Tim McPartland | Innovative Income Investor

The Best Closed End Fund to Buy

I added to my position of the RiverNorth Opportunities Fund 6% perpetual preferred (RIV-A) yesterday at $23.06–around a 6.50% current yield. This is likely my last buy of the CEF preferred as I have now moved to an overweight position.

While the current yield is below where I would like it to be (above 7%) no one can buy the bottom and sell the top – certainly not me.

It is my opinion that this is the best buy out there for conservative income investors. Their asset coverage is almost 3x – as of 4/30/2023 and virtually all their assets are level 1 (stocks and bonds) which I prefer versus level 3 (i.e. CLOs etc). I like to be able to see what their holdings are trading at – exactly – not someones ‘quess’.

This CEF preferred offers a A1 rating from Moodys. Why does this trade at a discount to equally or lower rated Gabelli closed end fund preferreds? As has been said many times on this site ‘names matter’. Gabelli has a longer history and Mario Gabelli is a known person—this is worth a couple bucks per share.

I notice that the RIV-A issue has jumped up a bit yesterday afternoon and today–it remains a solid pick for conservative folks.

Headlines of Interest

Below are press releases from companys with preferred stock or baby bonds outstanding – or just of general interest. News is very light at this time, but earnings season starts tomorrow with the community and regional banks reporting later in the month.

I have added in some earnings reports from some smaller banks to get a ‘flavor’ of where they stand relative to commercial real estate loans.

Capital Southwest Announces Preliminary Estimate of First Quarter 2024 Operating Results and Earnings Release and Conference Call Schedule

Scorpio Tankers Inc. Announces Repurchases of its Common Shares, and on August 2, 2023 the Company will Issue Second Quarter 2023 Results and have a Conference Call

CrossFirst Bankshares, Inc. Reports Second Quarter 2023 Results

HTLF Schedules Second Quarter Earnings Conference Call for July 31, 2023

Two Harbors Investment Corp. Announces Earnings Release and Conference Call for Second Quarter 2023 Financial Results

FB Financial Corporation Reports Second Quarter 2023 Results

Food for Thought – Is a Soft Landing Coming?

I’ve attached a thought provoking article from Barrons – you should be able to read this article without a subscription.

The article explores inflation, consumer debt and the resiliency of the economy. Good food for thought.

Americans Have Quietly Deleveraged. It May Explain the Economy’s Resilience.

Monday Morning Kickoff

The S&P500 moved sharply higher last week closing at 4505 which was 107 points above the close from the previous Friday – about 2.4% higher. Honestly with the amount of liquidity that is out there it is pretty hard to keep equities lower. I suppose that one of these days we will see a ‘black swan’ but it sure hasn’t been recently. Equities are moving higher even though there are vast amounts of money hiding out in CDs, treasuries and other competing investment choices–when/if interest rates move lower we could see a crazy stampede into equities–the available ‘dry powder’ is massive.

Here is a listing of how much is in money market funds for the last 20 weeks–lots of potential ‘dry powder’–$5.6 trillion is significant.

The 10 year treasury yield tumbled hard last week–closing at 3.82% which was 23 basis points below the yield from the previous Friday. Lower than expected consumer and producer prices opened the door to a bond rally.

This week we have lots of housing related economic news shown below. None of the economic news on the week is what I would call ‘market moving’, but with the FOMC getting together next Tuesday everything has some level of meaning relative to interest rate decisions.

The Federal Reserve balance sheet fell by a measly 2 billion—just a pause because of runoff timing.

Last week we got a modest bounce in $25/share preferreds and baby bonds with the average share moving 10 cents higher. Investment grade moved 11 cents higher, banking issues 17 cents higher with CEF preferreds up 3 cents and mREITs up 13 cents and shippers up 11 cents.

Once again we had no new income issues priced last week.

Small Bank Earnings Calendar

We have had the ‘big’ banks reporting their earnings, but the smaller players start reporting in a few days and it will be interesting to see how it plays out. These issues have preferreds and baby bonds outstanding.

