Seeking Alpha

Michael Fabian

View as an RSS Feed
View Michael Fabian's Comments BY TICKER:
Latest comments  |  Highest rated
  • CEF Investors: Your Window Of Opportunity Is Beginning To Close [View article]
    You could be right, and you make very valid points. There are many underwater owners since these were two of the largest CEF IPOs in history. However, I still believe that through superior expertise in management, and large leverage ratios, they make great plays for a tightening credit environment. Meaning strong NAV performance could ultimately drag the market price higher, all the while collecting roughly an 8.5% yield on market price.

    They are both diversified amongst F/C HY corporates, F/R loans, and non-agency MBS. In addition to special situations: PCI has a distressed debt sleeve, while DSL has a larger EM debt sleeve. They are also not hedged to the extent PDI is, so it could make for an interesting 4th quarter.

    Thanks again for the comments.
    Oct 18 03:35 PM | 3 Likes Like |Link to Comment
  • Consider Making Changes To Your Income Allocations [View article]

    I think you might be making predictions and labeling them as facts. You stated that the "30 year bond rally is over", and that "interest rates are at all time lows" or "Since we are at almost zero interest rates, they only have one direction to go, up". Looking at my charts, interest rates are not at all time lows. That type of one way thinking can get you into trouble. I understand we have disagreeing philosophies, but you might want to take a more neutral posture when commenting on other contributors articles. Its the difference of opinion that works to promote healthy debate, that is what I believe this site was founded on.
    Furthermore, many actively managed bond funds have posted reasonable returns this year, and can shorten their duration to a certain extent if interest rates rise. Bill Gross even shorted bonds in the total return strategy in 2011-2012. However, he didn't have much luck with that as interest rates continued to fall. If he were to do the same in a rising interest rate environment, the returns would be fantastic.

    My position for clients in BOND is one single piece of a comprehensive strategy. I was an early adopter of the fund at its inception last year, and it posted significant outperformance over the benchmark. When I believe that interest rates have a dire risk of rising, I will shift my clients portfolios more towards equities or low/negative duration bond funds. I'm very aware of the realities of interest rates, and I'll change my "textbook" approach when its stops working.

    Thanks for the comment.
    Mar 29 10:19 AM | 3 Likes Like |Link to Comment
  • CEF Investors: Your Window Of Opportunity Is Beginning To Close [View article]

    We were about 50% cash going into the CEF selloff, making sales in DBL, PKO, reductions in GOF, etc right about the time I wrote this article:

    I obviously underestimated how much rates would ultimately rise, however, like the article says, I focus on NAV performance vs. market price performance. As market prices slipped in relation to their TTM average Prem/Disc. NAVs held up relatively well, so I continued to add to positions during the correction. As of right now the portfolio is roughly 95% invested.

    Its nice to see some relief off the lows, and on a total return basis we have some healthy gains on most positions. I was actually expecting the treasury default would stir up more volatility, but it never came to pass (we did not sell any positions as a result of the treasury default fears). The two positions we continued to add to during the last week was DSL and PCI with proceeds from HNW. I tweet about certain additions like that, so join our twitter feed for additional play by play.
    Oct 18 03:00 PM | 2 Likes Like |Link to Comment
  • Closed-End Fund Discounts Widen: So What Are You Buying? [View article]

    I would categorize the NAV pricing as very accurate. Going from memory, I recall PDI holding approximately 10% in Level 3 assets stated in their latest annual report issued in March. Naturally holding illiquid MBS isn't an issue for a CEF, since they will not be "forced" to sell at an inopportune time.

    I believe PIMCO likely marks these assets as close to on the money as is institutionally possible. Undercutting their market value could be considered tax evasion, and over pricing them would have the board of directors of the fund all over them. I believe they take their reputation and fiduciary responsibility very seriously in this regard.

    The real magic within this fund is Dan Ivascyn and his team's hedging strategies using pay-fixed swaps. He has done an amazing job balancing the credit, currency, and interest rate risk.

    Looks like some bottom feeders are already jumping on PDI's opening swoon.
    Jun 11 11:49 AM | 2 Likes Like |Link to Comment
  • Consider Making Changes To Your Income Allocations [View article]
    Indeed he did. I respect every argument he pointed out, just not his delivery.
    Mar 29 12:39 PM | 2 Likes Like |Link to Comment
  • Massaging Your Dividend Equity Buy List [View article]
    That's incorrect, any common stock dividends flow through even on a percentage basis, to the holder of the fund. You are 1099ed proportionately based on the holding period and qualified dividend requirements. However, the article wasn't intended to argue the benefits of tax efficiency.
    Mar 29 09:45 AM | 2 Likes Like |Link to Comment
  • CEF Investors: Your Window Of Opportunity Is Beginning To Close [View article]
    I agree JustGiveMeDividends, I should have mentioned the recent bump in dividend for PDI from 0.177 to 0.191 cents per month (roughly 8% increase).

