Innovative Income Investor | Innovative Income Investor

Are You Ready for Fed Day?

Of course what I am really asking is are you ready for more volatility? If your portfolio isn’t positioned how you want it now you may be kind of late to starting arranging your holdings. On a day like today all one can reasonably do is sit back and watch the action–no need to be thinking about buying or selling today because whatever happens today will be gone on Thursday and we will be on to the next ‘worry’–while continuing to ‘shop’.

Today we had housing start released and they showed surprising strength at 1.5 million units versus a forecast of 1.38 million units–but this just balanced a revised plunge in January. Its funny that the homebuilder confidence index tumbled to 38 which was 3 points under forecast. Without help from interest rates the home builders could hit a wall pretty soon–not yet, but if we tip into recession and unemployment rises there is going to be trouble. Our next BIG piece of economic news will be the personal consumption expenditures (PCE) report which will be released a week from Friday. And of course on a daily (maybe hourly) basis we have tariff and other geopolitical items to deal with.

I was surprised today to log into one of my accounts and finding I actually bought 100 shares of the Hennessy Advisors 4.875% baby bonds @24.31. Shares were trading at a wide spread when I entered my order–the ask was 20 cents above my bid. I am happy with this small buy, but will enter another order at a lower level–say $24.10. The small buy brings my position up to around 1/4 of a full position so I have plenty of room to buy and improve my overall coupon over CDs and money markets.

So let’s all kick back and wait for the 1 p.m. (central) announcement on interest rates and more importantly the Powell presser which will follow at around 1:30 p.m.

Headlines of Interest for Holders of Preferred Stock and Baby Bonds

Below are press releases from companies with preferred stock and baby bonds outstanding. Additionally, news of a more macro economic importance may be posted. Earnings season has essentially ended so news will be slower until we get into mid April when some earnings will start to appear.

Brookfield Asset Management Completes Filing of U.S. Annual Disclosure Document

Fitch® Assigns and Upgrades Newrez Servicer Ratings Reflecting Operational Strength and Robust Performance

Strategy Announces Proposed STRF Perpetual Preferred Stock Offering

AG Mortgage Investment Trust, Inc. Increases Quarterly Common Dividend 5.3% to $0.20 per Share

Essential Properties Realty Trust, Inc. Announces Public Offering of Common Stock

First Internet Bancorp to Pay Cash Dividend

Global Ship Lease Files its Annual Report for 2024 on Form 20-F

Fulton Financial Corporation Declares Common and Preferred Dividends

ACRES Commercial Realty Corp. Declares Quarterly Cash Dividends for its Preferred Stock

Portfolio Review- Asset Managers

Just taking a quick review today and walking through each holding and some of my logic (or maybe illogical) thoughts on the holding.

Honestly I need a more structured look at each of my holdings–coupled with what I hope is logic to figure out where I am and where I am going.

‘Asset Managers’ is the 1st category on my ‘list‘. This is a small category with around 5% of the total holdings.

The offerings of income issues are relatively sparse in this category, but I have always been drawn to the Affiliated Managers issues–mostly to the 5.875% (MGR) baby bond since it has the earliest 1st call date and my thought was that at the point of lower interest rates it might get called and I would get a decent capital gains. My logic kind of worked well and in 10/23 I added shares @ $20.59. Interest rates started falling in 2024 and in October, 2024 I unloaded 1/2 my shares for $24.92. With the benefit of hindsight I should have sold it all. When I sold it I thought it was peaking and was fearful of the long dated maturity in 2059 and the thought was that interest rates might start moving higher again and send my shares tumbling. Obviously the price did tumble and now trades at $22.25. Certainly there is upside potential for a capital gain–BUT it will take much lower interest rates to move the price higher. We’ll see what happens, but I am maintaining my 1/2 position for now.

I had held shares in giant asset manager Apollo Asset Management 6.375% preferred (AAM-A) which was bought in 2022. This was originally an Athene (insurance company) issue which Apollo acquired. This issue was called for redemption in 9/2023 which gave me a total gain of about 18% in a little over a year.

Lastly, in this category, I have shares in the 4.875% baby bonds of Hennessy Advisors (HNNAZ) which have a maturity date in 12/2026–so still 20 months out. I have held some of these shares (bonds) since they were first issued in 2021. Even though the maturity date on this issue is relatively near the share price has moved up and down more than I imagined it would ever do. In August 2023 pricing moved lower by 10% and I added to holdings 3 more times down in the $22.25 to $22.55 area. Over the course of the next 6 months the price moved higher until I sold the vast majority of shares at $24.37 capturing a nice capital gain plus interest along the way. With a 4.875% coupon it was unlikely to move much, if any, higher with 2.5 years left to maturity. The price did fall back in April, 2024 so I added back some shares @ 23.35 which was near an 8% yield to maturity. Now it is trading at $24.22. I could sell for a nice gain–BUT there is no reason to believe that the price will fall significantly from here with less than 2 years to maturity. Yield to maturity at this time is in the 6.8-6.9% area–so I would be open to buying more of this issue. Certainly the YTM is better than a CD by bunches–yes I am going to see if I can snag a bit at a little lower than the current price. It is thinly traded as almost all issues are–and the spreads are typically wider than I would like to see so I may never execute a buy–we’ll see.

A note on Hennessy Advisors–this is a small company with total assets under management of $4.8 billion which generates revenue of around $9.7/quarter. (not very big). The company has been buying other funds and rolling them into the Hennessy Funds. These incremental assets have been extremely profitable and recent earnings were very strong. Their latest earnings are here.

Headline of Interest to Holders of Preferred Stock and Baby Bonds

Banc of California Announces $150 Million Stock Repurchase Program

Arch Capital Group Ltd. to Report 2025 First Quarter Results on April 29

Regency Centers Acquires Brentwood Place Shopping Center in Nashville, TN

Dynex Capital, Inc. Declares First Quarter 2025 Series C Preferred Stock Dividend

Harrow Provides Fourth Quarter and Year-End 2024 Unaudited Preliminary Financial Results and 2025 Revenue Guidance

Regions Financial to Announce First Quarter 2025 Financial Results on April 17, 2025

Synovus to announce first quarter 2025 earnings results

Markets “Settling In” to Chaos

It appears to me that markets are ‘settling in’ a bit to the Washington chaos—focusing a bit more on actual economic data instead of moving on each bit of commentary from the administration. Maybe it is just me–but market movements are not dovetailing with what I read. Regardless of the market movements Friday and today I’m not feeling a high level of comfort—always waiting for another shoe to drop.

Today is a nicely green day for us–partially caused by the CHS preferreds going ex-dividend and then bouncing right back up after the exchanges marked them down by the dividend amount. Folks still want to own these issues, although I am expecting a weak quarter (or maybe year) for them. The ag and energy markets are so-so at best and they could be negatively affected by tariffs. CHS will survive just fine as they have for years—they have bad years—when you are in the commodity markets like they are you can’t win all the time. All in all the income markets are green today–the 10 year treasury yield is drifting a bit lower–now around 3 basis points lower at 4.28%–maybe just hanging out waiting on the FOMC meeting.

Last week as mentioned I did a little buying. I added to the MidCap Financial Investment 8% baby bond (MFICL) and the Priority Income Fund 6.625% term preferred (PRIF-F). I did sell 1 issue and that was the Priority Income Fund 6% term preferred which ran up on a redemption notice–I sold to be able to move into the ‘F’ issue.

I have identified 2 additional issues in the current portfolio that are of such a size that I can nibble a few more shares so I will be looking for an opportunity to do a little buying–but just a little for now.