Short-Term Fixed Income Portfolio Yields Over 9.8%? This 1-Year Review Screams Yes

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 |  Includes: ABEV, AGVDY, BND, CEMB, CMPHF, CWXZF, FEEXF, HBM, NGOLY, PBHKF, PTGJY, TGS, TMPHF
by: Randy Durig

Summary

High-yield averages for additions to the combined FX2 portfolio are over 9.8%.

The average remaining maturity of these issues is about 3 years, 4 months.

The average yield for additions to the U.S. dollar only portfolio (FX1) were about 10.25%.

Presented below is a summary of the 26 bond reviews and recommendations that we have given to our clients and Seeking Alpha over the last 12 months, from June 2013 through May 2014. The yields shown below are when these securities were added to our FX1, FX2, and/or FX3 Fixed Income portfolios, and they average 9.81%.

Nineteen of these global corporate debt instruments were Yankee bonds (foreign corporation debt denominated in US dollars), with nine in other currencies, including Canadian dollars, Swedish krona, Brazilian real and Russian rubles.

Each summary that follows lists the issuer, coupon rate, maturity, credit rating, the yields obtained at the time of acquisition, the portfolio (FX1, FX2, or FX3) each was added to, as well as the business sector and a brief recap of the reason for its selection. Many of the companies hold prominent or even dominant positions within their respective countries. It is not uncommon, however, to find credit ratings that are constrained by a national sovereign credit rating.

  • 19 US dollar debt additions, averaging 10.25% yield, were made to FX1.
  • 26 mixed currency debt additions, averaging 9.81% yield, were made to FX2.
  • 7 foreign currency debt additions, averaging 8.61% yield, were made to FX3.

The bonds in the portfolios have an average outstanding maturity of under 40 months (3 years, 4 months) at an overall indicated average net yield of 9.81%.

8.67% Yield, EastComTrans Yankee Bond
Issuer: EastComTrans LLP
Coupon: 7.75%
Maturity: 4/22/18
CUSIP: Y2105WAA0
Ratings: B3/-/B
Pays: Semi-annually
Price: 97.0 (5/27/14)
Yield to Maturity: ~8.67%
Portfolios: FX1 and FX2
In 2013, EastComTrans increased its gross profit by almost 30%, its operating profit by over 32%, and its profit before tax by over 35%.
More about EastComTrans.

10% Yield, Aeropuertos Argentina Yankee Bond
Issuer: Aeropuertos Argentina 2000
Coupon: 10.75%
Maturity: 12/1/2020
CUSIP: P0092MAD5
Ratings: CAA1/CCC+
Pays: Quarterly
Price: 101.75 (4/30/14)

Yield to Maturity: ~10.14%
Portfolios: FX1 and FX2
Airport Management (monopoly), Argentina
2012 Revenues in Argentine Pesos were up 66% and net income was up 46%. This is a sinking bond where ½ of the principal will have been returned by Oct 2017, therefore it has reduced risks and increased cash flow.
More about Aeropuertos Argentina.

7.5% Yield, Canwel Building Materials, in Canadian Dollars
Issuer: Canwel Building Materials Group (OTC:CWXZF)
Stock Ticker: CWX.TO
Price: 2.77 (4/4/14)
Coupon: 5.85%
Maturity: 4/30/2017
CUSIP: 13874XAA1
Ratings: NA
Conversion price: 6.40 (any time prior at bondholder's option)
Pays: Semi-annually
Price: 94.45 (4/9/14)
Yield to Maturity: ~7.94%
Portfolios: FX2 and FX3
In 2013, in spite of a cold Canadian winter that saw housing starts drop by 13%, Canwel increased its net earnings by 19.7%, increased its margin to 11.0%, and increased its operating earnings by 18%.
More about Canwel.

