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Chris Sandys  

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  • Rising Rates Are Good For PHK [View article]
    Above it's 52 week low? You do realize that as you typed that statement, it hit its 52 week low just a few minutes prior?

    We were not warning that it would decimate the premium. We were asserting that it would decimate the investment, as it has. The premium is the reason, not the result.

    However, you are correct on this point - the premium remains. You know what that means, right?

    I have no position, but if I were long, I would have sold a long time ago. Now is too late. But next month will be even worse.
    Sep 2, 2015. 11:33 PM | 1 Like Like |Link to Comment
  • Yield Trap: The PIMCO High Income Fund Is Too Good To Be True [View article]
    Today highlights the danger of paying a premium for a potentially wasting asset. A cursory glance at the Performance chart, which includes the total return of distributions, shows an +8.5% gain since this article was published. Over the past 34 months, that figures out to about 3% annualized. But sadly, that is only through 1 Sept 2015, and does not include today's -8.5% rout, which will bring total returns over the past 3 years to about zero.

    Interestingly, there was plenty of time to slowly liquidate a position profitably. Congratulations to those that did so.
    Sep 2, 2015. 01:27 PM | Likes Like |Link to Comment
  • Surveying The Situation: Stay The Course (Including OXLC) [View article]
    As far as the leverage goes, I agree. But also consider, the underlying security is the highest on the capital chain. It is higher than even senior bonds. No one gets anything until the bank loan creditors are satisfied.
    Aug 30, 2015. 09:05 PM | Likes Like |Link to Comment
  • Shield Fund Earns Its Name [View article]
    Hi Jon. Thanks for the comment. Yes, I agree. FTLS, a long-short fund, did well.

    How will it do if the market is up 20%, or down 25%?

    No one knows, and that is a problem. It is important to know how one's portfolio performance will be impacted by various market moves. I have more certainty with SPY than I do with FTLS.
    Aug 27, 2015. 12:38 PM | Likes Like |Link to Comment
  • Shield Fund Earns Its Name [View article]
    Thank you, Stanford Chemist.

    I need to take a closer look at the closed end fund ETJ. If anyone else is interested, the marketing/info page is here:

    The first thing that strikes me is that their 2Q2015 performance update partially attributes their outperformance to the S&P 500 to "stock selection." This differs from SHIEX in the manner that ETJ is an actively managed fund. That is not necessarily a detractor, but it does make it different approach. As you know - it is thriving or withering on the decisions of the management team.

    It also looks like they are using a short-term collar, also at the management's discretion.

    Management discretion is not bad, but it is unpredictable. A portfolio manager cannot invest in ETJ and state definitely their capital at risk.

    I look at the approximate period of 2009-2011 and I am a bit baffled. The total return (including the generous distributions) was about -13%, compared to SPY at +94%. What happened?!

    Over 100% underperformance to its benchmark over a 3-year period.

    Can you share in history on this CEF? Did their management team or investment strategy change? I'm just curious how this happened, and what has changed to stop this from happening again.

    Since 2012 and forward, the performance gap has only widened.

    With PHDG and VQT I understand that they are biding their time, waiting for the big one. Presumably, they will experience great gains at that time. And in all fairness, ETJ performed extremely well during the 2008-2009 crash. It came out relatively unscathed, which is outstanding.

    But at a tremendous cost for the long-term holder (this will be a recurring theme).

    One would have been far better off being naked-long SPY, taking the huge hit, and riding the wave up.

    These alternatives seem to suffer from a similar set of maladies:

    1) No certainty how they will perform under any given set of market conditions.
    2) Tepid or poor performance that doesn't justify the hedge, i.e. it's cheaper to take the hit than to pay for the insurance.

    For an investor where partial principal protection is important, ETJ could make sense, since it has historically protected from a crash. Although, since it is all manager discretion, who knows if they will protect similarly next time? I'd stack up SHIEX against it any day of the week, because SHIEX addresses perfectly the two deficiencies that the others seem to posses.
    Aug 27, 2015. 10:33 AM | Likes Like |Link to Comment
  • Shield Fund Earns Its Name [View article]
    Hello wxman123. I stand somewhat guilty as charged; my analysis was pretty shallow. I did not mean to be disrespectful to you. You deserve a more comprehensive response, and I plan to write an article explaining in a more detailed manner why I think the concept behind investing in PHDG is misguided.

    The general theme of my dissatisfaction with PHDG and VQT is that the investor needs to be tactical with its application. That is not so much of a criticism but a caveat.

