We are now finally at a point where preferred and baby bond pricing equals a year ago. During the course of 2023 we have been as much as about 10% higher than we were on 11/1/2023 (it was way back in January), but these move have given opportunity.
The market movement has given us chances to do some profit taking and some repositioning. For me it was some profit taking and then purchases of some CDs at attractive yields. Of course we all wish we had 100% preferred and baby bonds during November which saw the average price rise about 5%–but trying to time every last wiggle is somewhat of a ‘fools errand’–although we still try a bit.
My accounts are now at all time highs–2023 has been a banner year–but after 2022 we needed a banner year to catch up.
Some may remember years ago when we had these 20% downdrafts in income issues–newer folks would bail out and hide their stash in a mayonaise jar in the back yard–during those times of zero interest rates switching to CDs etc was not much of an option. The folks that panic and bail out usually are those that practice ‘buy high – sell low’ and vow to never buy preferreds and baby bonds.
From what I have been reading from our regular group of commentors folks have experienced some great gains in 2023–congratulations on not bailing out.
No doubt 2024 will be another challenge–they all are, but if we have flat to slightly lower interest rates 10% returns would be in sight.
2023 is turning out to be a surprisingly good year for us (so far). I ran the year to date results over the weekend.
Wow.
Last couple of months have been real barn burners.
Our overall portfolio is up a hair under 18% (gross) over the 11 months YTD. I am getting spanked hard on taxes because so much of the gain has been in taxable accounts (like oil stock sales and MMP getting bought), but my wife assures me it is a nice problem to have.
Unfortunately, I didn’t move big enough, fast enough, long enough into CDs. Wish I had.
Of course, now that I say how well my year is going, December will be a disaster and it will drag my whole year down the drain (apologies in advance to all those who get caught in the suction). If it goes badly enough, maybe I can do some Roth conversions….
Hi Tim, I am curious why you stay away from mreit preferred’s. Specifically EFC and RITH are well managed and protect book value very well. Their 3 month floating rate and five year reset preferred’s are pretty compelling. When they float they should have nice capital appreciation (based on NLY and AGNC) in addition to coupon. I am selective with the mreits I invest with, and personally I stay away from leveraged agency players. Let me know your thoughts and anyone else please contribute.
I am long a few mREITs, but only in small doses: RITM-C, AGNCM, MFA-C and a couple of others, in sum around 5 – 6 per cent of portfolio value.
Have recently been building positions in eREIT prefs such as REXR-C and UMH-D, which looked more interesting to me from a risk-reward perspective.
“eREIT” – I had to look it up: https://www.investopedia.com/articles/investing/123115/fundrises-new-ereit-right-you.asp
Introduced by Fundrise, an online real estate crowdfunding platform, eREITs are electronic real estate investment trusts (REITs) that merge the traditional structure of REITs with the ease of an online marketplace. Determining if eREITs are right for you depends on your investment goals, risk tolerance, and desired level of liquidity. They offer a unique opportunity to diversify into real estate with relatively low minimums, but they also have less liquidity than publicly traded REITs.
2wr, sorry for the confusion, but I meant equity REITs, as opposed to mortgage REITs. Isn’t that standard terminology around REITS. Perhaps I got that wrong…
In any case, my point was that I would rather buy preferred shares of a REIT like REXR or UMH which are trading well below par and pay me 7.5 to 8 per cent, instead of mREIT prefs for a yield in the 8-9 per cent area.
Tim I see BWBBP has found a lot of love lately ; it was less then a month ago I added shares at 15.36! thanks for your article
ted – you’re welcome–I knew it was just a matter of time before investors starting sniffing around a 9% yield.
Last year at this time BWBBP was 20.50. That would be nice now.
Nice short term gains in IRA. Mild long term losses in taxable accounts due to rising rates. No problem I swapped them for other issues that also went down. Dividend heaven.
For me 2023 has been like 2022, an unmitigated disaster in financial terms, thanks to a boatload (VLCC) of muni cefs. Boo-hoo. Cheers.
You may still have a chance to catch up. Barrons just ran an article touting closed end muni CEFs as undervalued. The pattern I saw in that which I follow (no muni CEFs followed) was a whole lot of nothing followed by a sharp jump up in November.
Stephen – sorry to hear that. Maybe you can recoup with rates heading lower.
Thanks Tim. I was of two minds whether or not to get out at the peak in September 2021. I knew interest rates would be going up but not the way they eventually did. Things will improve–they already have–but failing a new QE and 0-.25% rates, I’ll never be made whole or even close to it. However, I won’t be reduced to selling pencils or apples on the corner.
Stephen:
The issue with many CEFs in 2023 has been the leverage. Too many of them have leverage based on unhedged floating short-term rates. So their interest expenses have skyrocketed with the aggressive Fed tightening.
A few of the smarter CEF companies like Cohen & Steers almost always hedge their floating rate debt via swaps.
If you read many of the bullish CEF recommendations on Seeking Alpha the authors almost never mention that the CEF has leverage based on floating short term rates that have not been hedged. Especially from that one popular service that shall not be named.
Wasn’t that mayonnaise jar kept on Funk & Wagnalls’ porch? https://www.youtube.com/watch?v=DNy0TElah18&ab_channel=djshamrock729
2wr—Johnny would have said so.