Category: Portfolio

As I disclosed in an earlier note I intended to place a good-til-cancelled order for some shares in annuity provider Brighthouse Financial (BHF).

The BHFAP 6.60% non cumulative preferred was trading at $22/share on Friday and I entered a GTC order at $21.75—the order executed Friday afternoon. This was just a starter position.

At this time I don’t know if I will add to this position–will wait to see their financials for 2023 which won’t be released until 2/12/2024 so there is more than a month to wait.

In the next 6 months I expect shares to rise into the $23 area–this is if the 10 year treasury drifts lower—and who can predict the movements really.

I entered an order for Brighthouse Financial (BHF) 6.6% Preferred. My order is at $21.75 for a current yield around 7.59%. I chose this issue of the 4 preferreds they have outstanding because it has a 1st date of optional call in March–which gives it a huge yield to call if interest rates continue to fall through 2024 – meaning lots of capital gain potential.

I reviewed the financials of the company and I don’t like to see falling equity—and they had a $1 billion reduction in equity for the quarter ending 9/30/2023–BUT I anticipate that equity will jump substantially during the quarter ending 12/31/2023 because of falling interest rates and thus increasing portfolio values (their portfolio is about $73 billion).

Shares are rated Ba2 by Moodys (2 notches below investment grade) and BBB- (investment grade) by Standard and Poors.

I am studying the newer Carlyle Credit Income Fund 8.75 % Term Preferred (CCIA) for a potential small position. It meets my hurdle–high yield, monthly payer and mandatory redemption in 2028.

This fund is newer, although technically it has been around for a long while–in a completely different form. The fund was previously the Vertical Income Fund which was bought by Carlyle recently–the portfolio sold off and the fund rebranded as a CLO owner.

The fund is small – about $150 million (including proceeds of this term preferred offering), but I suspect they will grow the assets fast–these funds make their living on fees–and the larger they are the more the fees.

This fund can be compared to Eagle Point Credit (ECC) or Oxford Lane (OXLC)–they own collateralized loan obligations–typically the equity tranche (meaning the higher risk tranch). Because they are organized as a closed end fund they are required to have asset coverage ratio of 200% for preferred shares. With this new term preferred CCIF should have about 300% coverage as the new preferred is their only leverage.

The main difference when comparing these companys is size and history. ECC and OXLC are much larger and have been around for years.

Currently shares are trading around $25.40 and this is where they are likely to stay for a while as Eagle Point Credit who bought 800,000 in a private placement on 11/21/2023 for $24.25 has been selling shares in the $25.40-$25.60 area–this may keep the share price tamped down for a while.

Haven’t bought this yet–but probably will take a small position.

The issue has a coupon of

I couldn’t resist selling 1/3rd of my Bridgewater Bancorp (BWB) 5.875% perpetual preferred stock (BWBBP). I sold for $19.20/share.

I had written on 11/20/2023–‘My Fixation with Bridgewater Bancorp Preferred Stock’. With shares trading that day at $15.52 I lamented that their shares were true laggards–I bought more at that price.

I ended that article with this – ‘Note that I am ‘talking my book’–this is not a recommendation, but at 9.55% current yield the risk/reward seems good – I would think a 10-20% capital gain is attainable in the next 3 months or so (plus dividends)‘.

I would like to say I am a damned genius – but we all know better. This is more of a blind squirrel finding a nut.

Nothing wrong with BWB – I just lightened up a bit and instantly redeployed the proceeds.

I bought another small taste of XAI Floating Rate Term Trust 6.50% (XFLT-A) term preferred. I paid $24.30. With mandatory redemption on 3/31/2026 this provides a yield to maturity easily over my 8% hurdle. I had been watching this one since I already own more than a full position–but added a little more when 2whiteroses made note of the ‘bargain price’. This issue should trade around $25 plus accrued dividends. The issue goes ex-dividend in about 2 weeks (January 12 or so) so at $24.30 it is a true bargain.

I will update the ‘laundry list’ spreadsheet.

One of my favorite holdings over the last year or two has been the Affilated Managers 5.875% baby bond (MGR). For me it is a sock drawer issue (as I define sock drawer–high quality with a reasonable coupon). This issue is rated BBB- by S&P, but is rated a much higher Baa1 by Moody’s. This issue has a maturity date way out in 2059, but will be callable in March, 2024.

Affiliated Managers Group (AMG) is a asset manager and their common stock trades at $151.00–a market cap of just over $5 billion. A very solid company.

In October I made a add to my holdings @ $20.59/share. That brought my overall cost down to $22.35/share. Finally the issue is green by 3% @23.03—so with interest payments I am nicely green on the shares.

My point is that if you have high conviction in a quality issue don’t just willy nilly sell it because it isn’t performing for a few months. In this case it is helpful that interest rates are falling AND the optional call date is approaching–putting a whiff of ‘yield to call’ out there for investors (which would be quite lucrative). For me it is in the ‘sock drawer’ with a nice yield on cost–it is not going anywhere in the foreseeable future.