Here are some earning release dates that are known -(not all I’m sure). Dates are from Trading View.

Bank of OZK 7/20/2023

Customers Bancorp 7/27/2023

Bridgewater Bank 7/26/2023

Zions Bancorp 7/19/2023

Merchants Bancorp 8/1/2023

Valley National 7/27/2023

ConnectOne Bank 7/27/2023

Dime Community 7/28/2023

Ocean First 7/20/2023

Associated Bancorp 7/20/2023

Mainstreet Bancorp 7/19/2023

Citizens Financial 7/19/2023

Heartland Financial 7/24/2023

United Community 7/18/2023

Texas Capital Bancshares 7/20/2023

A Hard Hitting Piece on Lodging REIT Defaults

Many of you have probably seen this and maybe it was posted someone in comments on this site as I know some folks follow ‘Wolf Street’.

Anyway there is a fairly hard hitting piece on some of the lodging REITs that have walked away from properties recently leaving investors to hold the bag on their debt.

The piece is here.

Updated – Laundry List of Current Preferreds and Baby Bond Holdings

Latest Update 12/18/2023

This is a laundry list of issues I currently own. No recommendations here–just what I own.

Utilities

Entergy Texas Preferred (ETI-) 5.375% Cumulative Preferred

NiSource 6.50% Fixed Rate Reset Preferred (NI-B)

–added to position on 6/13/2023 @ $24.85

–added to position on 8/16/2023 @ 24.70.

Spire Inc. 5.90% Cumulative Preferred (SR-A)

CMS Energy 5.875% Baby Bond (CMSD)

CMS Energy 4.20% Cumulative Preferred (CMS-C)

–sold on 11/3/2023 for $20.01. Held for 13 months – 20% gain (includes dividends received)

Closed End Fund Preferred/Specialty Finance

RiverNorth Capital and Income 5.875% Cumulative Preferred (RMPL-)

–sold entire position 10/23/2023 @ 24.98

RiverNorth Opportunity Fund 6.00% Cumulative Preferred (RIV-A)

–added to position 7/14/2023 @ 22.99

–added to position 7/17/2023 @ 23.06

Tri-Continental 5.00% Cumulative Preferred (TY-P)

XAI Octagon Floating Rate Term Trust 6.5% Term Preferred

–added to position on 6/14/2023 @ $24.85

–added to position on 10/3/2023 @ $24.25 on a GTC execution on a brief selloff

RiverNorth DoubleLine 4.75% Cumulative Preferred (OPP-B)

—added to on a GTC order 9/22/2023 @ $19.50

GAMCO Natural Resources 5.20% Cumulative Preferred (GNT-A)

Eagle Point Income 7.75% Term Preferred – Bought 7/31/2023 @ $24.95

General American Investors 5.95% Perpetual Preferred (GAM-B)

—bought position 12/7/2023 @ $24.47

Insurance

SiriusPoint LTD 8% Resettable Preferred (SPNT-B)

–added shares on 11/9/2023 @25.19

American International Group 5.85% Preferred

Jackson Financial 8.00% Fixed Rate Reset Preferred (JXN-A)

–added a nibble of JXN-A 0n 8/10/2023 @ $24.97

–added to 11/2/2023 @ $24.71.

Lincoln Financial 9% Preferred (LNC-D)

Enstar Group 7% Preferred (ESGRO)

Athene Holdings 4.875% Preferred (ATH-D)

–added shares @ $16.18 on 10/11/2023

WR Berkley 5.70% Baby Bonds (WRB-E)

–added shares @ $21.85 on 10/10/2023

Banking

Customers Bancorp 6% Fixed to Floating (CUBI-F)

Customers Bancorp 5.375% Baby Bond (CUBB)

Heartland Financial 7% Fixed Rate Reset Preferred (HTLFP)

–sold entire position @ $24.40 on 8/8/2023. Gain of 10.2% which includes 2 dividends.