10%Yield, AB InBev (Anheuser-Busch), in Brazilian Real
Issuer: AmBev/Anheuser-Busch Inbev SA/NV (NYSE:ABEV)
Coupon: 9.5%
Maturity: 7/24/2017
CUSIP: 02319LAB1
Ratings: A2/A
Pays: Semi-annually
Price: 97.0 (4/16/14)
Yield to Maturity: ~10.6%
Portfolios: FX2 and FX3
Total revenue in the first quarter of 2014 grew by 8.9% over the year-ago quarter. Total volume and revenue per unit volume both grew by 4.4%.
More about AB InBev.

12% Yield, MNC Investama Yankee Bond
Issuer: Ottawa Holdings Pte. Ltd/PT Bhakti Investama Tbk (OTC:PBHKF)
Coupon: 5.875%
Maturity: 5/16/2018
CUSIP: 689402AA3
Ratings: B2/BB-
Pays: Semi-annually
Price: 80.25 (3/24/14)
Yield to Maturity: ~12.08%
Portfolios: FX1 and FX2
MNC grew EBITDA by 12% in 1Q2014 over the comparable year-ago quarter. The company's subsidiaries contributed higher revenues, EBITDA and net income compared to the same period a year ago.
More about MNC Investama.

10.75% Yield, Rolta Yankee Bond
Issuer: Rolta LLC (OTC:RLTAY)
Coupon: 10.75%
Maturity:5/16/2018
CUSIP: U77587AA8
Ratings: -BB
Pays: Semi-annually
Price: 100.0 (2/19/14)
Yield to Maturity: ~10.74%
Portfolios: FX1 and FX2
Rolta reports that its latest nine months' consolidated revenue grew by 59.7%, and its net profit by 37.2%, over FY2014. In addition, the company received the patents it had applied for in the US for certain unique technologies and processes embedded in Rolta's offering for cloud security, enterprise integration and IT integration solutions.
More about Rolta.

8.25% Yield, HudBay Yankee Bond
Issuer: HudBay Minerals (NYSE:HBM)
Coupon: 9.5%
Maturity: 10/1/2020
CUSIP: 443628AB8
Rating: B3/B-
Pays: Semi-annually
Price: 104.8 (2/13/14)
Yield to Maturity: ~8.22%
Portfolios: FX1 and FX2
HudBay's Lalor (Manitoba) mine achieved commercial production ahead of guidance and under budget. Its Constancia (Peru) project is on track for first production in late 2014 and commercial production in Q2 2015, and its Reed (Manitoba) mine was completed under budget and operated at 792 tonnes per day in the first quarter.
More about HudBay.

8.8% Yield, Avangardco Yankee Bond
Issuer: AvangardCo (OTC:AGVDY)
Coupon: 10.0%
Maturity: 10/29/2015
CUSIP: M15537AA7
Ratings: B- (Fitch)
Pays: Semi-annually
Price: 101.9 (1/14/14)
Yield to Maturity: ~8.81%
Portfolios: FX1 and FX2
In the first quarter of 2014, revenue in the company's main business segments (shell eggs and dry egg products) increased by 7% year-on-year as a result of doubling of the production and sales of dry egg products. However, consolidated revenue declined by 2%year-on-year due to the impact of the Ukrainian hryvnia devaluation against the US dollar. Export revenue continued to grow and accounted for 40% of total revenue, reaching US $62 million.
More about Avangardco.

6.5%-9% Yield, Temple Hotels, in Canadian Dollars
Issuer: Temple Hotels Inc. (OTC:TMPHF)
Ticker: TPH.TO
Toronto: $5.73 1/16/2014
Debenture (bond): TPH.DB.C
Coupon: 8.0%
Maturity: 12/31/2016
CUSIP: 879854AA5
Conversion Price: $ 5.82
Rating: none
Pays: Semi-annually
Price: 104.0 (12/31/13)
Yield to Maturity: ~6.5%
Portfolios: FX2 and FX3
Operating income increased by $380,000 or 3% during the first quarter of 2014. Cash flow from operating activities increased by $2.1 million during the same period.
More about Temple Hotels.

