The Urban Myth Of Fixed-Income Investments [View article]
ArtieNJ,
In our analysis hybrid funds were not included in either category. Assuming that 50% would represent equity and the balance fixed-income, we considered it a "jump ball".
More to your point, there has been a steady flow into hybrid funds this year and this likely supports your observation of a gravitation towards balance funds.
CEF Weekly Review: Focus On PIMCO High Income Fund [View article]
Erratum: The last paragraph inadvertantly referenced Nuveen Floating Rate Income Fund when it should have been Invesco VK Senior Income Fund (VVR) for the Scott Letter Interview. We apologize for the tranposition.
Investors Ignore Distribution Declines In Fixed-Income Closed End Funds [View article]
R we there yet,
I use the fund type categories that are presented in the Wall Street Journel to classify CEFs that we follow. They are in the "Market Data Center" section of the of the paper and are produced every Monday in their "Money & Investing" section. http://on.wsj.com/HlKBho
Additionally, you can find additional information at http://bit.ly/o4ngfR a very good source for this information. I have provided a hyperlinked to VVR so you can get a sense of the its profile as it is categorized as a LoanPartFnd.http://bit.ly/HlKBxG
Thanks for your comments and for reading the column.
As it relates to RMT, there is probably no overt catalyst other than a rip-roaring market.
However, the numbers are somewhat interesting. For its category, (GenEqFnds) RMT YTD share price appreciation has lagged its NAV by 2.0%. This is in contrast to its peer group where the average share appreciation YTD has exceed its related NAV by 4.1%.
Since I'm only looking for a small "heads start" when I buy, this is interesting to me--and possibly not other who are "big hitters".
Coming from a real estate background, the old saying is that most of your return is a function of discipline buying rather than discpline selling because the latter is harder to execute.
I'm just hoping Adam Smith's invisible hand is still operational.
CNBC is the “Sesame Street” of financial news. It assumes that the maximum attention span of children and investors is three minutes—after which, “no souls are saved”.
This has led to a promotion of Attention Deficit Syndrome in children and a profitable pharmacological response with ADHD related drugs being prescribed for preschoolers, and excessive trading by investors, witnessed by the number of on-line trading commercials sponsoring CNBC. Neither are great long-term solutions.
However, T.V. Executives can find cover in Marshall McLuhan’s observation, “Anyone who tries to make a distinction between education and entertainment doesn't know the first thing about either.”
'Heads Up' Closed End Fund Muni Investors [View article]
Nivramkoorb,
I’m not making a case for doom and gloom (see opening line in the article) for the muni markets as some others have. My point is that changes to this sector may be secular rather than cyclical.
CEF muni distributions may be subject to downticks from a majority of factors including rising interest rates, increase muni bond issuance and a shift from fixed income investment to equities. So, those depending on a particular level of income may be disappointed.
Notwithstanding, these issues, I concur with Warren Buffett that I’d rather buy a dollar for less than a 100 pennies.
My concern is for those CEF muni investors that own CEFs trading at large relative premiums in the face of a secular headwind. This just may add insult to injury.
I have no dog in this fight. I just look at the numbers and report the facts. Sometimes I get it right.
'Heads Up' Closed End Fund Muni Investors [View article]
Kingsmill,
As one of my favorite 20th century philosophers, Yogi Berra, remarked, "The future ain't what it used to be."
The "heavy hand" of the Fed could keep borrowing costs low and allow the "super-sized" yields of leverage CEFs to continue for another 18 months.
Unfortunately, they never "ring a bell" at either the top or the bottom of market cycles.
Rather than making this a binary decision based on a single metric, I would scale out of my positions maybe 25% at 7%, 25% at 8% and the balance between 9% and 10%. Or, some other combination.
The word "mandala" is from the classical Indian language of Sanskrit. Loosely translated it means "circle”.
It represents wholeness, and can be seen as a model for the organizational structure for investing and for other aspects of life itself. (See our tab on “Research” for a further explanation of our multidisciplinary approach.)
Its resemblance to the Aztec calendar is unfortunate in the context which you suggest.
It is contra to the purpose of our mission as our approach of "co-investing" aligns our interest with our clients and such "human sacrifice" would represent suicide.
2 High Yield Closed-End Funds To Consider And 2 To Avoid [View article]
Mr. Spritzer:
First of all, a good analyst's job is to be cynical. There are too many analysts on Wall Street regurgitating management "pitch" that are of little value to investors.
A little more "scratching" on Bernie Madoff might have ended in a less painful conclusion. So, no one should get a "bye", even PIMCO.
