Innovative Income Investor | Innovative Income Investor

High Yield Model Portfolio Performance Remains Solid

The Enhanced High Yield Model Portfolio continues to perform almost exactly as designed.

Remember this is simply an educational tool–one that demonstrates LONG TERM performance of a portfolio of relatively high yield preferred stocks and baby bonds. The intent is to not ‘trade’ the account–simply purchase and hold, unless substantial bad news is known or suspected about a issuing company.

This model was formed on 1/25/2018–so it will be 2 years old in a few weeks. To date the portfolio has a total return of 16.11% and holds a cash position of about 10%. We currently have goal of an annual return of 7.50%.

Initially the model had only about 10 issues, but we have worked to continue to expand holdings and now are up to 13 issues in a portfolio of $116,000 – I will be adding 2 more positions in the next 60 days and then will hold the portfolio in the 15 issue area – helping to spread the risk.

This model has the ability to hold a REIT or MLP, but with REITs running to sky high level we have not held other holdings for quite some time–likely this will only change if REITs set back in pricing.

The portfolio is here (page loads slow).

The Medium Duration Model Portfolio has NOT performed as well because of 1 disastrous holding–we will wright a bit on this soon.

Southern Company to Sell Subordinated Notes–Updated

UPDATE–as noted in the comments below the SEC Filing is now in. This is a very typical issue, with a early call date in 2025 and a maturity in 2080.

The preliminary prospectus can be read here.

Giant utility Southern Company (SO) will be selling a issue of $25 baby bonds.

No firm details are available (SEC filing is not in yet),

EarlyBird had some preliminary details very today showing a potential 5.125% coupon with an investment grade rating. If you Prefer posted “5% area” so it should come in the 5.0% to 5.125% area–I would be surprised if it were higher.

SO has 3 subordinated notes outstanding now and Georgia Power (a division of SO) has 1 issue outstanding.

You can see the outstanding issues on the “Baby Bond” page–and decide how a 5.00-5.125% issue would stack up.

Monday Morning Kickoff

Markets are likely to trade in a wider than normal range this week-stocks and interest rates.

Regardless of what fundamental data we see this week, the middle east situation will likely dominate the news and thus affect the markets. Historically these types of events have ‘blown over’ in a few days (or weeks), but I get the feeling this one may be with us for longer. When Iran says they will retaliate we simply don’t know if that will happen this week, next month or next year.

The S&P500 traded in a range of 3212 to 3258 before closing at 3235 which is just a small loss of last week. The 10 year treasury traded in a wider range of 1.78% to 1.94% before closing at 1.79% on a rush to safety.

The Fed Balance Sheet rose by just a small amount on the week, adding $8 billion worth of assets.

Last week we again had no new preferreds or baby bonds offered. After 2 weeks without issuance we will likely see a restart to normal issuance this week.

Pricing on preferreds and baby bonds continued strongly higher last week as you can see in the chart below.

We Survive the Day, But What is to Come?

It was an interesting day of trading–although not really much movement after the 1st hour or so–at least in stocks.

The 10 year treasury closed at 1.79%, which is a good bit lower than the 1.87% to 1.94% range we had been trading in for the last couple of weeks. Obviously this is a move to safety after the killing of Iranian General Soleimani.

I have read numerous articles on the affect this will have on the market–and unfortunately they are all pure speculation and mean almost nothing. But this being said a rational person needs to look over their portfolio and see where they might be vulnerable.

The obvious place to be looking for vulnerabilities is in the energy and shipping sectors. If I was a betting person I would expect Iran to attack either oil fields in Saudi Arabia or ships in the Straits of Hormuz in retaliation. I’m not telling anyone reading this anything at all–we all know about these obvious weaknesses. It is the unknown areas that will cause the real issues.

For now I have mostly ‘sat on my hands’. History tells us that this will not be meaningful to income investors–BUT one never knows–if we knew we would have our own reality TV show reading minds and making predictions.

Investors always need to do what makes them able to sleep at night. If that means lightening up for a few weeks, so be it. I think everyone on this website knows that there are no right or wrong answers–just the answer that works for you.

Website Help

Just a quick blurp that if you see Matt McPartland in site comments just know that he is my son.

Matt will be helping to keep up with comments–while I don’t moderate them too closely I do try to skim through–in particular for ‘errors and omissions’ reports. I have a screen that lists all comments made on the site, all on 1 page–so one can see everywhere with a glance.

Additionally I skim looking for ‘spam’. The spam filter on the site works terrifically, but on rare occasions something slips through and I have to manually delete it.

Also maybe once a week a legitimate comment ends up in the spam filter inadvertently – I then manually approve the comment.

Lastly I look for any ‘dust ups’ of participants. We are fortunate that there really haven’t been issues. I do see some minor ‘skirmishes’ on occasion, but as long as they resolve themselves there is no reason to get involved.

So Matt will be helping to watch over these things so I can make timely corrections to errors and we can catch spam that slips through.