9.66% Yield, Dana Gas Yankee Sukuk

Issuer: Dana Gas
Coupon: 9.0
Maturity: 10/31/2017
CUSIP: G273E2AB2
Rating: NA
Pays: Quarterly
Price: 97.875 (12/11/13)
Yield to Maturity: ~9.66%
Portfolios: FX1 and FX2

First quarter operating profits rose 67 percent to $45 million (Dh164 million) against $27 million (Dh98 million) in Q1 2013. Production for Q1 2014 increased by 12 percent.
More about Dana Gas.

8.45% Yield, Camposol Yankee Bond
Issuer: Camposol S.A. (OTC:CMPHF)
Coupon: 9.875%
Maturity: 02/02/2017
CUSIP: P19189AA0
Ratings: B
Pays: Semi-Annual
Price: 103.9 (11/12/13)
Yield to Maturity: ~8.45%
Portfolios: FX1 and FX2
Q1 2014 revenue was up 49%, and EBITDA up 83.9%, over the same quarter in 2013.
More about Camposol.

14.38% Yield, Brigus Gold Yankee Bond
Issuer: Brigus Gold
Ticker: BRD
NYSE: $0.74 10/24/2013
Debenture :
Coupon: 6.5%
Maturity: 3/31/2016
CUSIP: 109490AA0
Conversion Price: $ 2.45
Rating: none
Pays: Semi-annually
Price: 84.5 (11/7/13)
Yield to Maturity: ~14.42%
Portfolios: FX1 and FX2
On February 27th, 2014, Primero Mining Company (NYSE:PPP) and Brigus Gold announced that Primero would acquire Brigus. Brigus (now Primero) bonds are now trading at a premium.
More about Brigus and the buyout offer from Primero Mining.

10% Yield, Transportadora De Gas Del Sur Yankee Bond
Issuer: Transportadora de Gas del Sur S.A (NYSE:TGS)
Coupon: 7.875%
Maturity: 5/14/2017 (laddered redemption, 25 month average)
CUSIP: P9308RAX1
Ratings: B3/B-
Pays: Semi-annually
Price: 96.25 (10/29/13)
Average Life Yield: ~11.18%
Portfolios: FX1 and FX2
For the quarter ended March 31, 2014, TGS posted total net revenues of 1,240.1 million Argentine pesos, compared to 825.7 million Argentine pesos recorded in the same period of 2013. Cash flow from operating activities increased over the year-ago quarter from 288.2 million Argentine pesos to 491.6 million Argentine pesos, an increase of over 70%.
More about Transportadora De Gas Del Sur.

7% Yield, Diamorph, in Swedish Krona
Issuer: Diamorph
Coupon: 12.00%
Maturity: 7/6/2017
CUSIP: W2R38AAA3
Ratings: B
Pays: Semi-annually
Price: 110.55 (10/23/13)
Yield to Worst Call (107.5 in 2014): ~6.96%
Yield to Maturity: ~8.6%
Portfolios: FX2 and FX3
Year-over-year sales for the first quarter of 2014 were up 4.2% over 2013, and operating income was up 12.0%
More about Diamorph.

10.76% Yield, Mriya Agro Yankee Bond
Issuer: Mriya Agro Holding Co.
Coupon: 10.95%
Maturity: 03/30/2016
CUSIP: M70609AA6
Ratings: B/B-
Pays: Semi-Annually
Price: 100.40 (10/4/13)
Yield to Maturity: ~10.76%
Portfolios: FX1 and FX2
In its most recent annual financial report (2013), Mriya showed an increase of 43.3% in revenues from operations and an increase of 17% in total revenues. The company also increased the amount of land under cultivation, and increased its agricultural yield.
More about Mriya Agro.

8.25% Yield, Gajah Tunggal Yankee Bond
Issuer: PT Gajah Tunggal Tbk (OTCPK:PTGJY)
Coupon: 7.75%
Maturity: 02/06/2018
CUSIP: Y71214AA1
Ratings: B2/B+
Pays: Semi-Annual
Price: 98.185 (9/26/13)
Yield to Maturity: ~8.25%
Portfolios: FX1 and FX2
Gajah Tunggal's net sales increased by 5.3% in the first quarter of 2014 from the first quarter of 2013. Export sales grew by 29.6% over the corresponding period in 2013, thanks to a recovery in sales to the US and Europe.
More about Gajah Tunggal.