Let me deal with your response in the order presented in a collegial fashion offered for the sake of perspective--as that makes the market.
1) I was not implying that PIMCO was cherry picking their trades and only offered it up to as an possible explanation (see my comment above). It would clearly be unethical--illegal, you may have to show intent.
However, allocation of trades is how Hillary Clinton made a hundred of thousands or dollars trading "pork bellies" in one of her brokerage accounts by the brokerage's allocation of profitable trades to her account at the end of the day. I don't think she did "time" for this and in fact I still beleve she's Secretary of State.
2) I would disagree with your premise that such allocations would favor open-end funds versus allocations to PHK for the following reason. Bill Gross is the portfolio manager of PHK and its flagship Total Return Fund and his reputation is part of the franchise. Do you think they wouldn't want to protect his reputation--particularly when they're launching a sister ETF?
My only interest in commenting on your article was to agree with your view on PHK and to offer an expanded view of the CEF. So, the purpose of my comments was constructive and open to dialogue.
So, please don't take this response out of this context.
CEF Weekly Review: Focus On BlackRock Diversified Income Strategies Fund [View article]
Jannar11
I was utilizing the information from both from CEFconnect http://bit.ly/zofgvg and their last N-CSRS filing from last year on the SEC website. For some reason JLS's most reason report is not showing as an SEC filing.
JLS doesn't appear to have any structural leverage, i.e., debt on the balance sheet. However, to your point, it does have effective leverage that does not appear on its balance sheet. This is a result of the leverage effects of the Tender Option Bond (TOB) inverse floater holdings and the effects on investments in a leveraged Public-Private Investment Partnership in which they participate. This leverage is included in Effective Leverage values you noted.
Since it appears they're using the equity method of accounting for the partnership (I'm not an accountant), it doesn't have to be consolidated JLS's balance sheet.
Nonetheless, you are correct in pointing out that there is effective leverage. This is probably somewhat mitigated by the fact that such debt may only be recourse to the partnership.
CEF Weekly Review: Focus On BlackRock Diversified Income Strategies Fund [View article]
Iraklionas,
To a certain extend the leverage--depending on the leverage--does mitigate some of the rate rise on the portfolio investments relative to the the return on the equity.
However, since the maximum leverage is only a third for CEFs (higher for preferred securities) the two-thirds of the portfolio not leveraged by debt would benefits.
So, the questions become: what amount of leverage? What kind (floating rate or fixed)? The discount of price to NAV?
A non-leveraged floating rate asset portfolio would likely do better in a rising interest rate environment
2 High Yield Closed-End Funds To Consider And 2 To Avoid [View article]
George,
I concur with your assessment in particular regarding PHK. This is a situation is only sustainable in the current zero interest rate environment. When interest rates rise, this rubber band will snap as the metric will not be supportive as proffered below.
It you look at the arithmetic it is trading at a 65% premium, or $12.95 per share relative to its NAV of $7.87 per share.
One could make the case that since it is borrowing costs is zero (0.07%), its leverage of 24% "ups" its NAV on a temporary basis to $12.53 per share ($7.87 NAV plus $4.44 zero cost leverage that could be consider temporary NAV.) This would make the premium on the "temporary NAV" closer to a 3% premium. Slight comfort.
If you then multiple the portfolio yield 8.1% less the 1.1% expense ratio (7.0%) by the temporary NAV of $12.53 per share you'd get a monthly net investment income of $0.073 per share which is about 60% of the current monthly distribution rate.
There are couple of ways PHK could be able to sustain its distribution in a current interest rate environment and neither of them are comfortable.
There first is that they are making their cash flow through very successful trading of fixed-income derivatives. Again, this isn't a sustainable source of income.
The second is a little more cynical. This is that it's cherry-picking all of PIMCO's trades during the date and allocating them to the public portfolios where needed. Remember, PIMCO has a lot of "pockets" and Bill Gross's reputation is on the line as the portfolio manager of PHK. (I'm not implying that this is the case, but only as a possible explanation.)
In either case, investors should enjoy this while they can as the party's over with an increase in interest rates and the burden of the real cost of leverage impacts the P&L.
The Urban Myth Of Fixed-Income Investments [View article]
In our analysis hybrid funds were not included in either category. Assuming that 50% would represent equity and the balance fixed-income, we considered it a "jump ball".
More to your point, there has been a steady flow into hybrid funds this year and this likely supports your observation of a gravitation towards balance funds.
