Protected Principal Retirement Strategy: Portfolio Update

by: Akaralph

I have recently come to the conclusion that the government is probably capable of supporting the bull market at least through the end of 2014. My opinion seems to be shared by Nouriel Roubini, whom recently alluded to the bull market possibly continuing for another two years. So I am in good company - unless he is wrong.

At the very least, I am quite certain that I know where I will be moving funds when and if the markets deteriorate. Here's a quick update on where I am relative to my article of April 16 (here) addressing a potential bear market scenario:

  • Sold Medley Capital (NYSE:MCC) for a decent profit. Its recent quarter's NII was $.36 and the dividend is $.36. Net asset value (NAV) was $12.73 and its price/NAV is now up to 1.21. I really don't see much room for dividend increases.
  • I'm keeping a close eye on MFS Intermediate Income (MIN) as its premium continues to decrease (presently about 1.16 percent). MIN (at a discount) with an 8.5 percent yield would not be a bad substitute for a money market fund even if the markets continue to appreciate.
  • Should the markets reverse and put out bearish signals I have decided to initiate positions in Eaton-Vance Risk-Managed Diversified Income (ETJ), a decent bear market performer, Nuveen Global-Enhanced Income (JGG), another decent bear market fund, and two bear market mutual funds - PIMCO StocksPLUS (MUTF:PSSAX) and Grizzly Short Fund (MUTF:GRZZX).

Going Forward

So, with a cautiously bullish outlook what do I add to the existing Protected Principal Retirement Strategy portfolio? I have mentioned in most recent articles that I am looking into private equity stocks, have provided my take on mREITs (here) and have purchased two new companies the past few weeks.

Private Equity - Of the private equity companies I reviewed (here), I'm most impressed with Apollo Global Management (NYSE:APO). After releasing quarterly earnings of $1.89 (beating analyst's estimates for $1.24) and declaring a $.57 dividend (already paid) I was ready to initiate a small position. That was until I read that the New York Department of Financial Services has subpoenaed APO - something to do with a probe of risk taking. This is probably not a big issue, but enough to sit back and await the outcome. Judging by APO's stock price over the past few days, the inquiry would seem to be small change. I would like to enter APO under $24 anyway.

mREITs - As anyone whom has read my articles (or comments) I am not an advocate of mREITs, particularly when most of them are experiencing shrinking spreads, declining NAVs and many have been cutting dividends. That said, I am continuing to research PennyMac Mortgage Investment Trust (NYSE:PMT) which earned $.90 in the quarter ending March 31, 2013. The dividend declared for this quarter is $.57. In addition, I am considering getting back into Newcastle Investment Corp. (NCT) since its spinoff of New Residential Investment (NYSE:NRZ) has been completed. We had previous success with a position in NCT, and having read that it will be investing in senior housing projects, has once again piqued my interest. I will provide an article on NCT once I gain a better understanding on its new business plan.

Business Development Companies (BDCs) - As I mentioned in the beginning of this article I liquidated the portfolio's entire position of MCC. BDCs have a history of getting beaten up in bear markets, and if anyone follows Factoid's articles on SA (and if you invest in BDCs you should) you will note that for an increasing number, quarterly net investment income is not covering dividends. I continue to hold Prospect Capital (NASDAQ:PSEC) despite a slightly down quarter - I like their investments, it has declared a slight increase to the coming three months dividends, and I have confidence that the yield will offer some downside protection. I have taken a small position this morning in TCP Capital (NASDAQ:TCPC), taking advantage of its secondary priced at $15.63. TCPC's recent quarter saw NII of $.49 and a dividend of $.36 being declared. Adequate coverage of the dividend is afforded, and I believe that once the secondary is absorbed TCPC will move back above the $16 level.

Master Limited Partnerships (MLPs) - We continue to hold all of our MLPs, and have recently initiated a small position in New Source Energy Partners (NSLP). NSLP is an oil and liquids producer, primarily in the Hunton Reservoir in East-central Oklahoma. It declared an initial distribution of $.274 (partial quarter) which is equivalent to a full quarter distribution of $.525. On April 1, 2013, NSLP issued updated production guidance and recommendations for increased distributions for the next two quarters. For the next quarter the distribution will increase to $.55, and for the third quarter of 2013 it will increase the distribution to $.5725 ($2.30 a year). This equates to over a ten percent yield going forward.


So, we move cautiously ahead. Our two new positions will enhance our portfolio's annual income, while we (hopefully) stand ready to shift funds into defensive bear market positions should the markets dictate.

Disclosure: I am long PSEC, NSLP, TCPC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article does not constitute either a buy or sell recommendation for any of the stocks or funds mentioned.

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