Medium Duration Fixed Income Portfolio Keeps on Trucking

Our model portfolio which we call the “Medium Duration Fixed Income Portfolio” just keeps trucking along as originally intended.

This portfolio has hardly been touched since it was originally composed on 2/8/2018 and that was the intention of the portfolio.  This portfolio is not intended to be ‘traded’, ‘flipped’ or be changed at all.  If an issue is redeemed (or called) of course the portfolio has to change as a new replacement issue is added.  Additionally if we saw obvious problems with a particular issuing company we would probably exit the position.

To date the portfolio has a gain of a bit more than 3%–which might seem meager, but we couldn’t book any dividends or interest to speak of until March as we had to wait after purchase a dividend/interest cycle to occur and we did not have the portfolio invest in full (or near full) until April.

One of our readers ‘Bea’ asked about the reality of the portfolio–they are simply ‘model’—BUT generally this is how we invest and we personally own 6 of the issues (out of 11) in our personal accounts.

Who is this portfolio intended for?  A somewhat conservative investor who was a respectable income stream without expectations of capital gains.  When we originally introduced similar portfolios they were meant to give a return to a conservative investor who no longer had the option of CD and Money Market income–obviously this portfolio is not as safe as CD’s and Money Markets.

The portfolio is about 93% invested and we have 1 item to add soon (we need to add a UHaul Investor Club portion).

17 thoughts on “Medium Duration Fixed Income Portfolio Keeps on Trucking”

  1. hi Tim, in the Medium Duration Fixed Income Portfolio you have Rivernorth as one of the holdings. The ticker shown is RMPl- which isn’t recognized by the trading platform I am using. Is the ticker RMPL/P ? that shows up on my FIDO system. thanks

    1. Hi Rich–yes that it is. It is a closed end fund–non publicly traded and they hold a portfolio of loans from peer-to-peer lenders. I sure am not high on peer-to-peer but given the asset coverage ratio–around 300-400% it is a pretty safe holding. Also it is a term preferred with redemption mandatory in 2024.

      1. Tim
        If RiverN is not openly traded, then how does one buy it? Probably an obvious answer but fail to see it. TIA your timely reply and also all the work you have put into this site.sc

        1. Hi sc–you can buy the preferred, but the closed end fund (RiverNorth Marketplace) has a $1 million minimum. The preferred can be bought through any normal brokerage account. The ticker on the preferred on etrade is RMPL.PR and on Fido it is RMPL/P.

    2. Blue, you know better than to worry about this stuff… Just load up on AILLL at appropriate price point and collect your 100 times divi coverage at 6.25% QDI, and call it a day. Have I ever steered you wrong? 🙂

      1. Why wouldn’t you have to worry about AILLL being called? It is never less than about $26 so you have to wait out most of a year to break even with the dividends, and if it is called during that period you are underwater. I am not averse to buying such issues if I have a good reason to think they won’t be called, but this is one of their higher return issues and is past the call date. There was an AILLG that has already been called. Thanks in advance Grid.

        1. Scott, its been callable since 1998. Trust me there was no such thing as AILLG. That is AILLL reincarnated at preferred merging in 2010. See all these Ameren preferreds are bastard preferreds. They were just assumed from previous mergers of smaller utilites bought out.
          They have a 7.75% on the books too. But guess what? The holding company (AEE) owns 96.5% of the float. They did not redeem them they are holding them. The other 3.5% of the open float rarely trades.
          No issue has ever been called, only few were at acquisition time of the company that was acquired. Many of these date back to the 1940s. None of these were issued by present day holding company.
          But there is always tradeoffs. The benefits are you are getting top of the line relative yield, ~ 100 times coverage and growing, and tremdous back side price support on yield increases do to its “call risk” keeping it within shouting distance of par. If it was uncallable it would be trading at $35 based on all other illiquid uncallable ute preferreds left in the universe. There is no cap gain available at this price, but it does move up and down 40-50 cents which I have exploited through the years to get a total snoozefest 12% yearly return almost every year. But it does require work, and I enjoy it as a hobby. Others just buy for the 6% safety and dont worry about it.
          I think price point matters, but $26 is probably a wish. So you have to decide to you want relative above market yield and safety and risk the the above par price? BTW, next divi was just declared Friday. Its a persoanl decision, but I love these and have been personally rewarded goosing returns while staying safe and risking call in issues I have researched to determine it is worth the risk/reward. That is a persoanl decision.
          Another one to consider is UNsubordinated debt baby bond AGO-B. It will go exD this month and if bought at 25.88 you are basically risking 45 cents for a 6.75% yield BAA2 rated (allowing for accrued interest payment coming soon).
          They have shown no inkling to call anything and have 7% BAA2 true bond trading at $114 now that matures 2034 and has been callable for years also.

          capital position could absorb losses on its entire exposure to issuers in Puerto Rico of roughly $3 billion and…there would be no change in Assured’s capital adequacy score or financial risk profile”
          https://assuredguaranty.newshq.businesswire.com/press-release/other/sp-affirms-assured-guarantys-aa-financial-strength-ratings-stable-outlook-1
          Its past call and doesnt mature until 22nd century, but that is no different than a perpetul preferred issued. Plus it is a bond with covenant protections and call risk will mitigate price losses to say those ridicuolus 5.5% perpetuals coming to market now people are blindly sopping up.
          Just something to think about. Everyone has to measure there own risk and rewards. Heck, I got a trust preferred $3 over par with a 7.4% present yield I am holding that is over 15 years past first call date (2028 maturity).