CEF Weekly Review: Focus On PIMCO High Income Fund [View article]
Investors Ignore Distribution Declines In Fixed-Income Closed End Funds [View article]
I use the fund type categories that are presented in the Wall Street Journel to classify CEFs that we follow. They are in the "Market Data Center" section of the of the paper and are produced every Monday in their "Money & Investing" section. http://on.wsj.com/HlKBho
Additionally, you can find additional information at http://bit.ly/o4ngfR a very good source for this information. I have provided a hyperlinked to VVR so you can get a sense of the its profile as it is categorized as a LoanPartFnd.http://bit.ly/HlKBxG
I'd also check out: http://www.cefa.com as another source.
I hope this is helpful.
Investors Ignore Distribution Declines In Fixed-Income Closed End Funds [View article]
Thanks for the "heads up".
CEF Weekly Review: Muni CEFs Crunched [View article]
Thanks for your comments and for reading the column.
As it relates to RMT, there is probably no overt catalyst other than a rip-roaring market.
However, the numbers are somewhat interesting. For its category, (GenEqFnds) RMT YTD share price appreciation has lagged its NAV by 2.0%. This is in contrast to its peer group where the average share appreciation YTD has exceed its related NAV by 4.1%.
Since I'm only looking for a small "heads start" when I buy, this is interesting to me--and possibly not other who are "big hitters".
Coming from a real estate background, the old saying is that most of your return is a function of discipline buying rather than discpline selling because the latter is harder to execute.
I'm just hoping Adam Smith's invisible hand is still operational.
CEF Weekly Review: Muni CEFs Crunched [View article]
CNBC is the “Sesame Street” of financial news. It assumes that the maximum attention span of children and investors is three minutes—after which, “no souls are saved”.
This has led to a promotion of Attention Deficit Syndrome in children and a profitable pharmacological response with ADHD related drugs being prescribed for preschoolers, and excessive trading by investors, witnessed by the number of on-line trading commercials sponsoring CNBC. Neither are great long-term solutions.
However, T.V. Executives can find cover in Marshall McLuhan’s observation, “Anyone who tries to make a distinction between education and entertainment doesn't know the first thing about either.”
'Heads Up' Closed End Fund Muni Investors [View article]
I’m not making a case for doom and gloom (see opening line in the article) for the muni markets as some others have. My point is that changes to this sector may be secular rather than cyclical.
CEF muni distributions may be subject to downticks from a majority of factors including rising interest rates, increase muni bond issuance and a shift from fixed income investment to equities. So, those depending on a particular level of income may be disappointed.
Notwithstanding, these issues, I concur with Warren Buffett that I’d rather buy a dollar for less than a 100 pennies.
My concern is for those CEF muni investors that own CEFs trading at large relative premiums in the face of a secular headwind. This just may add insult to injury.
I have no dog in this fight. I just look at the numbers and report the facts. Sometimes I get it right.
'Heads Up' Closed End Fund Muni Investors [View article]
As one of my favorite 20th century philosophers, Yogi Berra, remarked, "The future ain't what it used to be."
The "heavy hand" of the Fed could keep borrowing costs low and allow the "super-sized" yields of leverage CEFs to continue for another 18 months.
Unfortunately, they never "ring a bell" at either the top or the bottom of market cycles.
Rather than making this a binary decision based on a single metric, I would scale out of my positions maybe 25% at 7%, 25% at 8% and the balance between 9% and 10%. Or, some other combination.
Again, my tale is one of caution.
CEF Weekly Review: ETF Dividend Aristocrats [View article]
For some unknown reason, the editors of SeekingAlpha used the incorrect title for this article.
It was submitted as: "CEFs Week of 3/9/12: ING Infrastructure, Industrial and Materials Fund in Focus"
Just for the record.
CEF Weekly Review: ETF Dividend Aristocrats [View article]
The word "mandala" is from the classical Indian language of Sanskrit. Loosely translated it means "circle”.
It represents wholeness, and can be seen as a model for the organizational structure for investing and for other aspects of life itself. (See our tab on “Research” for a further explanation of our multidisciplinary approach.)
Its resemblance to the Aztec calendar is unfortunate in the context which you suggest.
It is contra to the purpose of our mission as our approach of "co-investing" aligns our interest with our clients and such "human sacrifice" would represent suicide.
CEF Weekly Review: ETF Dividend Aristocrats [View article]
With all due respect, why would you be reading these articles in the first place if you were to hold this opinion?
If you were to stop reading such articles it would be a happy resolution for all involved.
