Even though we maybe have reached a point where the 10 year treasury yield has backed off a fair amount in the last month from higher interest rates portfolios composed of primarily perpetual preferreds and longer dated baby bonds have struggled to move higher.
Recall that these portfolios were started with $100,000 each and the idea is to seldom trade the portfolios. It is our assumption that most income investors doen’t do a lot of ‘trading’.
Porfolios with short dated maturities such as term preferreds and baby bonds with maturities in the near future have outperformed their higher coupon ‘cousins’ as they have incurred far fewer capital losses.
Our Enhanced High Yield Fixed income Portfolio now has a gain of 3.42% since the portfolio was initiated on 1/25/2018. While the portfolio holds many issues with coupons over 8% capital losses incurred as interest rates rose throughout the year. The portfolio incurred a capital loss of about $2,000 through November 30th–near $1,000 of this loss was from Spark Energy 8.75% preferred (NASDAQ:SPKEP). With 2 months to go in the 12 month period it is likely the portfolio will end the 12 months with a gain of near 4.5-5%. Since inception their has been just 1 sale from the portfolio.
The Medium Duration Income Portfolio currently has a gain of 4.09% since the portfolio was initiated on 2/8/2018. We consider this portfolio relatively conservative-although the issues in the portfolio are all unrated. We own only issues with maturities dates of less than 10 years and most are in the 2-5 year range. The short dated maturities mean that the volatility in pricing is reduced and that level of capital losses is kept lower than ‘perpetual’ issues. The portfolio has incurred a capital loss of about $600, which goes to show that even short dated maturity issues incur erosion in share price, but very much limited. With just over 2 months to go it looks like 5-5.5% will be attained through 12 months. Since inception there has been 1 issue called out of this portfolio–no issues have been sold.
Both of these portfolios have had cash balances all year–the High Yield Portfolio has a cash balance of $12,070 (about 11%) while the Medium Duration Income Portfolio has a cash balance of just $4,151 (3-4%). It is obvious we need a purchase in the High Yield Portfolio–probably 2 to put our cash to work. We will try to make a purchase yet this week in the High Yield Portfolio.
NOTE–these are not actual portfolios, although the Medium Duration Portfolio is close to the way we have invested the last couple of years. These are more ‘educational’–for newbies–and even for myself because we have always wanted to ‘try out’ portfolio compositions for experimental sake.