Monday Morning Kickoff

Well the markets gyrated around a bit last week, but in the end the S&P 500 ended up going nowhere closing almost exactly where it started the week.

Interest rates had a bit more (a very little bit) movement than the stock market as the 10 year treasury opened the week at 2.14% and moved around to as low as 2.07% before closing the week at 2.09%.

All in all a quiet week really, but we all know that this Goldilocks marketplace can continue for months, or it can spin and change on a dime and no one is going to blow a whistle letting us know in advance of changing markets.

The Fed Balance sheet grew by $2 billion last week–taking a breather from the $55 billion runoff from the previous 4 weeks.

The average $25 preferred stock and baby bond closed last week with a loss of 4 cents to close at $24.87–for all practical purposes this is flat with no movement (unless you owned some of the Ashford Hospitality preferreds which got battered on a common dividend cut).

There are now 201 issues trading at $25 or below compared to 202 issues last week–again nothing really changed through the week.

Last week we had 4 new income issues announced. 2 baby bonds and preferred issues.

REIT Armada Hoffler (NYSE:AHH) announced a nice 6.75% fixed rate. This is a typical REIT preferred–cumulative, perpetual and unrated. The issue is trading under ticker AMAHP on the OTC Grey market and traded between $25.20 and $26.30 before closing the week at $25.75. Permanent ticker will be AHH-A.

Armada Hoffler final prospectus

Voya Financial (NYSE:VOYA) announced a marginally investment grade fixed-to-floating rate preferred issue with an initial coupon of 5.35%. This issue is trading on the OTC Grey Market under ticker VOYXL and struggled to close the week at $25.29. Permanent ticker will be VOYA-B

Voya Financial final prospectus

Great Elm Capital (NASDAQ:GECC) sold a baby bond with a fixed rate coupon of 6.50%. GECC is a BDC and potential investors would do well to review the companies financials prior to any investment. The issue has a shorter maturity in 2024, which could help performance of the shares. The new baby bonds will trade under ticker GECCN when they finally trade–sometime in the next week or so.

Great Elm Capital final prospectus

Lastly utility Sempra Energy (NYSE:SRE) sold a baby bond with a coupon of 5.75%. The maturity on this one is way out in 2079 and the bonds do have the fairly normal deferment clause that allows up to 40 consecutive quarters without a default being declared. Of course being a California utility attention should be given to potential liabilities for future wild fires etc. prior to investing in this one–personally I see no reason to by an issue with this kind of coupon with real (or imagined) risk. The ticker is not known, but the issue should trade in the next week or so.

Sempra Energy final prospectus

10 thoughts on “Monday Morning Kickoff”

  1. Skg… I found this line from the IHIT prospectus to be interesting.

    “The Fund is a target term fund, and the Fund should not be confused with a target date fund, which has assets that are managed according to a particular glide path that illustrates how it’s investment strategy becomes increasingly conservative over time.”

  2. Good morning Tim, and thanks again to you and the group for sharing your knowlege and expertise. I continue to learn, albeit very gradually. I hold a fair proportion of cash both because I see significant risks on the horizon and, as so often lamented, prices are seemingly high. I have utilized KYN-F as you have advised – and so appreciate that advise. Since it now is short lived, do you – and any of the group – have other recommendations for cash? GGO-A? Thanks again all.

      1. Affinity- can you explain something about these investments to me. In particular, the way I understand it, these investments have a liquidation target roughly at $9.85 a share according to Tim’s website (closed end tab). Does this mean when these funds liquidate, they will sell at 9.85? If that is right, and given that the shares currently trade close to $10.35, isn’t that somewhat a concern? Thanks in advance to you or anyone for clarifying.

        1. Please see the following:
          https://innovativeincomeinvestor.com/invesco-high-income-target-trusts-2023-and-2024/

          We discussed it here, previously. I think you’re on the right track with your thinking. It is certainly selling for a premium, but you’re paying for the income you’re getting until maturity – like with any other ETD or preferred. The lower interest rates have gone, the higher these have risen – so that’s also a factor. People are fleeing to higher yields than they get with treasuries, among other reasons. I held both IHTA and IHIT until last week, when I cashed out of IHTA. I redeployed into AMAHP instead for a higher yield.

