I normally have smaller capital gains and smaller capital losses than maybe the typical perpetual preferred investor–and I give up some higher potential coupons in doing so.
Closed end funds (CEF’s) can typically sell lower coupon preferreds because some of them sell ‘term preferred’ issues. A term preferred has a stated mandatory redemption date–not unlike most bonds–versus a perpetual preferred which has no mandatory redemption date whatsoever and may be outstanding for 100 years (of course no one knows for sure). This typically means that the ‘term preferred’ is less volatile than a perpetual preferred and the losses and gains that occur over the course of a year or 2 are minimized–all due to the ‘date certain’ redemption date which is typically 5-6 years or less.
Additionally CEF’s have to maintain a 200% asset coverage ratio on their ‘senior securities’ (debt and preferred shares). This is an added level of safety.
My 2 largest holdings–by far are the RiverNorth Capital and Income Fund 5.875% term preferred (RMPLP or RMPL- or RMPL-P or others as all brokers have a different ticker for this one) and the 6.50% XAI Octagon Floating Rate and Alternative Income Term Trust term preferred (XFLT-A).
Note that the mandatory redemption on the RiverNorth issue is 10/2024 and the XAI issue is 3/2026.
The reason I hold these–and have for years–is because it is a reasonable coupon, they have to maintain a 200% asset coverage and the movement of the share price is relatively minimal (compared to a perpetual).
Do I like the closed end funds–not really–to me they are dogs and in the case of the RiverNorth issue is not well managed. This means I keep an eye on the funds even though I don’t hold the common shares–this is not a ‘set it and forget it’ investment (to me there are no such things).
Here is the RiverNorth issue for the last 4 years. Compared to a perpetual it has had a tight range.
At this point in time these 2 issues should only be bought around $25–and both have been trading near there for the last month.
13 thoughts on “My 2 Largest Positions and Why”
Tim – Don’t know where else to post this, so we’ll try here: Do you or anyone know the answer to this definitively? If a CEF or a BDC issues preferred shares, does it get counted in whole or in part vs the 1940’s Act calculation of asset coverage ratios?
My largest position:
2-3 Yr CD’s with an average of 4.95’% making up 44%
Next is 3 CHS preferreds L,N,O…making up 15%
The rest are preferreds and MO and ENB and WPC
My overall yield is 6.0%..I am 72 and capital preservation is my goal…
I need an intervention as my investing T level seems to be getting lower. My biggest single issue hold is IBonds, but CDs are about to move up into the one hole after I put some more cash to work. The biggest individual issue isnt much better being it is ALL-B. Collectively however I guess its Philadelphia Electric trust debt of KTH along with the 2028 and 2033 trust debt bonds. Quite a few of mine are muddled together at roughly the same amount. I suspect many have a specific percentage for each issue and stay disciplined in that manner which is a good way to do it also.
River North not getting a lot of respect. By the market pricing
look up opp-a/b
If you Prefer – I want nothing to do with the commons shares. They have switched strategies 3 times in 5 years or so.
Strange but when I look at the XAI (XFLT.PRA) issue on Schwab ( it comes back with the fund price – not the preferred).
Resolved – its XFLT/PRA
Tim, you wrote an SA article a few years ago about term preferred’s. Think you mentioned companies don’t like doing them as much as they used to. Have you come across any recent ones to add to your list.
“to me they are dogs and in the case of the RiverNorth issue is not well managed.”
Yes many are Ponzi schemes , others are well managed and provide income and growth beating the long term performance of the SPY, I.e. UTF, UTG. Consistent high dividends sine 2005. Not all are dogs.
I have some of the the Priority Income Term Series…PRIF-H —definitely more volatile than yours have been.
Mseni19–I have 2 of those also, but in smaller quantity. PRIF is managed by the hated Prospect Capital so that brings a baggage onto the Priority shares.