure.
Get down to your basic conflict:
a) You “want” 7%
b) To “get” 7% you have to take more risk than you are comfortable with.
In which scenario, would the “wrong” decision bother you more?
a) You held to your conservative risk position, watched the “risky” alternatives pay off, and earned less than 7%.:
or
b) You lowered your risk guidelines, took on risk, had them do badly, earning much less than 7% (original portfolio less than 7% dragged down further by the losses on your risky additions)
Come up with your own answer.
If it were me, I would be punching my head in frustration (Just like Buffet in Azure’s answer) – WHY did I violate my own guidelines? What a dolt I am!
Hold to your risk guidelines.
To assuage your temptation, buy 10 shares of each which tempts you the most.
If they soar, you’ll sigh.
If they drop, you’ll smile.
Westie – Not that I’m not listening VERY carefully to this conversation and gaining from the wisdom being offered, but how’d I get drawn into this???? LOL…. I think you meant Tim……..
Westie, Was gone all day Tuesday and just now reading. Both you and Azure have me thinking I need to wake up and smell the coffee.
1. All accounts at all time highs. Why? unrealized capital gains as people are buying what I bought at the lows of the different sectors the last 3 yrs. So should I be selling?
2. Most of what I hold is a mix of preferred and ETD and bonds with short maturities out to 5 or 6 yrs.
3. Was I buying for yield or IG at the time? Yield. Why? because I needed to cover monthly withdrawals. Did I accomplish this? Yes. Actually the account my wife is withdrawing from is producing 40% more than needed and putting that back into the market to work or parking it in a MM fund.
4. Cash, down to 18% of the account. Should it be more? Yes. Do I need it ? Yes and No. Yes in case we get buying opportunities for good quality preferred like other times in the last 3 yrs. (note I am not saying IG ).
No on holding more cash? there is less risk of course but the return on parking the money has been coming down.
5. Have I been increasing my risk? Yes. Why? telling myself I need to get the money invested and getting it to work making more. Do I need more? NO.
Have I been listening to the Siren’s song like in the Odyssey and being lured to my ruin? Yes, I need to get off the computer and quit listening to what everyone else is doing. I’m breaking my own rule of following the herd.
Better to watch and wait like Buffet and Nathan Rothschild.
6. Panic and sell everything? No. What have I learned in my lifetime? I bought San Diego gas & electric preferred in the early 80’s and was getting 15 to 18% on my money. I sold and regretted it. Why? because opportunities like that for safe ( again not saying IG ) stocks come only a couple times in your life. Let your winners run and if you’re so deep in unrealized capital gains a loss of some of that isn’t going to hurt. Why? because others like bears to honey will continue to come back and buy quality stocks and the price will go up again.
AB & Westie, Thanks for the nudge to think about this by writing it out.
One last thought. The party’s over when the music ends and there are never enough chairs for everyone to sit down and there are never enough exits from the building or the parking lot for everyone to leave all at the same time. The real question is how long is the party going to go on and no one has an answer to that.
Good summation Charles.
Still…………………….How many contrarian indicators do we need to see?
I’m seeing seas of green. Client accounts with positions 95% up, next to no red. Group participants not even wanting to talk about their accounts. CEF discounts to NAV going to par. 4’s in muni land over 100 for 30 years. S&P PE ratio over 21 in that rarified levels of top 10%. Mid cap Bank balance sheets stuffed with CRE. *Many say its not if but when”.
And still I’m contemplating adding to mreits and CEF’s
If you prefer, Everyone is hot and heavy on the board today. Postings are coming in fast and furious. Hard to keep up. I saw something earlier about property REITS and now I can’t find the comments as I own several. MREIT’s I don’t know, I bought a few recently but is the economy going to be able to throw ballast out fast enough and patch the leaks and bail the water out to float the boat I don’t know. I think property REITS have a little wind left in the sails but if a storm comes I could lose all my unrealized capital gains.
I know nothing! DYODD
I’m impressed to see all the multi story rental housing in the North Bay slowly filling up. I thought they had overbuilt. Still a lot of empty storefronts in the older buildings in the downtown ctr. I have to remember I can’t see the forest for the trees anymore as this old rock has been in one place for too long and growing moss. I knew 40yrs ago that the population is moving out from the bay area. Just it goes in waves. The I 80 corridor will continue to grow along with the 101 corridor. I need to get back on the road again. Last truck had 495,000 miles used to drive a lot. Now I don’t want to put miles on my new one! Especially with the price of gas. The I 5 from the bay area to Seattle has seen a lot of growth over the years.
You’re one person I’d like to have a drink with some day and hear some stories!
Jim, I was always the quiet well behaved kid. I got away with more and didn’t get caught. Drinking pilsner right now.
I added GSL-B, and already had CODI-C. I’m thinking of selling GSL as it’s well above par and can be called anytime. Also added HOVNP after Bea mentioned it and I saw the improvement in their finances. However, the largest chunk of my portfolio is in IG issues and Treasury bills so I keep looking for new issues to buy with the proceeds of maturing T-bills.
I guess you could say this is the “Riskier Stuff” that I rotated into over the last 2 months – not recommendations
BIPJ
RITM-D
ATHS
CODI-B
CODI-C
EICC
ECCV
SPNT-B
IIPR-A (when it dipped under $25)
NSA-B (only got a little at $22, hoping for a dip to add)
MGRE (when it dipped under $25)
A few BDC bonds that had odd lots for sale at around 7%-ish YTM/YTC
But again, I run riskier than most here I think anyway…
I’ve owned mortgage REITs preferred stocks for over a decade in my portfolio, many for long term. Yes, they are volatile in price at times. Other than the ups and downs in price the only ones that ever missed payments were MITT-A and B. They suspended the dividends for three quarters. I thought they were done for, but like the Phoenix they raised from the dead, caught up the missed payments, and I still own them. If you can live with the price ups and downs they are good additions to your portfolio. Just do diligence to ferret out the better ones auch as NLY etc.
