It has taken a few months to get the model portfolios into the black, but they have now gotten there–hopefully they will remain there for the balance of the year. New portfolios always take some time to get in the black as we can’t book dividends for the 1st month or two because we do not time portfolio construction to capture dividends and many times we miss the ex-dividend date.
Recall that these portfolios are not meant to be traded–at least very often, and are meant to be ‘low stress’. For us feeling like we have to ‘babysit’ investments is something that causes me stress. We prefer to be lazy and invest and then kick back and monitor instead of babysitting.
These models are not meant to replicate how many of our readers invest as many readers ‘flip’ preferred shares for 25 or 50 cents as opportunities arise, but I am not able to do that now as it takes a bit of thought and research and we have our hands full right now.
The Enhanced High Yield Portfolio has been a bit of a disappointment (but now up 1/2% after 3 months), but we are patient and as long as we believe we are heading in the right direction we stick with investments. Spark Energy 8.75% fixed to floating preferred (NASDAQ:SPKEP) has not acted like we thought it would act. This issue was originally issued in March, 2017 and traded as high as $27.50/share in late 2017. The company re-opened the issue in January, 2018 and this knocked the shares down to $23. We had purchased too early at $24.54. Fortunately shares have recovered to $23.83 now and we believe the recovery will continue–the company announces earnings on May 10th and we are hoping for a good report. Whitestone REIT (NYSE:WSR) has performed poorly and reader beababbage had questioned that original purchase. She was right to question that buy and we are looking to exit soon on a losing position. The reason we will exit is because the company has hinted that a reduction in leverage would be desirable and this can only mean the issuance of more common shares and we don’t want to be around when that occurs.
In the end when you have a couple losers in a relatively concentrated portfolio it easily eats up a month or two of dividends.
The Medium Duration Portfolio is performing about as expected excepting for the 6.625% baby bonds from Atlas Financial (NASDAQ:AFHBL) which tumbled after the company booked a huge reserve for prior losses (they are a specialty insurance company). The company lost some credibility in our eyes with this ‘surprise’ reserve announcement and on May 8th they will announce 1st quarter earnings and we expect NO surprises. If there are surprises we may have to exit, because credibility is important to us.
Additionally the portfolio held Arbor Realty baby bonds (ABRN) which were called last week–this loss is painful as it is pretty tough to replace a 7.375% coupon with a short/medium duration term preferred or baby bond.
This portfolio is up just over a 1/2% in almost 3 months.
As we have predicted in many of our writings it will be tough for income investors, who are ‘buy and hold’ investors to make much of a return this year. Rising interest rates will pressure share prices so dividend/interest gains will likely be offset by some capital loss. This is where the ability to do a little ‘flipping’ can be advantageous to the income investor–those gains of a few hundred here and a few hundred there can help juice the returns.