10% Yield, Trade & Development Bank of Mongolia Yankee Bond
Issuer: Trade & Development Bank of Mongolia
Coupon: 8.5%
Maturity: 10/15/2015
CUSIP: Y8904HAD7
Ratings: B1
Pays: Semi-annually
Price: 97.35 (9/20/13)
Yield to Maturity: ~10%
Portfolios: FX1 and FX2
Trade and Development Bank of Mongolia's operating income more than doubled, increasing by 102.5% from 2012 to 2013. Net profit did even better, increasing by 120%.
More about Trade & Development Bank of Mongolia.

9.85% Yield, Alto Palermo Yankee Bond
Issuer: Alto Palermo APSA
Coupon: 7.875
Maturity: 5/11/2017
CUSIP: P0245MAC3
Ratings: -/B+/B+
Pays: Semi-annually
Price: 94.0 (9/18/13)
Yield to Maturity: ~9.87%
Portfolios: FX1 and FX2
From 2012 to 2013, sales were down by 0.7%, and operating income was down by 3.1%.
More about Alto Palermo.

9.6% Yield, Ferrexpo Yankee Bond
Issuer: Ferrexpo PLC (OTC:FEEXF)
Coupon: 7.875
Maturity: 4/07/2016
CUSIP: G34361AA6
Ratings: B+/B2/B
Pays: Semi-annually
Price: 95.95 (8/23/13)
Yield to Maturity: ~9.66%
Portfolios: FX1 and FX2
In fiscal year 2013, Ferrexpo's were up 11%, before-tax profit was up 15%, and cash flow from operating activities was up 96%.
More about Ferrexpo.

8.4% Yield, NordGold Yankee Bond
Issuer: NordGold (OTC:NGOLY)
Coupon: 6.375%
Maturity: 5/07/2018
CUSIP: N64523AA6
Rating: Ba3
Pays: Semi-annually
Price: 92.25 (8/16/13)
Yield to Maturity: ~8.4%
Portfolios: FX1 and FX2
First quarter 2014 revenues declined to US$274.9 million from US$296.8 million due mostly to a decline in the average realized price of gold over the period. In spite of this decline, EBITDA increased by 6% year-on-year due to higher production and strict cost control, and net income rose by 68% (US$24.6 million in Q1 2014, compared to US$14.6 million in Q1 2013).
More about NordGold.

11.22% Yield, Aeropuertos Argentina Yankee Bond
Issuer: Aeropuertos Argentina 2000
Coupon: 10.75%
Maturity: 12/1/2020
CUSIP: P0092MAD5
Ratings: B1/B-
Pays: Quarterly
Price: 98.5 (8/6/13)
Yield to Maturity: ~11.22%
Portfolios: FX1 and FX2
Airport Management (monopoly), Argentina
2012 Revenues in Argentine Pesos were up 66% and net income was up 46%. This is a sinking bond where ½ of the principal will have been returned by Oct 2017, therefore it has reduced risks and increased cash flow.
More about Aeropuertos Argentina: here and here.

8.9% Yield, Berau Coal Yankee Bond
Issuer: Berau Coal Energy
Coupon: 7.50%
Maturity: 03/13/2017
CUSIP: Y711AQAA4
Ratings: B1/BB-
Pays: Semi-Annual
Price: 95.0 (7/26/13)
Yield to Maturity: ~8.89%
Portfolios: FX1 and FX2
Pre-tax profit increased from US$7.8 million in 2012 to $56.6 million in 2013. Net cash flow from operating activities increased from US$16.5 million to $63.5 million over the same period.
More about Berau Coal.

8.5% Yield, Federal Grid Company, in Russian Rubles
Issuer: Federal Grid Company
Coupon: 8.446%
Maturity: 3/13/2019
CUSIP: G3R0K7AA8
Ratings: Baa3/BBB
Pays: Semi-annual
Price: 99.75 (7/16/13)
Yield to Maturity: ~8.5%
Portfolios: FX2 and FX3
Federal Grid Company's revenue for Q1 2014 increased by 11% year-on year, while BITDA increased by 13% over the same period.
More about Federal Grid Company.