        2. Scott, trust me there never was an active traded AILLG. This is a merged reincarnate of AILLL. In fact AEE has a 7.75% on the books that they personally HOLD (not redeemed) 96% of the float on their books. The remaining 4% is outstanding and rarely trades. You need to know all these preferreds were bastard preferreds never issued by present holding company. Some have been around since 1940s. None have ever been called though some were retired predetermined at acquiistion of that specific company.
          The issue being addressed has been callable since 1998 from its previous issuer.
          One has to decided if they want relative above market yield and safety with call exposure or take lower yields and risk getting whacked in the behind with lower quality and lower yield just for call protection. These preferreds are covered by ~100 times and growing. You aint finding coverage ratios like that growing on trees. BTW, latest dividend was just declared yesterday for next quarter. If I had to buy only buy call protected or below par issues, I would have my entire preferred porfolio about wiped out. I have been playing this game for years and have never had a call beat down. Nothing is guaranteed though. Heck I own one that is 7.45% and $3 above par and past call for 15 years (2028 maturity, its an awesome flipper can bounce $2-$3 in a day on any volume).
          One you may also look at is AGO-B. It just got in with a decent slug at $25.88 and it goes exD end of the month. So basically allowing for accruel, its 6.75% UNsubordinate debt with a BAA2 rating. Not many places to find that. And Puerto Rico? This is what S&P said a little over a month ago.

          In its June 26th report, S&P noted Assured Guaranty’s:

          “very strong capital adequacy”
          “proven track record of credit discipline and market leadership in terms of par insured and premiums written”
          “diverse underwriting strategy” with “a well-thought-out and measured approach” to international infrastructure and global structured finance transactions
          “capital position could absorb losses on its entire exposure to issuers in Puerto Rico of roughly $3 billion and…there would be no change in Assured’s capital adequacy score or financial risk profile”

          They have shown no interest in redeeming anything. They have a 7% true debt bond issue that trades at $114 (2034 maturity) that has been callable for years and no redemption has ever occured there either.
          It just depends on how you want to play the game.

          1. Thank you very much for the detailed reply. It is very generous of you to share your time and knowledge.

            Last night I took the list of preferreds Tim so kindly provided and calculated the price movement of each of them. The ones which trade in the narrowest range tend to be ones which are near or past the call date, which is exactly what I expected to see. It is just hard to tell which companies intend to call their issues. Regions has an attractive issue that could be called at any time for instance. The price is such that I think it is worth a shot since I just have to make it past the next dividend to be close to even, but I am not sure I could get the transaction logged before the record date on that one. I had ECCA at a decent price, but dropped it thinking they would call it before I earned the premium back — bad call on that one.

            I will take a look at the issues you mentioned. I think I have enough of the riskier issues and am looking for opportunities to buy things I can hold for the long term so hefty dividend coverage and stouter credit ratings sound good.

          2. Grid, I know that you primarily invest and speculate in your IRA’s. I bought some excellent tax free Puerto Rico insured bonds (some insured by AGO) in my taxable account(s). I view these as quite safe as they continue to pay their distribution each 6 months without fail and I will hold them until call or maturity. When you compare these tax free PR bonds to equivalent non-PR tax frees (with the same rating and insurance) you will find the PR bonds yields are far superior. Wishing you profitable investing, Nomad

          3. Nomad, I am such a small fish, I have never even looked at tax free bonds. If my flipping keeps going well maybe someday, lol. My pension keeps me at top of 24% tax bracket and I am about to spill up to the next. Maybe it would be wise some day for me to sharpen the pencil and see if any would benefit me if yields creep up more.

        3. Scott, I always glad to share, but just make sure it fits your investing goals. I tend to like to be a dirty preferred stock day trader as it is so easy to goose returns. Even with my beloved AILLL, I will build my stash back up and swear I will never flip them again, and then suddenly they get bid up 50 cents, and I cant help myself and unload as many as they want knowing I can most likely get back in 50 cents cheaper and never miss the divi either, thus doubling the returns….I have other friends who wouldnt dream of selling anything and they just want the income stream and they are fine with that.
          As far as determining which preferreds stay outstanding or get called is a bit science and art, depending on the situation. Generally the bigger the float the more likely it gets redeemed. Also if “sister issues” are going to market 50 basis points lower that is a telling sign it might go also. There is some cost bringing an issue to market (generally 3-6% of market value) so that needs to be factored in. Banks and financials tend to be quicker with the hook, the trust preferreds have been different as grandfathered issues still get a tax write off that actually lowers the effective yield cost. Some trust preferreds still trading at 7-8% seem high, but after taxes the cost yield is lower than if they redeemed an issued a QDI replacement. And some old issues are of such relative tiny floats like AILLL, there is no cost savings in redemption as it is just an office soda petty cash fund value to a $15 billion plus market cap issue. I have about 20 issues, and collectively they look like a mismatch of island of misfit toys. But they collectively serve their purpose in balancing yield, flip potential, safety, term dated, and some higher risk thrown in also.
          Then you just get some mysteries like AGO for example. But the risk/reward is good because it stays anchored relatively close to par anyways.
          If I was a true “buy and hold” person, the issues I own would probably be different than what I have.

  2. This is great. I look forward to adding some of these holdings in the future as you add to this portfolio. Interestingly enough, I was going to take the 10% I set aside and invest in a “basket” of non investment grade issues. My portfolio included just about all the names in yours. I backed off, because I felt I was selecting in the blind. Analyzing a company’s balance sheet is not my strength and a person should understand their limitations.

    This will be a great source for me to help select my non-investment grade slice.

    1. Hi Steve–just remember that many of these are really dicier holdings–if the economy heads south–for now they are ok..

  3. Tim, what’s happening with your other 3 portfolios? Are you running them also?
    Mark

    1. HI Mark–yes I am and am due for an update–they continue to perform exactly as planned. Will post some info in the next 48 hours.

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