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Weekly Kickoff

Last week, once again we saw common stocks moved higher by 1.1% (the S&P500)–doesn’t matter whether the economic news is good or bad–there remains almost a never ending pot of cash available to buy common shares—because they only go higher (sarcasm intended). Well it is always better when common equities move higher (or remain flat).

The 10 year Treasury yield closed the week at 4.07% which was 11 basis points higher than the close the previous Friday. Inflation was slightly hotter than anticipated as measured by the CPI, but a bit cooler as measured by the PPI. Longer rates are continuing high regardless of Fed Funds rate cuts–simply the Fed can move very short term rates–but longer term rates will be determined by the marketplace. This week should be a bit quieter–the bond market is closed on Monday.

The Fed balance sheet was virtually unchanged last week. There has been no change in the monthly runoff target–it remains at $60 or $65 billion (forgot which it is) a month. If the Fed wan’t to take some pressure interest rates they could consider reducing this runoff.

Once again we had a preferred stock and baby bond market remained fairly flat with the average $25 shares moving 1 cent higher. Investment grade issues moved 1 cent lower, banks moved 5 cents higher, CEF preferreds were flat, mREIT preferreds moved 2 cents higher while shippers were 5 cents lower. All in all for a week that saw the 10 year Treasury moving 11 basis points higher a break even week was just fine with me.

Last week we had one new income issues price. Eagle Point Institutional Income Fund (untraded) sold a new term preferred with a coupon of 8.125%.

Closed End Funds – 2 Interval Funds That Issue Preferred Stock

Reviewing the comments on the website leads me to believe that there is some hesitation by some to own senior securities (preferred stocks and baby bonds) of non traded Closed End Funds. I can understand the hesitation, most of which stems from a lack of understanding of some of those company’s that issue preferred stock as leverage for the fund. We have all been conditioned to watch prices of common shares of closed end funds as an indicator of the general health of company and thus the health of our preferred shares and related dividends and obviously we can’t do that with a non traded fund.

In particular, for us, this pertains to the preferreds issued by the Priority Income Fund and the new issue from Eagle Point Institutional Income Fund–both which are non traded funds. In this case both company’s are ‘interval funds‘. Interval funds are non publicly traded funds that sell shares continuously through investment advisors that make ‘tender offers’ monthly or quarterly to purchase a percentage of their shares from holders. These periodic ‘tenders’ are meant to provide a modest level of liquidity to investors.

I note that my research shows there are 92 non traded interval funds in existence.

Why non traded and why interval? These funds are meant to provide access to sometimes illiquid securities–i.e. real estate related investments etc. While the Priority Income Fund and the Eagle Point Institutional Income Fund are focused on the ownership of CLOs they are able to invest elsewhere in investments which are not liquid. Additionally non traded closed end funds often have ‘suitabilty’ restrictions, thus they are not suited for public trading.

The sale of common shares of non traded funds on a continuous basis is made at the net asset value of the shares—and the tender offers to buy shares periodically is made at net asset value. Of course when one buys shares through their investment advisor they may well pay a higher price – i.e it includes a commission (or load) of sorts.

The good part of these funds is that they file all their reports and information with the SEC so we have access to information continually (not daily, but at least monthly). These are not non reporting funds, just non traded. This is NOT a situation similar to AmTrust Financial where they do not file their financials with the SEC ever.

I own 2 issues of Priority Income Fund term preferreds and feel totally comfortable with monthly updates. Like any other CEF I want them to maintain a high asset coverage ratio – Priority is now at 320% (6/30/2024) which provides safety for senior security holders.

So I never recommend securities to anyone so this is not a recommendation to buy anything–but I don’t let the non traded status of a closed end fund deter me from a purchase of a senior security if it meets my investing needs.

Headlines of Interest to Owners of Preferred Stock and Baby Bonds

Below are press releases from company’s with preferred stock and/or baby bonds outstanding–or just news of general interest. News will be rather slow until the the end of the quarter and start of earnings season in the next couple weeks. 

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Liberty Broadband Corporation Announces Third Quarter Earnings Release and Conference Call

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Qurate Retail, Inc. Announces Third Quarter Earnings Release and Conference Call


Babcock & Wilcox Reaches Agreement to Sell its Italian and Swedish Businesses

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Selective Insurance Schedules Earnings Release and Conference Call to Announce Third Quarter 2024 Results

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SuRo Capital Corp. Third Quarter 2024 Preliminary Investment Portfolio Update

SUNSTONE HOTEL INVESTORS PROVIDES OPERATIONS UPDATE

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Redfin Reports Asking Rents Tick Up 0.6%, With East Coast and Midwest Metros Posting Biggest Increases

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Redfin Reports Pending Home Sales Post Biggest Increase Since 2021edfin Reports Pending Home Sales Post Biggest Increase Since 2021

A Little Inflation – Simply Noise to Equity Investors

One might think that the CPI numbers coming in hotter than forecast would shake the equity markets a bit–at least for a few hours, but again we have the buy the dip crowd move in and do ‘their thing’. The discussion is well underway on how large the next Fed Funds rate cut will be–everyone is convinced there will be a rate cut at the next FOMC meeting in November. As noted by many this is just ‘noise’ and not of much consequence to us–I would prefer that common stocks go sideways forever letting us concentrate on interest rate movement for income investing, but that isn’t going to happen so we will just ‘deal with it’.

The 10 year treasury is trading at 4.09%–this is the important number to me–this high yield hasn’t caused the type of damage in preferreds and baby bonds one might expect–at least yet. I haven’t seen much movement at all in our portfolios and as always I am most happy to collect dividend and interest every day. I have dry powder, but not really excited to be buying much although the new issue from the Eagle Point Institutional Income Fund is interesting–a fund with solid asset coverage ratios and a 8.125% coupon always holds interest.

For now, I am going to just sit back and watch–let some of the noise dessipate then decide on my next move.,

Headlines of Interest

Below are press releases from company’s with preferred stock and/or baby bonds outstanding–or just news of general interest. News will be rather slow until the the end of the quarter and start of earnings season in the next couple weeks. 

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Brookfield Asset Management to Host Third Quarter 2024 Results Conference Call

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Great Ajax Corp. Schedules Its Third Quarter 2024 Earnings Release and Conference Call

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Annaly Capital Management, Inc. Announces Dates of Third Quarter 2024 Financial Results and Conference Call

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Global Net Lease Completes $569 Million of Dispositions Through Third Quarter of 2024

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Dynex Capital, Inc. Schedules Third Quarter 2024 Earnings Release and Conference Call

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Best’s Commentary: Hurricane Milton to Pose Severe Challenge for Florida Property Insurers and Reinsurers

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Hercules Capital Receives Reaffirmed Baa3 Investment Grade Rating with Revised Outlook to Positive from Moody’s Investors Service


Green Brick Partners, Inc. Announces Dates For 8-K Filing and Earnings Call