10% Yield, TransGlobe Energy, in Canadian Dollars
Issuer: TransGlobe Energy (NASDAQ:TGA)
Coupon: 6.00%
Maturity: 3/31/2017
CUSIP: 893662AB2
Ratings: NA
Pays: Semi-annually
Price: 88.1 (6/28/13)
Yield to Maturity: ~9.87%
Portfolios: FX2 and FX3
The company's oil sales were up 41% in 2013 over their 2012 levels. Cash flow from operating activities was up 48%. Cash and cash equivalents rose by 89%.
More about TransGlobe Energy.

10% Yield, Coelba, in Brazilian Reals
Issuer: Companhia de Eletricidade do Estado do Bahia (COELBA)
Coupon: 11.75
Maturity: 4/27/2016
CUSIP: P30587AA0
Rating: Baa2/BBB-
Pays: Semi-annual
Price: 104.5 (6/19/13)
Yield to Maturity: ~9.88%
Portfolios: FX2 and FX3
During 2013, revenue decreased by 14%, while cash flow from operating activities declined by 6.5%. At the end of 2013, cash and cash equivalents stood at BRL 573.5 million.
More about Coelba.

11% Yield, Transportadora De Gas Del Sur Yankee Bond
Issuer: Transportadora de Gas del Sur S.A
Coupon: 7.875%
Maturity: 5/14/2017 (laddered redemption, 25 month average)
CUSIP: P9308RAX1
Ratings: B3/B-
Pays: Semi-annually
Price: 88.4 (6/3/13)
Average Life Yield: ~15.38%
Portfolios: FX1 and FX2
For the quarter ended March 31, 2014, TGS posted total net revenues of 1,240.1 million Argentine pesos, compared to 825.7 million Argentine pesos recorded in the same period of 2013. Cash flow from operating activities increased over the year-ago quarter from 288.2 million Argentine pesos to 491.6 million Argentine pesos, an increase of over 70%.
More about Transportadora De Gas Del Sur.

The chart below compares the 19 Yankee Bonds we placed in FX1 over the last year with the Emerging Markets Corporate Bond ETF (BATS:CEMB) and the Total Bond Market ETF (NYSEARCA:BND). Considering that the iShares Emerging Markets Corporate Bond ETF tracks 192 different bonds, this is a relatively small sample of issues that we have reviewed as selected for addition to our fixed income clients, and it is not intended to be a complete comparison that can or should be made. We focus more on short "maturity certain" bond cycles when interest rates are climbing. By making comparisons in several categories, such as indicated yields and projected costs, it becomes much easier to see why this approach to fixed income investing is so attractive. Considering that we have successfully steered clear of any bond defaults with this high yield, high cash flow, short maturity model, it's also easy to understand why most of our bonds selections are simply held to maturity.

Name

Projected YTM

Expenses

Average Maturity

iShares Emerging Markets Corporate Bond

4.16%

0.60%

7.65 years

Total Bond Market ETF

1.97%

0.10%

7.7 years

Fixed Income 1 portfolio (FX1)

10.25%

0.50%*

3.34 years

Fixed Income 1 (FX1) compared to the best.

The last 19 USD bonds added to FX1 offer almost 2½ times the yield of the iShares emerging corporate bond ETF.

The Fixed Income 1 last 9 bonds issues cost .40 basis points more than the very low cost BND ETF.

The last 9 Fixed- Income1.com bonds average maturity is about 55% shorter than the BND ETF

Click to enlarge

*This is a proposed cost only.

We hope you enjoy our high income approach!

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Please note that all yield and price indications are shown from the time of our research and acquisition for some client portfolios. Our reports are never an offer to buy or sell any security. We are not a broker/dealer, and reports are intended for distribution to our clients. As a result of our institutional association, we frequently obtain better yield/price executions for our clients than may be initially indicated in our reports. We welcome inquiries from other advisors that may also be interested in our work and the possibilities of achieving higher yields for retail clients.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.