We are now about 8 1/2 months into the 1st year of the Medium Duration Portfolio which can be seen here and the model has performed almost exactly as expected. The portfolio is up 4.13%
Recall that we have always put together model portfolios on our various websites. These serve the primary purpose of educating newer investors to investing in preferred stocks and baby bonds, although they also serve to help us personally determine what will work for us.
In the case of this model we attempt to earn a decent return (not spectacular–just decent–say 6-7%) as compared to municipal bonds, CD’s and other lower yielding instruments.
It is required that securities held in his portfolio have maturity dates or mandatory redemption dates within 10 years–although we would prefer 5 years.
Issues within the portfolio are not traded unless there is an obvious reason to do so. This is because most investors do not either have time or do not have the desire to trade day to day–they are happy with a fair return. No capital gains are likely to be realized in the portfolio.
We should note that there is 1 issue, the Gabelli Go Anywhere Fund preferred–GGO-A, is a puttable preferred–without a maturity date. We are able to hold shares in this portfolio as we may ‘put’ them to Gabelli in either 2019 or 2021 for $40/share. After 2021 the shares become perpetual.
We have just finished a quick review of this portfolio and do not see any reason to make any changes in the portfolio at this point in time.
19 thoughts on “Medium Duration Income Portfolio Performs Well-Corrected”
GLAD today announced that it plans to make a public offering of Notes due 2023 (the “Notes”). The Company expects to list the Notes on the Nasdaq Global Select Market under the trading symbol “GLADD” within 30 days of issuance.
I see them now–thanks for the heads up. Notes from them is a new one–instead of term preferreds.
No reason to panic for this issue, but your comment provides an opportunity for a reminder. Any time one basis a preferred purchase based on “little debt” premise needs to know the bricks can be stacked up above you at any time…The unsubordinated, the senior unsecured, then the senior secured, etc….Then its ouch where did my money go! 🙂
TIM, thanks for the 2 portfolios. They are definitely very helpful for someone starting to invest in preferreds, although I realize they are not recommendations for all risk profiles.
SPKEP in the high yield portfolio has been going down steadily for about a month now with no out of the ordinary news. Sometime back you thought of adding to this position around these levels. Any thoughts???
Hi MFZ—I am going to write on the portfolio with the Spark Energy preferreds next.
I held as much as 1000 shares of spkep, but cut it back on the last pop–I still painfully hold shares.
I think we are in the ‘prove it’ part of the Spark Energy business. 2 quarters ago they had really crappy earnings. Then last quarter was ok. Tomorrow they report earnings and I expect them to be decent (based on what they have publicly said–which isn’t much). I am hopeful this will provide a lift of a buck or two on the preferred over the course of the next month–if not I have to consider my next move. This has easily been my worst holding in years and I think it is relatively safety–BUT apparently I am in the minority.
Any thoughts on TNP-C, 8.875% yield, below $25 par, with looming failure to redeem clause in two years? Looks tempting to me.
Hi Gumfighter–thanks for bringing that one up. Obviously I don’t ever recommend buys and sells because each investor can undertake various levels of risk—-BUT with the 10/30/2020 failure to redeem clause and ensuing 11.1% penalty rate immediately after this date this is a very interesting issue. I just reviewed the financials and they are respectable for a shipping company. Additionally they have quite a bit of cash on hand.
Because of the failure to redeem clause, assuming the economy stays out recession, this issue should trade around 25 for the next 2 years—moving mostly for ex dividends and accrued dividends. I see it went ex-div a week ago so it is just below 25.
An investor who is willing to incur some amount of risk would likely do well in the issue—near 9% is a decent risk/reward proposition. Obviously being a shipper of any kind there may well be volatility–no matter how it looks now it is still a shipper and they are not known for being high quality.
Thanks so much Tim.
SLDD is now ticker RCP, for Ready Capital Corp. SLDD is no longer trading from what I can see.
Thanks G–I had updated the other pages, but missed this one–corrected.
Very interesting timing of this report. Just yesterday, I selected several of these issues as a somewhat small supplement to my personal holdings BECAUSE the performance of the portfolio has been very good. For an investor, like myself – fairly conservative, who likes to have a credit rating on an issue, your two model portfolio helps me identify some of the unrated issues to consider.
VERY VERY Helpful
Thanks SteveA–I think we invest alike.
Steve, this doesnt work for issues with no public bond debt. But for many issues you can rate the preferred without a brain. Look in Finra and if they have a senior unsecured rated bond drop it 2 notches. It is junior unsubordinated rated debt drop it one peg. And viola you are a gifted preferred stock analysist!
awesome. I will try it. Thanks
Hopefully, you know about FINRA. It was a little wonky for me at first but I finally found the bond search engine in it. Let me know if you have any trouble. Big 3 ratings agencys just “slot” the preferreds like I mentioned above. They really just rate the bonds and slot preferreds in the cap stack. Take a recent one a few of us bought here…GLP-A…It is not rated but their senior unsecured 2023 maturity is rated “B2”. So GLP-A is really a CCC+/B3 rated issue. This is just a borderline CCC issue, but a true solid CCC issue on average would have a ~50% chance of bankruptcy over a rolling 7 year period.
I have a chart that has the data for a large study on default rates. The average historical default rate per year for a B3/B- issue is 7.62% and CAA1/CCC is 10.23%. Apply that and you end up with Grid’s figure of around a 53% default rate over 7 years as a very rough estimate for what percentage of CCC issues will default.
Hi Tim, Thanks forthe medium term portfolio and brief. Is there a typo on the GGO-A’s “second put period?” Should it be 2021 rather than 2020?
I spotted following excerpt in IPO Prospectus:
The Fund will repurchase all or any part of the Preferred Shares that holders have properly submitted for repurchase and not withdrawn during the thirty day period prior to each of September 26, 2019 and September 26, 2021 at the liquidation preference plus any accumulated and unpaid distributions.
Thank you Tim.
Thanks aarod–will check and correct.