Category: Ideas

I am not really seeing super compelling buys out there right now–the type where you look for a decent current yield as well as potential for some capital gains, so instead, for now, I have entered some good until cancelled buy order for adding to some of my current positions.

I have positions in the Spire (SR-A) 5.9% perpetual preferred which is now trading at $24.01 as well as the NiSource 6.50% fixed rate reset perpetual preferred (NI-B) which is now trading at $24.31. My current position size is modest (less than full positions) and so would not mind adding to them if someone wants to sell them to me at MY price. My price is 75 cents or so below the current price levels–I mean I want them cheap (probably too cheap). Both of these companies are utilities and are split investment grade. My target current yield for most issues I am hoping to buy now is in the 6.5% to 7% range–which would be a super yield from quality issues–although I would be willing to go down in the 6% range for some quality CEF preferreds.

I had previously noted that I have a good til cancelled order in on the GAMCO (Gabelli) Natural Resources Gold and Income Trust (GNT-A), but my buy price is much lower–right now $2/share below the market so I don’t expect to get these but you never know. I currently have a position in this one. The coupon on this one is 5.2% so to get my target yield it needs to fall substantially.

I have a few more orders in and will post a note on them soon–just in a time crunch as always

This morning I have initiated a position in Jackson Financial (JXN) 8.0% fixed-rate reset preferred (JXN-A).

As I have noted many times I am kind of full up on treasuries and CD’s at the 4.9% to 5.40% area and now is the time to try to buy some fairly solid high yielders to balance the portfolio out.

This year has played out like this – Great gains through January. Sold considerable amounts during February locking in some nice capital gains and started moving into more CD’s and treasuries–then we had the banking crisis which meant little activity. A week ago I started searching for issues that were fallen angels. I added shares of the Tricontinental 5% preferred and now I have added some Lincoln Financial 9% preferred and today the Jackson Financial 8% preferred. I have plenty of dry powder as I have had CD’s and treasuries mature that I bought in September

This issue (JXN-A) came to market on 3/6/2023–just before we had the ‘banking crisis’ appear and being an insurance issue (annuity) the company has been painted with the typical banking and insurance paint brush. This means that the preferred shares were slammed and now trade around $21.30 for a 9.36% current yield. The yield to 1st call (3/30/2028) is just over 12%. This issue is just 1 notch below investment grade from both S&P and Moody’s.

Over the weekend I did some digging on this issue and I find the financials very acceptable–although very complex, because the company does hedge their investments so you have hedging gains and losses which tend to muddy the picture but this is preferred to many of the banks which did not hedge their long duration investments and now regret it. The company has almost $300 billion in asset under management – so a pretty large company.

Now does this mean I think the banking crisis is ended? No, but if I wait to see if it has 100% this bargain will no longer be there – it will be trading much higher. This is a starter position and I may or may not buy more–don’t know until I see more data. This is not a recommendation – as always.

As I noted last week I am going to add some relatively high quality issues to my portfolio and I am starting off with more preferred shares from issuer Tri-Continental Corp (TY) which is a $1.4 billion closed end fund. To me this is the finest quality CEF preferred available and very straightforward–maybe the #1 quality preferred in the publicly traded universe. The beauty is that virtually all their holdings are Level 1 assets (readily observable prices–i.e. common stocks).

The Tri-Continental Fund is managed by Columbia Threadneedle Investments–an asset manager with over $500 billion in assets under management.

The issue is a $50/share issue which originated in 1963 and carries a $2.50/share annual dividend (5%). The issue is now trading at $48/share giving it a current yield of 5.2%. Dividends are cumulative and most years they are qualified, but may also include return of capital.

Shares are redeemable anytime, but the redemption price is $55/share.

There are now 752,740 shares outstanding – the average daily volume (per Yahoo Finance) is 797 shares–so pretty thin, but adequate to fill a modest order most days.

It should be known that because Tri-Continental (TY) is a closed end fund they must maintain a 200% asset coverage ratio on senior securities. The preferred shares are the only (no debt) ‘senior securities’ the CEF has outstanding and thus carries a 4200% coverage ratio.

Note that I have a position already in this issue and in fact snagged a few shares last week at $47–I used a good til cancelled limit order for these shares. I have entered an additional order below $48 to see if I can get some more shares.

Here is their latest annual report for the period ending 12/31/2022.

Caution–while this is a extremely high quality issue it moves up and down based on interest rates (like all preferreds and bonds) and has traded in a very wide range in the 60 years it has been outstanding as can be seen in the chart below going back to 1973.

If you try to find this issue you will find the ticker used for it varies.

Yahoo Finance TY-P

Etrade TY.PR

Fidelity TY/P

I am certain others use different tickers.

For me this is a ‘sock drawer’ issue–to be held long term and simply collect the very safe dividend. This buy is about quality more than yield.

As always I write about what I am doing and this is not a recommendation to anyone to do anything–I am old school and I have no idea of the ‘suitability’ of what I do for anyone else.

I just bought some corporate bonds of giant asset manager Franklin Resources (BEN) ($1.4 trillion under management).

They are rate A2/A by Moodys and S&P. Maturity is 3/30/2025.

Yield to maturity is around 5.4%.

Cusip is –

354613AK7/ US354613AK71

I found these particular bonds on eTrade.

I normally have smaller capital gains and smaller capital losses than maybe the typical perpetual preferred investor–and I give up some higher potential coupons in doing so.

Closed end funds (CEF’s) can typically sell lower coupon preferreds because some of them sell ‘term preferred’ issues. A term preferred has a stated mandatory redemption date–not unlike most bonds–versus a perpetual preferred which has no mandatory redemption date whatsoever and may be outstanding for 100 years (of course no one knows for sure). This typically means that the ‘term preferred’ is less volatile than a perpetual preferred and the losses and gains that occur over the course of a year or 2 are minimized–all due to the ‘date certain’ redemption date which is typically 5-6 years or less.

Additionally CEF’s have to maintain a 200% asset coverage ratio on their ‘senior securities’ (debt and preferred shares). This is an added level of safety.

My 2 largest holdings–by far are the RiverNorth Capital and Income Fund 5.875% term preferred (RMPLP or RMPL- or RMPL-P or others as all brokers have a different ticker for this one) and the 6.50% XAI Octagon Floating Rate and Alternative Income Term Trust term preferred (XFLT-A).

Note that the mandatory redemption on the RiverNorth issue is 10/2024 and the XAI issue is 3/2026.

The reason I hold these–and have for years–is because it is a reasonable coupon, they have to maintain a 200% asset coverage and the movement of the share price is relatively minimal (compared to a perpetual).

Do I like the closed end funds–not really–to me they are dogs and in the case of the RiverNorth issue is not well managed. This means I keep an eye on the funds even though I don’t hold the common shares–this is not a ‘set it and forget it’ investment (to me there are no such things).

Here is the RiverNorth issue for the last 4 years. Compared to a perpetual it has had a tight range.

At this point in time these 2 issues should only be bought around $25–and both have been trading near there for the last month.