I watch everyday for items to buy, or at least ‘watch’. To me something close to 7% and investment grade is a real bargain (not to say they won’t be better bargains in the future).
Here are some most recent potential bargains.
All of the issues from Apollo Global Management (APO) are looking fairly good. This includes Apollo Asset Management issues and those that were originally issues by Athene Holdings, which Apollo purchased in January.
All of those issues can be found here under parent ticker APO.
The current yield on these 6 issues are between 6.41% and 6.84%–pretty dandy yields for all investment grades issues. All issues are perpetual and are a mixture of fixed rate, fixed-to-floating and fixed rate reset–so something for everyone. All of these shares have fallen $1.50 to $3/share in the last 3 or 4 days.
Please note that these are all non cumulative and some are not qualified dividends.
Apollo Global Management has pretty much transformed into a good sized asset manager–$262 billion in assets under management–much which came to APO with the Athene acquisition.
Disclosure–I bought a nibble of the AAM-A 6.375% perpetual this morning for $23.50 or a current yield of about 6.8%.
The other investment grade issues (investment grade from Standard and Poors and 2 noctches less from Moodys) I am watching are the issues from Brighthouse Financial (BHF), which was spun off from Met Life a few years ago and is primarily an annuity manager.
There are 4 perpetual preferreds outstanding, along with 1 issue of baby bonds with current yields of 6.7% to 7.21%. There issues can be seen here.
Once again a current yield in the 7% area is great–but maybe it will go to 8%–who knows? The share prices have gotten hammered down by around $2/share in the last week.
Disclosure–I own shares in the BHFAO issue 6.75% perpetual.
As always I am not recommending any of the above–it is what I am doing, but I can’t make recommendations to anyone, because I don’t know suitability.
A wish list is exactly what I started making last week. Fixed or floaters? 6% and higher? IG or not? Who qualifies? Some of the best names went 15-17 during covid. Banks and energy seem to be holding up the best. But lets face it many issues are down 30% since Feb so it is a buyers market!!
You can see the bids dry up. Look away for a few hours and 2 bucks can be carved off just because.
Scott Minerd was saying extend duration today after the decision. But ……I do detest him so there’s that
My concerns with BB/PFDs in 2020 and 2021 was that those with good coupons seemed highly concentrated in financials of some sort: BDC’s REITs, small banks, etc. The names were unfamiliar to me and I couldn’t read the balance sheets. My portfolio became concentrated in these. As Grid commented at one point, he found his portfolio to be too “PRIF-ey.”
A silver lining to the current situation is that we can pick:
–IG-rated
–familiar names
–diversify sectors in our BB/PFD portfolios
I’m trying to be disciplined about pacing my purchases, keeping in mind that the average bear market lasts 21 mos, and the dot.com and GFC bears knocked the S&P down 50% – we’re only 6 mos in, and 22% down.
Thanks again Tim for all your work – this is a comforting and profitable place to be during these scary markets.
Tim,
You wrote: “Once again a current yield in the 7% area is great–but maybe it will go to 8%–who knows?”
I was thinking why “who knows”? Isn’t it like almost certain that with the imminent fed rate raise of at least 1% in the coming weeks/months, we should see these issues yielding above 8%?
For example, AAM-A bot @ $23.50 will not cost about $20.00 in maybe a couple of months? Is it possible that issues like AAM-A will not continue to drop proportionately as the fed rates go up?
Even considering the about $0.40 in interest you will get on AAM-A, could you further explain why you found this buy worthwhile?
And if not $20.00 my guess is that we can easily see AAM-A well below $21-$22 within 2 months, and then I would argue it would be better to wait (e.g. put the money in 1 month treasuries @ about 1%) and then buy. What is wrong with this argument?
You mentioned in the past that some of these are just small buys used as “placeholders” for you, a rationale I also like, but is there another rationale besides?
I am not trying to argue, just trying to understand why my reasoning may be flawed, as I enourmously appreciate all your posts and all your work in III.
Thanks!
Bonjour dd,
I am NOT speaking for Tim but just posting my $.02
As Tim noted, “As always I am not recommending any of the above–it is what I am doing,”
This is what makes this forum so bad a$$, you can get a lot of good ideas.