        2. Skg – If you’re just starting out learning on these types of CEF funds, there are few things to know that I don’t think were in A4I’s innovativeincomeinvestor link, though I only skimmed it… First, all the similar target funds that have a declared target return amount do NOT guarantee that returned amount. So you cannot assume 9.85 as a given in your example. However, there are plusses and minuses to that because what they will pay is the actual NAV at the target date. So it’s possible that NAV could be higher, not lower, however, in most cases that’s not likely because of the way the fund will be managed. Secondly, with the target in mind, you can ESTIMATE an anticipated yield to maturity as if the issue is a bond. That allows you a way to estimate what you can expect in overall yield if you buy at a price over the targeted price of 9.85 in your post using current yield as the coupon yield, 9.85 as par, and maturity as maturity. However, you have to take into account that current yield will go down, and probably go down substantially as the security closes in on maturity, so it’s always a little bit of a guessing game. Also, if you;re studying the class of target CEFs, please note that not all of them commit to trying to return a targeted amount as IHIT does..
          Then finally, IMHO, there’s an ambiguity in the common language that I’ve never been able to get a definitive answer regarding its actual meaning.. So many of them, including IHIT, say something similar to their statement, “The Fund’s investment objectives are to provide a high level of current income and to return $9.835 per share (the original net asset value (“NAV”) per Common Share before deducting offering costs of $0.02 per share).” To me, that COULD mean that they are aiming to return $9.835 MINUS $0.02 per share or actually $9.815. Am I the only one who thinks this language is ambiguous or has anyone ever questioned this? The only one I own is EHT which has the same language and I’ve used the lower number in my assumptions.

        3. Use CEFConnect and get to know everything that is on the page for a CEF. There are links to their parent home pages and all disclosures. (Of course, knowing some of the rudimentary investment rules are applicable, ie duration, use of leverage, etc.) I pay especial interest to the actual portfolio contents in a given CEF as a dig in.
          Never forget, that a group panic will prob impact all issues in some way, so my personality (lane) is to know the quality before a downturn so I am prepared and then step-buying into lower prices of the best targets.
          Good Skills, JA

          1. Good advice, Joel. However, just like quantumonline, one should not take Cefconnect as gospel. For example, looking a little bit into IHIT specifically, you’d have to wonder how a 2024 term cef could have its Top Holdings all with maturities of 2046 or more…. When you look at the actual annual report, http://hosted.rightprospectus.com/Invesco/Fund.aspx?cu=46135X108&dt=AR&ss=ce that doesn’t seem true OR if it is, it’s because they own all CMOs and CLOs with nominal names that include those dates but they own tranches that apparently are projected to come due within their target maturity range. Can’t say I’m all that familiar on how CMOs and CLOs should be identified as maturities, but still, CMOs and CLOs…. as you say pay attention to the contents and be sure you’re comfortable with what the cef owns.

            1. You have to be careful with term maturity CEFs – there is no requirement that they hold securities that mature on or before the fund closing date. Oftentimes, they will juice returns by buying long-term dated securities now, and when the fund matures down the road, those ‘longer-term’ maturities now become “short-term/intermediate term” maturities. If their yield curve gamble is correct and it stays the same (or drops), then those once-higher-yielding intermediate and long-term bonds are now (relatively) high-yielding short-term/intermediate securities, who’s principal rises. So not only do they get higher income due to buying higher yielding securities, but at the end of hte fund when they sell off any remaining securities, there will be a gain.

              Of course, if the yield curve inverts, or the entire yield curve rises, they (YOU) take a hit. This likely isn’t for a huge part of the portfolio, but may be part of their portfolio strategy.

              1. Thank you all for the excellent education. You all confirmed pretty much what I thought on these issues regarding the target price. Steve

Leave a Reply

Your email address will not be published. Required fields are marked *