2 High Yield Closed-End Funds To Consider And 2 To Avoid [View article]
First of all, a good analyst's job is to be cynical. There are too many analysts on Wall Street regurgitating management "pitch" that are of little value to investors.
A little more "scratching" on Bernie Madoff might have ended in a less painful conclusion. So, no one should get a "bye", even PIMCO.
Let me deal with your response in the order presented in a collegial fashion offered for the sake of perspective--as that makes the market.
1) I was not implying that PIMCO was cherry picking their trades and only offered it up to as an possible explanation (see my comment above). It would clearly be unethical--illegal, you may have to show intent.
However, allocation of trades is how Hillary Clinton made a hundred of thousands or dollars trading "pork bellies" in one of her brokerage accounts by the brokerage's allocation of profitable trades to her account at the end of the day. I don't think she did "time" for this and in fact I still beleve she's Secretary of State.
2) I would disagree with your premise that such allocations would favor open-end funds versus allocations to PHK for the following reason. Bill Gross is the portfolio manager of PHK and its flagship Total Return Fund and his reputation is part of the franchise. Do you think they wouldn't want to protect his reputation--particularly when they're launching a sister ETF?
My only interest in commenting on your article was to agree with your view on PHK and to offer an expanded view of the CEF. So, the purpose of my comments was constructive and open to dialogue.
So, please don't take this response out of this context.
CEF Weekly Review: Focus On BlackRock Diversified Income Strategies Fund [View article]
I was utilizing the information from both from CEFconnect http://bit.ly/zofgvg and their last N-CSRS filing from last year on the SEC website. For some reason JLS's most reason report is not showing as an SEC filing.
JLS doesn't appear to have any structural leverage, i.e., debt on the balance sheet. However, to your point, it does have effective leverage that does not appear on its balance sheet. This is a result of the leverage effects of the Tender Option Bond (TOB) inverse floater holdings and the effects on investments in a leveraged Public-Private Investment Partnership in which they participate. This leverage is included in Effective Leverage values you noted.
Since it appears they're using the equity method of accounting for the partnership (I'm not an accountant), it doesn't have to be consolidated JLS's balance sheet.
Nonetheless, you are correct in pointing out that there is effective leverage. This is probably somewhat mitigated by the fact that such debt may only be recourse to the partnership.
Thanks for the "head up".
Best
CEF Weekly Review: Focus On BlackRock Diversified Income Strategies Fund [View article]
To a certain extend the leverage--depending on the leverage--does mitigate some of the rate rise on the portfolio investments relative to the the return on the equity.
However, since the maximum leverage is only a third for CEFs (higher for preferred securities) the two-thirds of the portfolio not leveraged by debt would benefits.
So, the questions become: what amount of leverage? What kind (floating rate or fixed)? The discount of price to NAV?
A non-leveraged floating rate asset portfolio would likely do better in a rising interest rate environment
I hope this is helpful.
Best,
2 High Yield Closed-End Funds To Consider And 2 To Avoid [View article]
I concur with your assessment in particular regarding PHK. This is a situation is only sustainable in the current zero interest rate environment. When interest rates rise, this rubber band will snap as the metric will not be supportive as proffered below.
It you look at the arithmetic it is trading at a 65% premium, or $12.95 per share relative to its NAV of $7.87 per share.
One could make the case that since it is borrowing costs is zero (0.07%), its leverage of 24% "ups" its NAV on a temporary basis to $12.53 per share ($7.87 NAV plus $4.44 zero cost leverage that could be consider temporary NAV.) This would make the premium on the "temporary NAV" closer to a 3% premium. Slight comfort.
If you then multiple the portfolio yield 8.1% less the 1.1% expense ratio (7.0%) by the temporary NAV of $12.53 per share you'd get a monthly net investment income of $0.073 per share which is about 60% of the current monthly distribution rate.
There are couple of ways PHK could be able to sustain its distribution in a current interest rate environment and neither of them are comfortable.
There first is that they are making their cash flow through very successful trading of fixed-income derivatives. Again, this isn't a sustainable source of income.
The second is a little more cynical. This is that it's cherry-picking all of PIMCO's trades during the date and allocating them to the public portfolios where needed. Remember, PIMCO has a lot of "pockets" and Bill Gross's reputation is on the line as the portfolio manager of PHK. (I'm not implying that this is the case, but only as a possible explanation.)
In either case, investors should enjoy this while they can as the party's over with an increase in interest rates and the burden of the real cost of leverage impacts the P&L.