    I view neither one as "insurance" for long equities. Insurance is trading a known premium for an unknown risk. I see them as an investment that will perform well, sometimes (but not always), when the market corrects. You are probably correct that they shine during a market meltdown, so maybe one could view them as "catastrophic insurance," and hold a position that sized properly for that weighted probability. But then, how does one know what those are odds are? How much PHDG does one own to hedge their long equities?

    I can answer that previous question definitely with SHIEX. 1:1. SHIEX is my long equity position. I know exactly what my hedge is: -12.5% (or better). I know exactly what the cost is to my upside performance: 15% ceiling (usually better, potentially lower).

    I like to know exactly what my outcomes will be for all market conditions. I can't do that with PHDG nor VQT. Neither of them allows me to definitively define my risk and outcome range.

    For example, if I am long SPY, I know I will have exactly 1 Delta to the S&P 500. A floor of 100% loss and the sky's the limit on the upside.

    If I am long SHIEX, I know I will have 1 Delta to the S&P 500 within a predetermined range. It is up to me to decide if the ceiling and floor of that investment are high enough. For the right investor they can be. Many people are pleased to be able to participate up to 15% of the upside for many years of a upward or sideways market, sleeping well at night knowing that if the black swan hits, all of their gains will be protected as they will be stopped-out at -12.5%.

    I'm concerned with PHDG and VQT, because the only way they will ever outperform is with a real market crash.

    Now here's the problem. When is the market crashing? Are we done for now, or will the correction continue in September or later this year? 2016? I do not know. And by holding either of these ETFs, waiting for the black swan, I am sacrificing too much of the upside.

    It has been a rough YTD and trailing-12 for the S&P 500, but these two are still underperforming - by quite a bit. If the market continues sideways or positive, it looks like the gap of their underperformance will widen. Although I really do not know.

    No one knows what the real outcome of these investments will be under various market conditions. And that is called ... a gamble.

    Thank you for engaging me on this topic. I need to continue to dig deeper into these two ETFs. If I am off-base on anything here, please say so.

    Aug 27, 2015. 09:20 AM | Likes Like |Link to Comment
  • Shield Fund Earns Its Name [View article]
    Thanks for your comment, rickf.

    If you check out my previous article you will see exactly what it is: a collar on SPY. You are correct: it's really that simple. If you can buy two calls and sell two puts, X4 (each expiring about 3 months apart, total of 16 options), and roll them as they expire - then you are all set.

    However, I am not sure the retail investor could run this strategy and save on expense ratio (ER). But more to the point: most investors, including pros, are not capable of performing multi-leg option strategies.

    The Delta on the upside is 1, so the fixed income portfolio pays its way, i.e. it covers the ER. That is not its purpose, but it works.
    Aug 26, 2015. 08:55 PM | Likes Like |Link to Comment
  • Shield Fund Earns Its Name [View article]
    Hi wxman123, I do not know exactly which dates Morningstar is using, but their calculations are incorrect.

    Here is a link to historical pricing for SHIEX:

    I just took a look at SPY, and for the close of 19 Aug until 26 Aug (today), SPY is -6.53%. That must be the time period they are miscalculating. SHIEX was -4.54% during that same time.

    I do not consider PHDG a serious consideration for any investor. Since its inception of Dec 2012, it has managed to squeeze-out a total return of +4.81%, compared to SPY at +44.86%. That's just pathetic, yet $444MM of investor money is in that dog. No offense if you are long, but I would seriously reconsider that investment. Better yet - I would never consider it again.

    For a more full comparison, from the date of SHIEX inception:
    SHIEX: -5.4%
    SPY: -5.93%
    PHDG: -8.06%

    It looks like there was a 40-day period earlier this year when holding PHDG performed less to the downside than SPY. Other than that, the ETF never makes any money. What good is saving capital if you don't make capital? A nice, coupon based CD is a better alternative.

    I like SHIEX because I have a Delta-1 on the upside to the ceiling, and the Delta goes to 0 at the floor (hard floor - no additional losses). That means I get to make money at the way up to a generous ceiling, and do not need to worry about some proprietary algo to maybe save my capital.

