Superyield Strategy: What Things Look Like Two Days Into My New Portfolio

by: Brandon Baunach

To reiterate the portfolio, it was purchased this past Friday at prices near closing. See my first post for the exact strategy.

The portfolio is:

  • BP Prudhoe Bay Trust (NYSE:BPT) Yield: 9.8%
  • WisdomTree Global ex-US Real Estate ETF (NYSEARCA:DRW) Yield 15.1%
  • France Telecom (FTE) Yield 8.7%
  • SPDR Barclays Capital High Yield Bond ETF (NYSEARCA:JNK) Yield 7.8%
  • UBS E-TRACS 2x Leveraged Long Alerian MLP Infrastructure Index ETN (NYSEARCA:MLPL) Yield 13.1%
  • Navios Maritime Partners L.P. (NYSE:NMM) Yield 14.4%
  • iShares S&P U.S. Preferred Stock Index ETF (NYSEARCA:PFF) Yield 6.9%
  • iShares FTSE NAREIT Mortgage REITs Index ETF (NYSEARCA:REM) Yield 10.7%

I have never in my life seen such a swing from one day to the next. I know it's a leveraged investment, but MLPL went from dropping 20% at one point on Monday to me being able to take a profit yesterday if I wanted. However, I'm holding this one for the long haul just to see if it really pops into oblivion like I would assume any leveraged product does.

Just to give you a sense of where I am, I'm down 2% from Friday's purchase, which after Monday, I'm thankful for. But why I want to write today is to summarize some of the fantastic themes that I hope to use in the next few weeks as my portfolio strategy matures:

  • Be wary of foreign taxes (and taxes in general). FTE, as Five Plus Investor points out, has a punishing tax which makes me completely re-evaluate companies like Verizon (VZ) with a 5.7% yield without the tax punishment. I haven't researched them thoroughly , but it gives me pause.
  • Professional money managers suck. I personally don't believe this, but it was probably the most prevalent theme from the 92 comments on my first post. I'm an architect. So to be fair to money managers, they are no different than architects: they mean well, but only a select few create something of lasting value.
  • Oil trusts run dry. I hope everyone who invests in one knows this and follows closely how well their trusts are producing. I think BPT is worthwhile for the medium term. I might be misunderstanding this, but according to The MLP Investor BPT seems like a solid investment at least through 2015.
  • My Beta is good, as investor 987 point out, I did review volatility but I kind of eyedballed it. This commentor helped me out tremendously by actually calculating the collective Beta which is 1.01. Now from the consensus of articles I've read, a Beta of 1 should strive to return 8% annually. The yield is 9%, so maybe this is a fairly balanced portfolio with regard to the market as a whole? Only time will tell.
  • It's impossible to explain a closed end fund in one sentence, therefore I won't invest in one...yet. This is a rule that I didn't know existed until I looked into CEFs and realized they're not easily explainable, but they tend to pay a consistent yield. I found a good primer here.
  • Be extremely keen regarding how each investment is affected by actions in the world, hopefully before those actions are made. Case in point: mREITs. They will not be as valuable as mortgage rates increase or U.S. debt is downgraded. It's a scenario like this that plays into my rule about only having 8 investments in the portfolio. I can keep track of eight. I can even brainstorm how each investment will be affected by internal and external forces, and what indicators arrise from these forces. This is, I guess, what money managers and analysts do, but it's more fun as a DIY project.
  • Don't worry, be happy. A number of commentor gave a great deal of encouragement which was much appreciated. As long as I still have a job, and I still have time to concoct crazy investment schemes, I will be happy.

Disclosure: I am long BPT, DRW, FTE, JNK, MLPL, NMM, PFF, REM.

Disclaimer: I'm an architect and not a stock adviser. Proceed with extreme caution.