Grid can find a deal. He has posted stuff and I have followed with success.
This is just an example of investing style / strategy.
I have AAM prefs. on my radar.
It’s a security that is >6% qualified and the parent company is IG.
The securities are under par so if it gets called your principal is protected and you get 6% until then. If it stays outstanding and drops the thought is to buy more, hence “nibble”.
You may end up with an IG security qualified paying >6% for a long time.
Try to get that from a CD
The trick is to ignore the paper loss and shine in the income.
It’s all personal perspective. For example, my thought of putting the money in 1 month treasuries @ 1%, after taxes why bother?
That short term money could be used for rounds on the golf course and good whisky.
PickleN,
Thanks for your post, I agree with you. Yes, the 1 month 1% treasury is practically meaningless.
I also agree with your analysis, and want to better understand Tim’s rationale (not argue), and maybe see why my thinking may be flawed.
My point is: exactly because it seems a good investment, I do want to buy it, but given the imminent rises coming, isn’t it wise now to try to time the market (even if all experts say you should never try to do this), and wait at least for tomorrow and next months’ fed meetings, as it is likely that this issue (and many others) will continue to drop significantly, much more than what the “shinny income” will give in the next weeks.
DD – well that depends on how much you believe the future fed increases are not already baked in the price of these preferreds.
I mean if you look at the price of Treasuries, the 1y is at 3.1% and the 2y is t 3.42% so one could argue several increases are built in there. Is it the same with some preferreds, that is hard to say but I have learned over the years trying to time the markets perfectly is a fools game. I may raise cash now and then (like I have the past several months) but I still stay mainly invested. And when I have raised cash (probably have more univested now than I have for years) i buy on fear when an issue hits the right price for me. I remember reading a number of people here going substantially all to cash and staying in it far too long in the Spring 2020 covid crash while I and others were buying. In retrospect, they missed a great opportunity. But everyone needs to do what they are comfortable with and what best fits their own situation
That’s my perspective
Should have clarified – that 1y and 2 y treasury rate I mentioned is what you can buy them for on Fidelity today (not the official rate)
Mav –
Am I missing a how-to on Fidelity? As far as I know there’s no way to buy in the secondary for 1 and 2 year Treasuries other than participating in the current auctions…. It seems like most all the secondary offerings have very high minimums. And there’s no cost when buying in the auctions…….
Not sure if I’m answering your question or if my limited experience can help. I use regular Fidelity, not the Active Trader Pro version. I go to the dropdown menus (green section), News and Research, down to Fixed Income, CDs and Bonds, and there are numerous options, including Treasuries, which I think are secondary offerings (mostly w huge minimum volumes). I tried it and was able to buy a whole 2 units ($2k) of a 1 year Treasury bond (regret that I did it a few wks ago instead of now or next week).
FWIW I’ve been buying some 1-3 year bonds, mostly of BDCs, now able to get 4-6% on those. Seem lower risk than baby bonds, but safer than preferreds. Sorry if this is already known.
CR – I normally use Active Trader Pro, so thanks for the tip – I’ll give it a try…. BTW, in a company’s corporate stack, there is no difference between a baby bond and a 1k bond, they’re both bonds, so unless you’re potentially talking about liquidity risk, there’s no difference risk wise….
Thanks, 2WR. I downloaded Active, but after decades of using regular Fid, seeing all those colors on black seem too daunting to learn at my age, altho I haven’t put in the effort.
As I’ve seen that most BBs carry higher rates than a lot of corporate bonds, I’m guessing that maybe companies that can’t easily issue standard bonds (market considers them higher risk??) may have to use BBs??? (purely speculation on my part). And, I’ve been looking mostly at much shorter terms than even a lot of the BB call/maturities discussed here (seems a lot in ’26-’29 range), If rates keep going up, I’ll get the cash back sooner to invest at higher rates. If not, then I won’t be as uncomfortable holding more cash again then vs now (I’m counting on both interest rates and inflation to go up or down roughly together), given my age, total assets, etc.
