Rebalancing a Bit In the High Yield Model Portfolio

As we had mentioned some weeks ago we needed to rebalance somewhat in the High Yield Model Portfolio as it was way too heavily weighted in LNG shipping stocks.

The model had 2 different GasLog Partners issues in it which totaled 600 shares as well as 400 shares of TeeKay LNG Partners which in total were almost 25% of the modestly sized portfolio.

We sold the Gaslog Partners 8.2% f-to-f preferred (GLOP-B) issue booking a capital loss on the shares of around $500. In place of this issue we purchased the Arbor Realty 8.25% perpetual preferred (ABR-A).

We have been impressed by the turnaround that Arbor Realty has in place now. While we could have purchased the 8.50% issue it becomes redeemable next month. The issue we purchased already is redeemable, but it seems logical at this point in time that they would call the 8.50% issue prior to any threat to the 8.25%. We really doubt they will redeem either of the issues.

The model portfolio can be seen here.

This leaves the model portfolio with around 13% cash.

It is noted that this is an educational model portfolio meant to show newer investors the results of investing in high yield preferreds. Of course high yield means high risk and this may or may not be suitable for many investors.

15 thoughts on “Rebalancing a Bit In the High Yield Model Portfolio”

  1. My question is on a different subject but i appreciate someone’s assistance. In a previous thread of comments here, someone mentioned that it was possible to read the comment section on a Seeking Alpha article that was behind the paywall. I can’t figure out how to do so. Thanks.

  2. Tim
    Re: ABR-A
    Just wondering why you would pay over par value to purchase a preferred issue that is over one year past its call date. ( unless you do not expect it to be called in ). Appears to have closed at approx $25.37//

      1. Jerseyvinny
        Reading Tim’s comment again, he states he doubts either issue will be called in, but I myself would not take that risk on issues with coupons over 8%. It would seem that Arbor can borrow at much lower rates, but of course they have to have the $ to pay off the current preferreds, if called, and the buyer, Tim, has no dollar risk here since the premium he paid over par will be more than offset by the dividend, if called. Looks like a no risk gamble on a high yielding preferred.
        Thanks, Howard

      2. I never pay over par period. If you pay over par, you are getting less than the interest rate the market said was appropriate for risk of the security.

        1. Andrew, that is in general not always correct. Many times you get above market yield buying over par with issues that should have been called but havent. Thus the anchoring of par comes into effect where the issue cant go to its true current yield because of call risk. Last year I bought a $10 par at $11 and flipped at $15. And if they are issued uncallable it becomes totally ill relevant. I also bought last year a $100 par at $140 and flipped it over $180 a month later. But one needs to understand what they are doing here, I admit.
          But, I am certainly not suggesting that what you believe in is not in your personal best interests though.

          1. Agree, Grid. I also think prevailing interest rates at the time of issuance impact pricing. A perpetual preferred issued in the 80’s when interest rates were around 15% would probably be trading above par if it’s still around today.

      3. Hi Jerseyvinny–I prefer to not pay over liquidation value, but really it is an issue by issue call. For instance depending on interest rates at the moment it is never good to buy a Public Storage issue after 1st call date for much premium–they almost always call of they can justify it.

    1. Hi Howard–there is little risk here because of the accrual–I am always willing to risk 20 cents on a potential call.

  3. Tim, I really appreciate the effort you put into these portfolio’s. I found them very helpful in constructing my first preferred portfolio of about 15 securities. I can’t thank you enough.

    1. Jay–I truly use them myself–sometimes to build confidence in a long term portfolio. I still maintain the models for them (at least 2 out of 3).

  4. Nomad—they are all solid holdings now–I wouldn’t have said the same thing a few years ago–but yes as they get into the call zone it wouldn’t hurt to trade up a coupon or two.

  5. Tim, thank you for your update. I’m almost embarrassed to say that I have had ABR Preferred B since it’s IPO in May 2013 and it has been callable since May 2018. Slightly embarked because it’s one of those preferreds that I should have sold many many times, but have kept hanging on or at least swapped to the higher coupon A 8.25% or C 8.50%. I truly appreciate your site and your portfolio transparency. Wishing you profitable investing, Nomad

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