Model Portfolios Get In the Black

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.


10 thoughts on “Model Portfolios Get In the Black”

  1. Took the plunge and picked up LANDP, RILYI and ECCX Today. I’m retired and willing to hold ECCX for ten years to mandatory call. I realize that’s beyond Tim’s comfort zone at the moment. Completely understandable but I also have ECCA and fearing that might called. Also have RLYZ, AFHBL, COWNZ, AGNCB, BCGA, CHCSL, OXLCO, SSWA AND SOHOK And various prefereeds, cef’s Bdc’s, commons, etc. I’m all over the place, lol.

    1. RW,
      Are you aware that 18-21% of COWN’s float is shorted?

      That’s a lot of people betting against you. I was intrigued until I started digging deeper into their financials and see how poorly they perform compared to RILY or GAIN. 1/2/or 5yr chart is a big tell of the differences.

  2. Opened new positions this week in GAINO, GLADN, GAINN, and SOHOK.

    BGCA is holding up very well, as is TSCAP. NSS is also holding up well and the RILYG and RILYZ flavors are hanging in there.

    As you know, the GDL.C ran up and is staying well above par.

    Things on the common stock side of the ports are not doing very well at all. Even when many companies report earnings and revenues beats, as well as issue upside guidance – they sell off – save AAPL today.

    The Fed really needs to back off after raising one more time this year, IMO. Yet, I keep hearing more and more talk of them actually raising MORE than what’s already been floated out there.

    No wonder the market is trading so horribly on the common side of the books.

    Great article Tim, thank you for posting.

    1. GW–your portfolio must be 90% similar to mine. I sold the GDL.C on the runup and hope to snag it in the future.

      Also just picked up some NSS again–I say I don’t flip–but opportunistically I do. Was out of it and now back in at 25.16 since we already have a month of accrued interest in the bag.

      I think the Fed can do what they do–on the long side of interest rates I think balance sheet runoff and a 600 billion deficit will drive those.

      1. I’m in the process of cutting back on the DGI mentality and moving more towards the “fixed income” side, but I really hate that term because so many folks flip, or buy convertibles or floating rate securities. Anywhoooo…

        While not happy owning anything BDC related, I do study the charts and have an affinity for monthly payers – same as you. The Gladstone’s are good to have in small lots and I can’t wait to get my hands on LANDP.

        I’ve been nibbling at NSS at $25.10. Gridbird made me buy it!

        GDL-C is one you and I got into at the same time, roughly, but I’ve continued to hold it. Have been happy with it. Have too much going on – on the common side to be flipping anything right now. Was happy to see NS report good news recently.

        As for the Fed, like you say, flip a coin. This market is rudderless right now and even the great companies are being turned upside down by the flight to fixed income or fixed something. I surely wish that Trump had never uttered the word “tariff”. That’s when the wheels really began to fall off of just about everything and now that he’s delayed the ‘ruling’ by one month – it just gives the sellers one more reason to be uncertain about what to do.

        That’s my story and I’m sticking to it.

        1. GW, you never have to apologize for not flipping. The reality is they really werent made for that purpose anyways… Yes, I have been able to grind out better returns, flipping but someday that may turn, and some arent always better by flipping. And also, I have many in the sock drawer I dont flip or st least always hold a core position in. Holding good solid issues you feel comfortable owning and letting them do their own thing while you collect the dividends is certainly a sound strategy!

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