CR – Can’t say I don’t disagree about Active Trader Pro potentially offering up a daunting task to try to learn how to use a trading platform. I learned ThinkOrSwim first and, therefore, am much more comfortable using that one as a primary base. However, I have discovered there’s info I can find in ATP that I don’t know how to find (if it’s there) in TOS and vice versa…. And of course Fidelity has a much better approach bond buying than TDA so I don’t even consider TDA or TOS when thinking about bonds..
I suppose you know that what you’re really attempting to do is construct a bond ladder… Like you said, the approach makes earning income from bonds in a rising interest rate environment more palatable as you know as your old bonds roll off after perhaps showing negative value vs your original cost, if you bot as a buy and hold buyre, your investment did exactly what you expected it to while you owned at and now will be able to invest at a higher yield no harm no foul.
As far as baby bonds v 1k bonds, from the issuer’s point of view, those that use baby bonds have discovered times when the retail buyer as represented by baby bonds is more willing to pay up for income than institutions and/or times such as the last year, where institutions were clammering enough for yield that they were more willing to pay for yield than even the individual… That’s one reason why so many baby bonds, especially baby bonds in the BDC field, were called in because 144a private placements were being devoured by institutions at rates that made refinancing BDC baby bonds at attractive spreads no brainer decsisions for them.
CR, The baby bonds and $1k are just the sausage casing wrapper of the issue and has nothing to do with the quality or even duration. Your understanding though technically wrong, is still a general correct observation. As baby bonds tend to be low cap stack bond issuances, or junkier companies that go to retail market for the capital. But there are mortgage backed baby bonds from utilities with A ratings issued as baby bonds too. But as you noticed most of the HQ IG debt issued generally comes from the bond market not baby bond exchange traded stuff.
2WR – CR described it pretty well. You have to buy on the regular Fidelity website, not Active Trader Pro. Just follow the links he mentioned. One thing to add though. While many of the listings show big minimums to purchase, start with the listing offering the highest yield, click on DEPTH OF BOOK and you can see multiple offerings of the same secondary Treasury Note. They may yield slightly less than the main offering with the big minimum purchase (for instance the highest 1yr yield listing right now is 3.1% but it requires a minimum purchase of 500 units (so $500,000) but looking at the Depth of Book, there is a seller with 4000+ units to sell with just a 1 unit minimum ($1,000) yielding 3.097%. Just make sure to click on that seller’s listing in order to buy at the lower minimum quantity.
I manage an account for my 90 year old mother – she wants 100% safe – so have bought multiple secondary treasuries for her this way (usually around 10 units or $10K each) (or secondary CDs depending on what rates were better)
Yes, thanks for mentioning looking at depth of book. And you can put in your own bid (for the day) if the sale offerings are higher price than you want. I’ve been able to get some cheaper than I saw at first look (maybe on days that rates were rising?)
And there are all kinds of search options, especially for specific types, companies, etc., that aren’t in their list of dates. Can even search by duration and interest rates, which can include more options than the minimum BBB they list in the main table, if you want to take on more risk/reward.
Maverick,
Thanks for your post. I guess that is exactly the point:
How much of the future increases are already baked in today in these preferreds.
Who knows whether they already have baked in the imminent 1% increase in the following weeks? Is it likely that even if they have baked most of it in, their price will increase significantly in the next weeks so that I better buy today and not wait?
So what I would ask myself (maybe is a stupid, ignorant newbie question):
Historically, or in theory, what should an investment grade perpetual preferred yield at different fed rates?
DD, you have to throw in the credit spreads as an additional factor. The HY market is starting to feel that. Remember in late 2018 the yield on treasuries was collapsing while the credit spreads were widening which resulted in preferreds tanking hard even while 10 year was dropping…Then lets throw in 8% inflation and general market fear, with potential economic worries, and the answer becomes very simple…. Nobody knows! :)… That is basically why it appears Maverick and largely myself too, dont try to all in predict anything. But I do try to hedge and diversify not only with issues and quality, but duration too. And that includes some cash to hunt with too.
“Nobody knows! ”
We have to put that in big bold text.
You do have a good nose for hunting we have to give you that !
Cheers,
Thanks for your replies!
I am thus adopting 2 mantras for this blood-shedding time:
“nobody knows” and “tread lightly”.
Buy what is working.
Grid said it well – Nobody knows. If we were all perfect at timing the market, well . . . . .