    Thank you for your comment.
    Aug 26, 2015. 08:46 PM | Likes Like |Link to Comment
  • Oxford Lane Capital Has 'Got Some Splainin' To Do' [View article]
    Those are great questions, RTW7453. Minimally, a couple people on this discussion thread will be at the annual meeting, so management would be wise to be prepared to answer your questions.
    Aug 20, 2015. 09:52 PM | Likes Like |Link to Comment
  • Oxford Lane Capital Taking A Beating, Probably More Than It Deserves [View instapost]
    Hi Freshlegacy. The key to owning a portfolio of CLO investments, like OXLC, is to keep your eye on the leveraged loan and credit marketplace on a macro level. If I had the capability to bust apart all these CLOs and analyze them individually then I would not invest in OXLC, I would launch a competing product.

    I dare say that is the same with the overwhelming majority of bond funds. Regarding an mREIT, I used to trade mortgage backed securities. They are at least as complex as a CLO, and I am doubtful any more than a tiny handful of investors can actually value a portfolio. Even those that can - they will be spending days on a Bloomberg terminal. Again, if one can do that, then why even invest in a fund? I suppose that the only reason would be for economy of scale.

    I will apply that same logic to muni bond, corporate, high yield, et al bond funds. You are paying the managers for their expertise and execution. Your job is to manage the overall exposure to each sector/asset within your portfolio.

    For those reasons, the only "gamble" is the trust you put in the portfolio managers. That applies universally, not just to CLO investments.
    Aug 20, 2015. 09:45 PM | 1 Like Like |Link to Comment
  • Oxford Lane Capital Taking A Beating, Probably More Than It Deserves [View instapost]
    That makes a ton of sense; thanks Steve.

    The equity holders are just that - equity. If they want to pay off their debt (all the higher tranches), then do so and sell-off the remaining assets. Just like any other "company."
    Aug 20, 2015. 09:32 PM | Likes Like |Link to Comment
  • Oxford Lane Capital Taking A Beating, Probably More Than It Deserves [View instapost]
    The yield hit 19.5% earlier today, which is getting a little too silly by my estimate. Just for grins, I may put a GTC buy order in for a 20% yield. For that potential return, I'm willing to deal with some uncertainty.

    But here's my question...

    If CLO equity investors sell when the structure is seasoned, who is buying?

    I would think one should hold to the end, when the other tranches have been fully paid. The rewards of the over-collateralization are then the desserts for the equity holders. No?
    Aug 20, 2015. 03:14 PM | Likes Like |Link to Comment
  • Oxford Lane Capital Has 'Got Some Splainin' To Do' [View article]
    Hi ptr48lkc13. You have the admirable quality of being humble. That was one of the best explanations of an equity tranche that have read in some time.

    I'm not so sure I agree (or disagree) with the impact of capital raises. Regardless, be advised that an N-2/A was just filed with the SEC.
    Aug 19, 2015. 10:02 PM | 1 Like Like |Link to Comment
  • Oxford Lane Capital Has 'Got Some Splainin' To Do' [View article]
    Hello 23682513. I am sorry to hear about your losses, but I am a bit confused. Considering a worst case scenario of buying at the 52 week high and selling at the 52 week low, the spread would be 16.98 - 12.75 = 4.23. However, there was also a $2.40 of distributions that must be considered as part of the total return (in this case, a negative return). That narrows the spread to 4.23-2.40 = 1.83. 1.83 divided by 16.98 is a -10.8% loss: worst execution scenario.

    I did have the opportunity to speak with OXLC managers twice today, and they are fully aware that by delaying a payout by a month it translates to $2.40 over 13 months versus 12 months, which is a one-time decrease of -7.7% of the annual distributions, i.e. $2.2153/year versus $2.40/year.

    The explanation of the change was that the timing better enables them to match their cash flow versus their obligations (distributions). Asset-Liability matching. I am hopeful that, if practical, the decrease in 2015 payout will be addressed via a one-time special distribution to make investors whole. By "practical" I mean, not a liquidation of working capital to fund a distribution.

    Thanks, Steve, for your article that clearly articulates the questions and unclarity associated with the accounting of this investment. I did communicate to OXLC management that at the annual meeting, clarity on this issue is the paramount concern to investors.

    I am currently in a "hold" position on OXLC until after the annual meeting. I need to know if I am slowly bleeding capital, or if this is the "buy" of the year.
    Aug 19, 2015. 09:39 PM | 4 Likes Like |Link to Comment
  • Structured Notes: Read The Fine Print [View article]
    Halpern's response in the comment above is a good start, although there are some additional points of incredulity that Halpern didn't address. I will also pen a follow-up addressing a potential conflict of interest that was not disclosed by the Alliance Bernstein team.

    Disclosure: I am long structured products and use options to define investment outcomes.
    Aug 19, 2015. 04:20 PM | Likes Like |Link to Comment