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Heads Up–Bancroft Fund A1 Preferred Dumped at Close Today (credit rating updated)

Closed end fund (CEF) Bancroft Fund perpetual preferred (BCV-A) took a tumble near the close today (Monday) falling 88 cents on a 966 share’dump’.

Folks need to realize when you put a market order to sell on a stock that average 1,625 shares traded each day you can get badly bruised.

This issue carries a coupon of 5.375% which is damned good for a nice investment grade issue (Moodys A1)–and with a closing price of $25.50 today (after trading as high as $26.46 last Friday) this is as good as it gets. Shares had good ex-dividend a few days 2 weeks ago.

If the drop late today stimulates more selling tomorrow I will be a buyer.

The Bancroft Fund is a fund managed by Gabelli.

NOTE–the issue is thinly traded and most charts are wrong–you should use a chart at your broker (Fido chart is correct).

Who Issues Preferreds and Baby Bonds?

Just a bit of trivia into who issues $25 preferred stocks and baby bonds.

Below is a chart that breaks down the number of issues of $25 issues outstanding.

This is really nothing new for those that have been investing in these issues for years–but maybe newer investors aren’t aware of the breakdown.

This doesn’t show them by dollars–just by individual issues outstanding. The chart shows banks are the largest issuer–and if I listed by dollar value it would show banks are by far and away the biggest issuer since the big banks–i.e. JPMorgan and Bank of America tend to sell issues with 30, 40 or 50 million shares–while REITs etc are more in the 1-10 million area.

Monday Morning Kickoff

Records continue to be set in the equity markets–even with a holiday right in the middle of the week. The S&P500 opened the week at 3226 before seeing a low of 3220, but turning higher on Friday and closing at 3240.

The 10 year treasury seems to have found a fairly “sticky” yield in the last few weeks–in the 1.85% to 1.95% area. Last week it opening at 1.91% before hitting 1.94%, but closed the week at 1.87% as it drifted lower last Friday. With the slow markets last week whether this is meaninfull at all is doubtful. I see that the yield has popped a bit this morning to be at 1.94% now.

The Fed Balance sheet popped again last week as it grew by $28 billion. This gives us total growth during December of an incredible $100 billion of Non quantitative easing (that’s what Powell says anyway).

Last week we didn’t have any new preferreds or baby bonds announced–probably will be the same this week with the holiday right in the middle of the week again.

Below you can see that pricing on shares of preferreds and baby bonds moved the tiniest amount higher for the week. Remember that ex-dividend dates occur during these period and distort the numbers a little, but with a larger sample size the distortions are minimized.

Priority Income Fund Term Preferreds on Sale

The Priority Income Fund (no publicly trading) is a closed end fund which holds collateralized loan obligations (CLOs).

There are 5 outstanding issues of term preferreds from Priority Income Fund and most of them have gone ‘on sale’ during the last month.

The issues are generally down 4-5% since highs reached in September. For instance the PRIF-C 6.625% issue is trading at $24.70 after hitting a high in the $26.20 area.

Shares went ex-dividend on 12/12 for payment on 12/31/2019–so there is no accrual in the shares.

Disclosure–I own the PRIF-D 7% issue. Additionally I’m looking to see if I want to add the PRIF-C issue now (both are small – less than full positions).

Being a CEF Priority Income Fund must maintain a 200% coverage ratio and they are currently at around 400% (at least last time I calculated it), but are assets are ‘level 3’–meaning the value is not directly observable so each investor should do their own due diligence as many may not be comfortable holding CLO related securities.

I expect Priority to issue more term preferreds in the months and years ahead as this is their method of utilizing leverage.

You can check all the outstanding issue here.

A Few Sells and a Buy

While markets are a bit quiet as we end the year we are trying to grab a few end of year gains (all in IRA accounts) and get ready for the new year.

Yesterday I let go of a full position in the Gabelli Heathcare and Wellness Trust 5.76% perpetual preferred (GRX-A). I loved the 5.76% coupon on a strongly investment grade issue (Moodys A2), but it is living on borrowed time. The issue closed at $26.01 yesterday and has been callable since 8/20/2015. GRX does have a 5.875% issue outstanding which is now callable which may ‘protect’ the 5.76% issue, but more likely they would call both. This issue was a ‘base’ position–one which is a long term hold in the portfolio so I will be looking for another base position.

Additionally I tried to sell the new Medallion Bank 8% fixed to floating preferred (MBNKP). This new issue traded very weakly early on – down to the $24.40 area–2 weeks ago, but closed at $25.22 yesterday. I had an average cost of $24.58. My limit sell was obviously a bit greedy as only 88 shares were sold, but hopefully will get it done today. These shares were bought only as a flip–no intention to hold this junky issue too long.

I bought the Urstadt Biddle 5.875% perpetual preferred (UBP-K) yesterday, mainly as a dividend capture move. The issue had fallen a bit yesterday and goes ex dividend in 2-3 weeks. The combination of a short term fall (I hope) and a foreseeable ex dividend date for 37 cents made this particular issue attractive. This will have a target of 1.5% so may hold through ex date or will sell when my target is reached – maybe before ex date.

I tried (but didn’t get an execution) to grab a position in the GDL Fund cumulative, puttable issue (GDL-C) for a ‘base’ position, but didn’t get an execution. I am happy with a 4% position for a base issue and it would help replace the Kayne Anderson 3.50% Mandatory Redemption term preferred (KYN-F) which will be called in April.

While there aren’t any big selloff going on it appears to me that there are some individual issues being ‘sold’. These are not large volume issues, but it appears that the sells are likely individual investors, so one may be able to snag a bargain today somewhere.