I am similar to grid when he says he tries to hedge and diversify not only with issues and quality, but duration too. And that includes some cash to hunt with too
While I noted I usually stay pretty invested, I always have some cash available to use for new purchases. I have raised that cash the past 6 months to maybe 4 times what it normally is (so I guess technically you could call that me doing market timing, lol – but I still stay mainly invested and even though I have raised that cash, it still hasn’t impacted my projected dividend income for the year). I should point out I invest in more than just preferreds as I do invest in REITs, MLPs and solid dividend paying common stocks. I started selling at the end of last December when prices on some of my common issues became overvalued IMO (turned out I was correct)
The other thing to note is I may toe in to a position like Grid mentioned and then add on later. I guess my latest example is one Grid hinted at the other day Old National – ONBPP . I happened to notice Grid mention seeing a 7% baa2 at near par and I was pretty sure what he was referring to as I had looked into it and some others that morning but before the price dumped to that level. So at 7% IG near par, I bought a couple hundred shares. If it goes lower, I will add to the position. If it goes up, I will just hopefully find some other bargain when it presents itself. But to me that was a level worth buying in at.
Hope this makes sense – again depends on your comfort level and goals and time horizon
Mav, I being a dullard did not know that there is an exact sister issue to ONBPP. Its ONBPO…Same thing basically, I guess a multi covid capital raise. I got 400 on P and a whooping 68 shares of O. I was typing in ticker of ONBPP yesterday and noticed the screen wanted to fill it in with O. So I looked on Quantum and said…I’ll be damned, I didnt know.
This is another pairing swapping opp for Martin!
….Alpha…Good to see you post again. I was worried you would never veer from your 24/7 play time at your new residence you have enjoyed the past year!
Ahhhhhh ….. I think I get what you are asking
Are there better deals that will present themselves with rising interest rates?
Yeah, sure.
If it were a nice planned path forward it would be nice to sit and watch.
Now I am building cash for what may be the next leg down ……
Yeah, ok I’m “timing” the market.
A fools game in the long run.
However, if 2nd quarter GDP comes in at a negative rate, treasuries yields may drop, prices may spike and the fed may go into reverse in a matter of months. “Inflation” goes poof …………….
All the good / OK deals may dry up real fast.
That’s my rub, I caught the bottom 2018 down draft, lightning does not strike twice so I’m thinking of taking a gentle short term spanking for long term walk in the park.
(fingers crossed)
FWIW, I toe in for a couple sometimes unrelated reasons. One is to get the issue more on my radar as I tend to watch what I have more than a bunch of issues. Two, because I am chicken, and assume it will drop more and I will average down to lower cost basis until I reach my limit. Three, I sometimes average down to reduce cost basis and then sell off the higher purchased ones at a more break even price. Then rinse and repeat if opportunity presents itself and its an issue I want to own. Pig Pen dusty cloud hanging over SJIJ is an example of that for me. I assumed it possible it was going to drop but didnt know how much. So I kept buying down then took advantage of spike last month to sell off some, and started buying back again at $17 today…. of course at times in past it doesnt come back down, so you have to accept losing it and moving on. I wish that was a problem I was having now, but sadly that isnt happening so much now, ha.
“The trick is to ignore the paper loss and shine in the income.” Boy ain’t that the truth…. tough to accept if you’re not of that school…. and unfortunately there’s that factor from SA that is of that school which makes it even harder to want to get on board….. But in the back of my mind, that’s what I’m preparing for mentally if UMH renegs on what they have promised to do in July with C.
Own quite some of ATH-C and ATH-A – yes, these seem good buys as they make new lows. However, I am confused and unsure as to their QDI status.
Info here says that both of these are QDI but QOL seems to suggest that in February they filed 10K with the SEC that states the company is a PFIC and therefore its dividends are no longer Qualified. The brokerage where I hold it does denote the last dividend of 3/30 as Qualified.
mSquare–yes there seems to be some difference in opinions. Fido shows the ATH as qualified and the AAM issues as non qualified.
Confusing. 10K says ATH (AHL) is a PFIC but then it says it doesn’t expect ALH to be a PFIC in the current year or the foreseeable future.