    The large special distribution will likely have to be made for the fund to avoid paying taxes on the additional income it has been receiving most of the year.

    Thank you for your comment.
    Oct 18 02:03 PM | 1 Like Like |Link to Comment
  • Interest Rates Have Stabilized: Why Aren't Discounts Narrowing? [View article]
    NII stands for "Net Investment Income", which is basically a measure of what a portfolio is earning in income, in excess of it's expenses, but before taxes.

    UNII stands for "Undistributed Net Investment Income", which is what a portfolio earns in income in excess of its distributions to shareholders. A CEF that over-distributes could simply be returning capital to shareholders (ROC). It can get even more complicated when you start looking at distribution from capital gains, or income from derivatives etc.

    I try to avoid those funds that regularly return large amounts of capital to investors whenever possible, but there are always a few exceptions.
    Jul 25 11:43 AM | 1 Like Like |Link to Comment
  • Interest Rates Have Stabilized: Why Aren't Discounts Narrowing? [View article]
    Looking at their most recent filings, EHI is 95.4% U.S. Dollar denominated, and I believe HYI is 96% U.S. Dollar denominated.

    Looking at a chart of the U.S Dollar, its mostly unchanged on a 1 year basis, it certainly fell, then rallied, but no discernible trend.
    Jul 24 12:38 PM | 1 Like Like |Link to Comment
  • Sell Domestic And Go International For Higher Dividends [View article]
    You can take a look at the indicated yield I based my figures on at, the ETF provider. The 12 month trailing yield can be somewhat misleading because dividends from foreign companies can be lumpy, hence the reason I always use SEC yields since it makes for a more equal comparison.
    Apr 25 11:11 PM | 1 Like Like |Link to Comment
  • Keeping Your Portfolio Afloat In Senior Loans [View article]

    10% was exactly the number I was thinking as a typical allocation, especially if it works to fill in part of your high yield bond bucket. I think you could go as high as 20% to replace core fixed income funds in either a rapidly expanding economic or interest rate environment.

    Loans can be a relatively safe asset class, even more so in light of the Fed's QE program. However, They do have a tendency to sell off extremely fast in an unfavorable market, usually when credit spreads really start to blow out and/or liquidity dries up. Since the asset class has seen a lot more issuance and is more broadly owned amongst institutional and retail investors than in 2008, they are much better off, but its still something to be cognizant of. If an event like what I'm describing were to occur it usually makes for a fantastic buying opportunity!
    Apr 18 09:57 AM | 1 Like Like |Link to Comment
  • 2 Popular Fixed Income ETFs I Would Never Own [View article]

    To my point, they have a much more open investment mandate which is why I prefer these three funds. In the interest of transparency, there are a few other additional holdings you actually left out that AGG or BND cannot own, they include interest rate swaps, convertible bonds, senior loans (floating rate notes), TIPS, STRIPS, Warrants, Tax exempt Munis, and preferred stocks.

    I still think there is no better way to compare a fund than to its benchmark. All three of these funds use the Barclays Agg Index as their benchmark. I can see why you might disagree, but when I evaluate investments, that is where I start.

    all the best,
    Apr 12 11:34 AM | 1 Like Like |Link to Comment
  • 2 Popular Fixed Income ETFs I Would Never Own [View article]

    Im fairly familiar with TCW's strategy since its very similar in nature to DoubleLine's, however there have been some changes over there since Jeffrey Gundlach left in 2009. There is a much higher percentage of ABS and Treasury Securities within their portfolio when compared to DBLTX. I still prefer Doubleline as a firm as I believe their "house Views" are more aligned with my own and that of my clients.

    I believe your investment in TGMNX will continue to perform well in the current climate, however be aware of the changes they make to counter the effects of interest rate volatility.
    Apr 11 05:48 PM | 1 Like Like |Link to Comment
  • The Actively Managed Income Conundrum [View article]

    I agree with many of the points you laid out in your comment regarding DVY and an income vs total return investor. However, I have witnessed many times investors that start down one path for their investing endeavors, end up traveling down another simply because the market didn't cooperate at the time. Its quite common to uncover income investors that are investing for growth and vis a versa. My business partner and I always put it that "everyone is a growth investor until the market corrects". I believe that income investing isn't that black and white, there are many effective styles, and mine is one tilted more towards total return and market timing. Thanks for your comment!

    all the best,
    Apr 3 09:47 AM | 1 Like Like |Link to Comment
  • Consider Making Changes To Your Income Allocations [View article]

    Thank you for the kind comment, I'm writing an article over the weekend about managing an income portfolio more actively. I hope to have it published early next week.

    All the best,
    Mar 30 10:12 AM | 1 Like Like |Link to Comment