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- Why I'm Against Fixed Income ETFs [view article]
- Fixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
- 3 Portfolios for a Steady Cash Flow [view article]
- ETF Investing Guide: A Core ETF Portfolio [view article]
- PowerShares' Latest Concept: ETFs of ETFs [view article]
- High-Grade Corporate Bond ETFs Eye Perfect Storm [view article]
- Portfolio Investor: Clark Bullish on Energy, Materials [view article]
- Exchange-Traded Funds and Closed-End Funds by Asset Class, Type and Provider [view article]
- ETF Fund Revenues: A View from the Bottom [view article]
- Interest Rates Fated to Rise? [view article]
- ETF Update: Buy Opportunities, Bond Fund Yields, SEC Backs Off ETFs [view article]
loading ...Recent LQD Articles
- Corporate / Treasury Credit Spreads: How the Markets Are Pricing Risk
- Fixed Income: Little Value in Treasuries, Preferred Financials Yielding 8%
- 3 Portfolios for a Steady Cash Flow
- Replicating Portfolios with ETFs
- Morgan Stanley Report Lists ETF Pluses
- Bond ETFs Take the High Road
- PowerShares' Latest Concept: ETFs of ETFs
- High-Grade Corporate Bond ETFs Eye Perfect Storm
- Portfolio Investor: Clark Bullish on Energy, Materials
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Why I'm Against Fixed Income ETFs [view article]
All Index funds are risky, especially income funds. Use Managed Closed End Funds instead. Here's some recent research with real ife investment portfolios:Good News For Income Investors
Looking for good news in today's markets is like searching for the proverbial needle in a haystack. Needless to say, practically all investment grade equities and nearly all closed end funds that specialize in providing regular recurring monthly income have been reduced in market value by this prolonged correction. The quake has spread in all directions from its financial epicenter, and the mounting doom and gloom has taken its toll on even the most rational investment decision makers. Try to keep in mind that the purpose of income investing is the income that your portfolio produces not an increase in the securities' market values---
So here's the good news (and for anyone with a 40% or higher income asset allocation, or an income portfolio being used for living expenses), it really is very good news. Base income levels, from the beginning of the stock market correction in June '07 until mid-July '08, have barely changed at all. In fact, they have probably risen in properly asset allocated portfolios. I have examined the regular recurring monthly income distributed by 56 taxable income CEFs and 61 tax-free income CEFs, and the conclusions are pretty remarkable.
In spite of the fact that the vast majority of my favorite monthly income producers are lower in market value than I would like, the amount of income they are distributing to shareholders has not moved lower meaningfully--- even though the Federal Reserve has reduced interest rates by approximately 60% during the past twelve months. Here are the numbers: (1) 48% of the taxable-income CEFs are distributing precisely the same amount per share as they did a year ago. Fourteen issues have increased their payouts and fifteen have reduced them.
The net result is a decrease of just fourteen cents (2.5% of the total monthly payout). The average current yield on the portfolio, as of mid July '07, is 9.86% without considering any capital gains distributions. Additionally, the group is selling at market prices that reflect an average discount of nearly 11% from NAV. Is that special or what? The bonds, preferred stocks, government securities are priced 11% below their current market values.
(2) The numbers are similar with regard to the 61 tax-free income CEFs: 46% have not altered their payout over the past twelve months; eighteen have reduced their payout slightly, and 15 have increased the monthly dole. The net difference for the group over the past year is less than one cent, or a percentage change of two-tenths of one percent. Remarkable. This group is selling at an average discount from NAV of 9.1% and has a current tax-free yield of 5.51%.
(3) Of 117 individual issues, about half have produced stable income. The others have accounted for a total payout reduction of less than 15 cents--- a measly 1.7%. Why is this amount of little consequence? Two reasons really.
First of all, a properly asset-allocated income portfolio does not disburse all of the base income it receives, so there is income available to reinvest in more shares of income producing securities. This process assures a growing cash flow to calm your fear of rising prices. The other reason is a bit more hypothetical. The Fed has lowered rates significantly, a process that normally produces higher prices for income securities. Eventually, those lower interest rates (even if global pressures convince politicians to take back some of the reductions) should produce higher prices (i.e., profit taking opportunities) in these securities.
Admittedly, even if your asset allocation has been fine tuned for years, lower portfolio market values in this area make stock market valuation shrinkage feel even worse. But the value of stable cash flow becomes painfully clear for investors who misguidedly depend on capital gains for their spending money. Properly asset allocated portfolios contain enough base income generators to pay the bills. The purpose of capital gains is to produce proportionately more base income generators.
The purpose of this email is simply to bring some needed sunlight into an investment environment that is far gloomier than I think it needs to be. If you want the details, you'll have to request them personally.
Steve Selengut
www.sancoservices.com
www.kiawahgolfinvestme.../
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
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Fixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
thoroughbred,Yes, it makes sense for now.
Also, nice article.
CrossProfit Reply
Fixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
Dunn, I had both the GM pfd as well as the F pfd, I just have zero confidence in either, and beside that, those 2 have gotten many recommendations as a better place to hide if you want long term exposure to GM and F so I think there are many novice investors there, if it starts to drop I don't believe they will hold for the long term and would make the drop much worse than it would need to be. Does that make sense? ReplyFixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
thoroughbred, do you have GJM- GMAC preferred around 11.75, yielding 16%? Are they going away? ReplyFixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
so remind me why anyone would not do a simple etf like TIPS which is AAA instead of something with less yield? ReplyFixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
WPK is my number four holding (3.02%) after GE (10.45%), money market (7.33%), a Jan09 4.5% CD (6.79%) and FCX (3.32%) After that is BRKB 2.71%, CTEW 2.29%, KO 2.16%, DD 1.6%, USB 1.55%, and then DTT the other pfd I still hold at 1.53% ReplyFixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
I held over 12 financial pfds this year going into July, I felt like they were a better place to hide then most financial equities. They day after I got scared and liquidated in my last financial equity (GS) at 164 I realized I was wrong. I took a hard look at my positions, I closed all but two of my pfds and switched into bank stocks... mostly USB, BAC, and on a lark I bought some WB. I am still holding them, although I have traded WB back and forth once. For PFDs? I have taken what was an average position size of about 1% of my portfolio and liquidated most of them to buy the equities... I have also however boosted 2 particular PFDs into top ten holdings. ReplyFixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
better but far from good.as per info on this site the inflation rate of the 5 daily basic needs is app. 15-16%.so if you are working & not a ceo or hedgefund manager you better get a17-18% increase just to stay even. ReplyFixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
The expense ratio for PFO is 1.56%! Ouch! ReplyFixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
Also look at HPF and PFO - 2 closed end funds that do nothing but pfd stocks....better yields and you get "active" management ReplyFixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
Corporate bonds offer a decent alternative--higher yields than Treasuries, less risk than high-yield bonds. Seven percent is pretty easy to get with A-rated bonds. ReplyFixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
I have been building a portfolio of financial preferreds for about 3 months, the avg. cost in my portfolio is just under $17 and all were issued at $25, the yield on the portfolio at my cost is 9.97%, I allocate a specific dollar amount into each name, if I have 2 defaults my cost basis (assuming I sell 2 positions at zero) would be $19.02. ReplyFixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
interesting article, but way too much risk for me, even at these spreads - sorry ReplyFixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
Thank you good and practical info. Effectively for those who roll over CD's every 3 months, why not put some into PGF. Replylobal.net
Fixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
Thank you.A nice short, concise article.
I would not consider buying the particular issue you wrote about but I liked the info, especially the included credit quality ratings.
ggillin@sbcglobal.net Reply