This is from the ATH 10K:
If AHL is considered a passive foreign investment company for US federal income tax purposes (PFIC), a US person who directly or, in certain cases, indirectly owns our equity securities could be subject to adverse tax consequences, including a greater tax liability than might otherwise apply, an interest charge on certain taxes that are deemed deferred as a result of AHL’s non-US status and additional US tax filing obligations, regardless of the number of shares owned. In general, AHL will be a PFIC during a taxable year if (1) 75% or more of its gross income constitutes passive income or (2) 50% or more of its assets produce, or are held for the production of, passive income. For these purposes, passive income includes interest, dividends and other investment income, with certain exceptions, and certain look-through rules apply with respect to interests in subsidiaries.
Based on the expected assets and income of AHL, we currently do not expect that AHL will be a PFIC in the current taxable year or the foreseeable future. However, we cannot assure you that AHL will not be treated as a PFIC in one or more taxable years. If AHL is treated as a PFIC, the adverse tax consequences described above generally would also apply with respect to a US person’s indirect ownership interest in any PFICs in which AHL directly or, in certain cases, indirectly owns an interest.
Thank you for the ATH-C 10K excerpt.
to add to the confusion – ATH was merged with APO (or did they buy it?) and now a fully US corp. So likely that the prior ATH prospectus is no longer fully valid? If it is indeed treated as a PFIC it is a lot of tax headache and I guess makes it worth less to those buying it in their taxable accounts if it is no longer QDI. Wonder if that is one reason why it is is selling off more than others the past few weeks?
Purchased new issue OXFCV on 6/10 and 6/13 in my fidelity account.
Today symbol not recognized and replaced by 66691543953 and no price shown. Anyone else have similar experience with this issue?
OXCFP is the new symbol
Same – I’m not worried.
Same here. Able to buy previously but not today. Found it at the top w my bonds and bankruptcy issues, but could no longer buy w either symbol, guess will have to wait for permanent symbol??
I’m starting to look at essentials only and wondering how essential Brighthouse products really are. Inflation will be hard to fix. The Greens have painted us into an energy shortage corner that will also be hard to fix. Here’s something I picked up on another site, FWIW:
“Right now we have a structural shortage of ALL resources. Structural shortage of fuels and metals/minerals. We will hear more and more about a shortage of food. Structural shortages of non-discretionary items can’t be fixed with raising rates. Basically prices will continue to rise until demand destruction takes them back down. Demand destruction of non-discretionary things is not good.”
There could indeed be a lot of unintended consequences from the many who are less fortunate than most of us here. So I am more and more hunkered down in a field smelling strongly of petroleum. I’m also looking favorably again at those illiquid IG utility preferreds that have paid for decades. I feel utilities are much more essential than other, more discretionary things, even if they pay a point or three less.
What was it that old sergeant said on every episode of Hill St. Blues when the shift changed? Oh yeah, it was, “Be careful out there.”
JMO
camroc–no doubt ‘be careful out there’ is great advice.
Camroc, I am trying to remember that for me credit quality matters with company access to capital. I read an article this weekend that mentioned a few things that stuck (reminded me) with me.
Good article…
https://trib.com/ap/national/interest-rates-sucking-life-out-of-zombie-firms/article_de7e530a-2c36-59ae-a592-cee0583d5e6e.html
Cruise-ship operator Carnival sold $1 billion of eight-year notes that yield 10.5% earlier this month, a stark contrast to the $2 billion it was able to raise just seven months prior at a rate of 6%.
Grid, Boring I know, but credit is always my #1, yield 2nd, and S&P and Moody’s aren’t perfect, but they’re darn sure smarter than I am. Knowing nothing, I am buying again now about every other day, expanding current positions only with bids laddered below my last add – many of which were two years ago – but like you mention – always thinking about enterprise risk especially now it appears it will not only matter, but be consequential.
I purchased 2 utility common 2 mos ago. Long term view. Pref are a good idea which I will act upon. as I note: a) NY political nuts are banning new natural gas stoves….must be elec..b)n I think all the EV hook ups will use a lot of juice. c) same nuts banning a new gas pipeline line thru the state. Coal plants closed. Nuke plant closing. Just water, wind and Sun baby!! (No thoughts about where/how to store the juice).