Bridgewater Bank 5.875% Preferred (BWBBP

–added to position 11/17/2023 @ $15.60

–added to position 11/20/2023 @ $15.52

Merchants Bancorp 6% Fixed-to-Floating Preferred (MBINO)

–sold entire position on 8/22/2023 for $21.90. Approx 8-9% gain with dividends.

Associated Bancorp 5.875% Perpetual Fixed Rate Preferred

–sold entire position on 11/2/2023 for a 6% capital gain and 1 dividend–7.5% gain in 5 months.

Enterprise Financial 5.00% Perpetual Fixed Rate

CNB Financial 7.125% Fixed Rate Non Cumulative Preferred (CCNEP)

–bought 1/2 position @ $21.50 on 7/19/2023

–sold entire position @ $22.35 on 8/8/2023

Miscellaneous

Affiliated Managers 5.875% Baby Bonds (MGR) Average cost $22.82

–added shares at $20.59 on 10/10/2023

CHS 6.75% Fixed to Floating Cumulative Preferred (CHSCM)

–added to position on 6/23/2023 @ $24.75

CHS 7.10% Reset Rate Cumulative Preferred (CHSCN)

–initiated new position 11/14/2023 @ $25.30

Liberty Broadband 7% Cumulative Preferred

Apollo Asset Management 6.375% Preferred (AAM-A)

—redeemed 9/22/2023 for $25 plus accrued-held for 4 days less than 1 year. Bot $22.30. Approx 18% gain.

UMH Properties 6.375% Cumulative Preferred (UMH-D)

Hennessy Advisors 4.875% Baby Bonds (HNNAZ)

—added to position on 8/10/2023 @ $22.55

—added to position on 8/16/2023 @ $22.55

—added to position on 8/23/2023 @ $22.25

—sold majority of shares @24.37. Total gain of about 10% which included at least 1 dividend–and for some older shares multiple dividends.

Federal Agricultural Mortgage 5.70% Preferred (AGM-E)

PennyMac 8.50% Senior Notes due 2028 (PMTU)

—Bought a small starter position 12/12/2023 @ $24.98

Gladstone Land 5% Term Preferred (LANDM)

—Bought a starter position 12/13/2023 @ $23.47 YTM of 8%+

—Added to position on a GTC execution @ $23.67 12/18/2023.

Business Development Company’s (BDCs)

Saratoga Investment Company 8.50% Baby Bonds (SAZ) Bought 6/15/2023 $25.15

Capital Southwest 7.75% Baby Bonds (CSWCZ) Bought 6/15/2023 $24.94

CHS Quarterly Report Released

CHS (Cenex Harvest States) has released their quarterly report for the period ending 5/31/2023 and while earnings were off just a bit from the year ago quarter their 9 months earnings were quite stellar.

The company has numerous preferreds outstanding which can be seen here.

The press release is here.

Thanks to J for posting this late last night.

Big Banks Report Beating Lowered Expectations

The big banks are reporting today and so far all of them that I have seen are beating lowered expectations–so far higher interest rates have not brought the world to an end. I think that we are a few quarters away from seeing banks taking large write downs on commercial real estate–the refinancing that are taking place will be spread across a multi year time frame so some level of pain will continue most likely for years. Investors would do well to read through the earnings reports of the large banks (which I haven’t done yet–but will) to get a flavor of where we are going. Most smaller banks report toward the end of the month.

Interest rates this morning remain low relative to last week–the 10 year treasury is at 3.77% after the below expectations producer price numbers yesterday. Of course the FOMC will still raise rates in about 2 weeks–the markets expect it so they will get it.

I will be looking more broadly through income issues this weekend–looking for buys. I am not seeing anything obvious–anything we can garner a nice capital gain from (like Jackson Financial – JXN) although just maybe JXN is one of the best deals out there simply for the 8% yield?