FS Credit Company, Inc. (the “Company”) (Nasdaq: OCCI, OCCIN, OCCIO) announced today that it plans to offer shares of its Series F Term Preferred Stock (the “Preferred Stock”) in an underwritten public offering. The public offering price and other terms of the Preferred Stock are to be determined by negotiations between the Company and the underwriters. The Company has applied to list the Preferred Stock on the Nasdaq Capital Market under the trading symbol “OCCIM”. The Company expects the Preferred Stock to begin trading within 30 days from the original issue date. In addition, the Company plans to grant the underwriters a 30-day option to purchase additional shares of Preferred Stock on the same terms and conditions to cover overallotments, if any.
I only have two right now and one is RITM-D my old mortgage holder New Rez who also services loans and gets part of their income from doing this. I chose this as it is a 5yr reset off 5yr treasuries plus 6.22% so I expect it to be called in 2026 The other is RWTN which hasn’t moved much since I bought it. This is my balancing a lower risk with a higher risk.
If you don’t want to take as much risk there is RWT’s 7.75% Bond due in 6/15/2026 selling at about Par. You would have to call the bond desk for this one.
Forget to post the CUSIP 758075AF2
I am pulling in my risk tolerance. 2024 has already been very good to me and attractive preferreds are now scarce. In the last week I sold a third of my bank preferreds and am looking at 5-8 year Investment grade bonds. Given the credit spreads, it seems like a cheap time to trade up in quality. I do expect rates to resume their long term rise (see Authers column today) in 18-24 months. The deficit, debt and demographics seem convincing. I am dabbling in ag commodities as a medium term inflation play. Watch out for the ag sector this Fall as prices have been low for two years.
Potter, agree on the farm sector. This sector is due for a reset. My concern is 6 months out to spring. What happens then will be telling for the rest of the year. Interesting yin yang past couple years. Users of ag commodities like General Mills raised their prices and shrank the size of packages to maintain margin. Now their margins will be greater as the raw material gets cheaper. But so does it become cheaper for their competitors and off brands. The consumer is going to be hurting even more I think and will be more price conscious limiting purchases of brand name products.
But then I could be full of BS as I shopped this weekend at high priced grocery stores I don’t normally shop at. One being whole foods and another a local competitor. Both were busy with customers and short handed.
I don’t know what the impact of the China announcement will be on Ag. Can’t hurt? Wild-eyed Zeihan warns that the sanctions on Russia will make fertilizer scarce for Brazil. He’s the only one talking about it?
mREIT preferreds not only have high rates they’ve had a low default rate. Cetainly lower than others at same dividend level. But defaults can happen in waves if there are enough black swans in real estate and the economy. That and their high leverage scares people.
Have definitely move into a bit more risk over the past couple months, but instead of preferred stocks have started swapping a little into ETF’s (JEPQ, JEPI) and some CEF’s (UTG, DNP, UTF, HTD). Just small positions that in total amount to about 5% of portfolio as I try to create income.
JR I think your approach makes sense. Instead of taking the risk with individual buys you buy a basket with the ETF
I try to limit my mREIT exposure to NLY and AGNC because I perceive their association with government agency debt to be a bit safer. But even here, I’m talking about preferreds and not the common shares.
They are all resetters or floaters now I believe.
Tacitus,
The three NLYs all now float and two of the five AGNCs now float.
After the next div (Oct 1 ex-date), AGNCO floats.
AGNCP floats beginning 4/15/25.
AGNCL resets 10/15/27.
If you were referring to all mREITs, not just NLY and AGNC, several more will begin floating/resetting in the future.
Just read a bit on the agnc preferreds see Colorado Wealth Management Fund
https://seekingalpha.com/article/4722827-agnc-investment-10-percent-yield-on-agncn-going-to-shrink
Author goes on to say,
“Overall, I don’t like to bet heavily on the direction of rates. Of course, being a REIT analyst, I still end up with quite a bit of rate sensitivity.”
But for me, for my fixed portion of portfolio I don’t like placing bets on future interest rates. And if did would be too worried about sudden dramatic drop risk for SOFR. Just me. Article good in discussing distinctions among those agnc preferreds if any interested.
(In declining rate environment, Fed will continue rate reductions right, may even take a bit of risk with some debt cefs vs floaters or resetters. Plenty of good not floating preferreds. Some good high yield BDCs. Just my perspective.)
I have been adding preferreds as bonds have become pricey. I got rid of most of my preferreds during the see saw action and was only buying bonds. Now, not so much.
I have a small amount of these pfds;
FBRT
EFC
NYMT
GPM
PMT
I am no expert here, but still want some exposure here for diworsification. I like to pair a conservative and not conservative issues to avg 7%.
The worse performer is GPM followed by NYMT. These both have limit orders to sell right now.
Personally, not a fan of mortgage REITs here. If I partake, it’s usually an ultra-small percent of my portfolio.
The Mortgage REIT preferred space is a good space. The volatility of book value over time will identify the safest managers, while the big guys although they have destroyed value, are able to continually offer new ATM shares which protects the preferred’s.
Goldshoe, Who do you think are the safest managers of Mortgate REITs?