Folks are noting that the new RiverNorth/Doubleline Strategic Opportunity Fund $10/Share 6% Term Preferred (OPP-C) is ready to trade.
It looks to me that a few early shares sold at $14–that is crazy and will likely correct itself quickly. For a test I tried to put in an order on Fido for 100 shares–got the Mother Fido message ‘maximum shares allowed has been exceeded’ (or something like that). Changed to 25 shares at $9.75 and it took-we’ll see what happens–not one I really want to own that badly.
This one is ‘thin’ with just 419,000 shares outstanding–God forbid someone puts in a ‘market’ order.
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The secret sauce for OPP-C is to buy below par to juice the YTM. Shhhhh! Don’t tell anyone.
I have a different approach and would be interested in hearing other opinions. Rather than buy OPP-C at near face value yielding 6%, I would instead be looking at OPP-A with a coupon of 4.375% but selling at $18.36 currently yielding 5.95%. The low coupon makes it less likely to be called and if called, the holder gets a 36% capital gain as a consolation prize. Is there anything wrong with this approach that I’m not aware of ?
There’s nothing wrong with this approach, and it’s a perfectly good theory. Barring bankruptcy, both will indeed pay you very close to 6%. But one big difference between the two that you should consider is that OPP-A is a perpetual with no maturity date, while OPP-C has a mandatory redemption in 2027.
In practice, this means that OPP-A will be more sensitive to long term interest rates, while OPP-C will be “anchored” by the redemption. This means that if long term rates drop, you’ll do better with OPP-A when you go to sell. But if long term rates go up (as many people fear) the market value of OPP-A will drop—possibly by a lot.
OPP-C at PAR value is a good deal, IMO. A safe 6% and a short 3-year term. The current bid/ask of 10.10 and 10.20 seem reasonable to me. Signing up for the RO, I have about 5k left to sell after selling 1.5k at some nice prices (but not the 14).
OPP-A has more upside but there are higher-yielding CEF preferreds like NCZ-A at 6.6% with almost as good upside. To me, OPP-A would be a bet on long-term rates dropping a ton, which I don’t foresee.
Vinny-
Some IIIers do indeed buy preferreds with the bigger potential cap gain. I’ve done it myself. The best situations are where some factor such as a due date or float date is certain to drive the price higher. OTOH, if the issuer has no history of calling perpetuals, it’s probably not a good idea to buy for the call.
I am using this philosophy to build my wife’s retirement portfolio. IG grade low coupon preferreds generating 6% returns based on purchase price. Sock drawer diversified investments that hopefully are never called and don’t have to be managed on an ongoing basis. Price fluctuations are not an issue if there is no plan to sell.
Fido’s max has reset now to 190 shares, I’m guessing it will keep going up as more trades happen.
if mommie Fido is worried about manipulation this would be a perfect example. Opening trade about 800 shares at 14.00 and now over 10,000 shares traded so far and still above the call price.
Schwab allowed me to place an order.
Same here. Was able to place on order (not ‘market’) on Schwab for 500 shares successfully which did fill at my price point.
For a new one, it hardly seems that thin.
Fido is starting to make me re-think my old Schwab accts.