Model Portfolio Adjustments

We had mentioned a week or so ago that we needed to broaden the model portfolios to include more total issues as well as adding representation from a wider variety of businesses.

To begin to accomplish our goals we had to adjust the “rules” of our model to allow up to 25% of the holdings to be in securities that are long dated in maturity–after 2029. Originally to reduce interest rate risk we wanted to own only shorter dated maturities, but this leaves us with a very small pool of potential investments and a high percentage of those are Business Development Company (BDC) related.

We had written–here–that the Medium Duration Income Portfolio only had 11 issues in it and a large share of the issues were Business Development Company related. Some were term preferreds while a larger portion of the holdings were baby bonds. Very simply, 11 issues in a $103,000 portfolio is probably too few–only 1 mistake (as we learned) and quite a bit of pain can be inflicted on net asset value. Of course most of us use 1-3% in our real life portfolios so to make these models more useful they should be less concentrated.

Since this model had 400 shares of the OFS Capital 6.375% (NASDAQ:OFSSL) in it we went ahead and sold 200 of the shares. We then purchased 200 shares in the newer First Internet Bancorp 6% baby bonds (NASDQ:INBKZ) and since we had plenty of cash on hand we also added 300 shares of the Affiliated Managers 5.875% baby bonds (NYSE:MGR).

This move reduces our BDC exposure while adding a banking issue as well as an asset manager to the mix. This is a good start and I will be making further adjustments in the weeks and months ahead.

6 thoughts on “Model Portfolio Adjustments”

  1. Tim, what are your current thoughts about Conifer Holdings 2023 bay bond? Back in October you said you would be interested if it dropped to $24. Trading today at $21.72

  2. What is the credit rating on INBKZ, and more importantly where can i find this information on baby bonds? Quantumonline doesn’t show ratings on many issues.

    1. GR,
      The only info I can find is this: Kroll Bond Rating Agency: BBB-(Negative). Moody’s doesn’t have a rating that I can find for this ETD. I do own it myself.

  3. Tim, you have First Internet Bancorp 6% baby bonds (NASDQ:INBKZ) listed as Qualified: Yes. To my knowledge, baby bonds are not qualified income.

    1. Thanks Zwei–fixed it. No baby bonds are qualified–late night work creates errors in old people (me)

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