Innovative Income Investor | Innovative Income Investor

Monday Morning Kickoff

Well here we go–the FOMC meeting is on deck starting tomorrow culminating with an interest rate decision to be announced Wednesday at 1 p.m. central. A presser to follow at 1:30.

Over the weekend we have Credit Suisse (CS) being bought by UBS for $3.2 billion. Of course the Swiss National Bank stepped in with a $108 billion backstop. This now will be a bank with $5 trillion in assets. It is also believed that Silicon Valley Bank (SVB) is near a sale while it appears that Signature Bank will be bought by New York Community Bank (NYCB).

Last week we had the S&P500 close 55 points higher than the previous Friday–1.4% higher. The low on the week was 3808 and the high was 3964–a range of around 4% on the week seems pretty tame all things considered.

Interest rates tumbled hard with the 10 year treasury closing out the week at 3.4% which is about 30 basis points below the close from the previous Friday. The 2 year treasury yield closed the week at 3.83% which was around 77 basis points below the close the previous Friday.

For the coming week, as usual, we have plenty of economic news, but mainly it is about the FOMC interest rate decision and further developments in the banking situation.

The Federal Reserve balance sheet shot higher by almost $300 billion last week as the Fed moved to loaning money on bank balance sheet assets. Obviously the banking issues have totally distorted the move by the Fed to use quantitative tightening (QT).

The average $25/share preferred stock and baby bond took a hard knock last week falling by 72 cents. Investment grade issues fell 43 cents, banking issues fell by 70 cents, mREITs by 87 cents. At an average of $20.65 we are .the lowest prices since 11/4/2022.

A Buy for the Coming Week

As I noted last week I am going to add some relatively high quality issues to my portfolio and I am starting off with more preferred shares from issuer Tri-Continental Corp (TY) which is a $1.4 billion closed end fund. To me this is the finest quality CEF preferred available and very straightforward–maybe the #1 quality preferred in the publicly traded universe. The beauty is that virtually all their holdings are Level 1 assets (readily observable prices–i.e. common stocks).

The Tri-Continental Fund is managed by Columbia Threadneedle Investments–an asset manager with over $500 billion in assets under management.

The issue is a $50/share issue which originated in 1963 and carries a $2.50/share annual dividend (5%). The issue is now trading at $48/share giving it a current yield of 5.2%. Dividends are cumulative and most years they are qualified, but may also include return of capital.

Shares are redeemable anytime, but the redemption price is $55/share.

There are now 752,740 shares outstanding – the average daily volume (per Yahoo Finance) is 797 shares–so pretty thin, but adequate to fill a modest order most days.

It should be known that because Tri-Continental (TY) is a closed end fund they must maintain a 200% asset coverage ratio on senior securities. The preferred shares are the only (no debt) ‘senior securities’ the CEF has outstanding and thus carries a 4200% coverage ratio.

Note that I have a position already in this issue and in fact snagged a few shares last week at $47–I used a good til cancelled limit order for these shares. I have entered an additional order below $48 to see if I can get some more shares.

Here is their latest annual report for the period ending 12/31/2022.

Caution–while this is a extremely high quality issue it moves up and down based on interest rates (like all preferreds and bonds) and has traded in a very wide range in the 60 years it has been outstanding as can be seen in the chart below going back to 1973.

If you try to find this issue you will find the ticker used for it varies.

Yahoo Finance TY-P

Etrade TY.PR

Fidelity TY/P

I am certain others use different tickers.

For me this is a ‘sock drawer’ issue–to be held long term and simply collect the very safe dividend. This buy is about quality more than yield.

As always I write about what I am doing and this is not a recommendation to anyone to do anything–I am old school and I have no idea of the ‘suitability’ of what I do for anyone else.

Time to ‘Shop’ In New Areas

Ok–it has been a week or so in which I have been fixated on the banking issues and I am tiring of it. I hold a number of regional and community bank preferreds–all in modest position sizes. I have Customers Bancorp (CUBI) preferreds F (CUBI-F) and their debt issue (CUBB). I also have some Merchants Bancorp (MBIN) preferred (MBINO) and Bridgewater Bank preferred (BWBBP) and even in modest sizes they have been painful.

I am full to the gills in CDs and treasury notes and with rates now coming off I am hesitant to add to these areas–of course we all know this could change with further banking and economic news in the weeks ahead.

Its time to start focusing elsewhere. For me that is in the utilities and in the closed end fund (CEF) preferreds (I am not interested now in any of the specialty finance CEF preferreds–i.e. Oxford Lane, Eagle Point etc) . I hold positions in many, many issues in these segments and I see they are getting hammered today (the utilities in particular), but certainly they have outperformed the banking issues by a long way. In addition I may even add a REIT position or two–not sure.

Over the course of the next week or two I will post what I own and any nibbles I make during this time. I likely will add to some of my current positions, but I certainly will start some positions which are new to me.

Here is the master listing of utility preferreds and baby bonds. Here is the listing of CEF preferreds.