Seeking Alpha

The Q3 2017 High-Yield RIC Portfolio Update

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Includes: AMZA, ARI, BDCL, BXMT, CEFL, CLDT, DX, ECC, EVV, EXG, GAIN, KO, LADR, LXP, MORL, MRCC, NEWT, NRZ, OHI, OXSQ, PDI, PFN, PNNT, STAG, VWO, WPC
by: Nick Mackintosh
Summary

One new MLP ETF purchase for the portfolio and 1 ETN being sold.

New indexes that make my own small pension due to canceling my employee scheme.

Possibly looking to average down with my BDC ETN holding.

Hello and welcome back to my portfolio update, where every quarter I give the readers an update on the portfolio, the value changes, the transactions, the dividend changes, and the plan going forward.

Reasoning, Strategy & Goal

For new readers, you may want to check out my introduction article below, which goes into more detail. The reasoning for choosing high yield over wealth generation, such as dividend growth investing, is due to wanting the income as soon as possible. Due to residing in London, living expenses are higher than the rest of the UK, and I share my salary with the fiancee as we're planning on starting a family. The plan is to DRIP my investments until retirement, but the income is there if needed in case of emergency or a special vacation.

I mainly invest in regulated investment companies, RICs, as they are required by law to distribute at least 90% of their earnings to shareholders. Naturally, this means that the dividend yield is higher compared to a regular c-corp such as Coca-Cola (NYSE: KO). If RICs are trying to expand or grow, they will usually have to issue shares in order to raise the capital required.

The money will be evened out across the REIT, BDC and CEF sectors, with maybe a small portion in MLPs. Once I reach my goal comfortably, I'll be fortifying the portfolio in order to generate wealth. This will be done by diversifying into dividend growth companies in areas of safety such as the consumer goods and utility sector.

The goal is to save until the income comfortably passes my salary of £33,000 as then I will have the freedom of retiring if I so wish, or continuing to work in order to have a more lavish lifestyle. If I continue to save at least £13,000 a year, I will hit this figure by approximately 2032, 15 short years!

Portfolio Series:

Introducing My New High Yield RIC Portfolio

The Q1 2017 High Yield RIC Portfolio Update

The Q2 2017 High Yield RIC Portfolio Update

The Portfolio

Company Ticker Paid Price Curr Price Shares Cost Value Weight Profit CG % Div TR % DPS Yield YOC Income
Apollo Commercial Real Estate ARI £15.35 £13.53 67 £1,028.78 £906.49 3.43% -£122.29 -11.89% £19.77 -9.97% £1.44 10.64% 9.38% £96.48
Blackstone Mortgage Trust BXMT £24.86 £23.17 50 £1,242.83 £1,158.35 4.14% -£84.48 -6.80% £19.85 -5.20% £1.91 8.24% 7.68% £95.50
Chatham Lodging Trust CLDT £15.71 £15.92 76 £1,193.88 £1,209.94 3.98% £16.06 1.35% £49.00 5.45% £1.06 6.66% 6.75% £80.56
Dynex Capital DX £5.92 £5.43 177 £1,047.76 £961.34 3.49% -£86.42 -8.25% £40.79 -4.35% £0.58 10.68% 9.80% £102.66
Eagle Point Credit Company ECC £15.16 £15.48 86 £1,303.78 £1,331.25 4.35% £27.47 2.11% £113.86 10.84% £1.92 12.40% 12.66% £165.12
EV Limited Duration EVV £10.78 £10.31 111 £1,196.63 £1,144.38 3.99% -£52.25 -4.37% £60.44 0.68% £0.82 7.95% 7.61% £91.02
EV Global Div Equity EXG £6.51 £6.99 184 £1,198.14 £1,285.28 3.99% £87.14 7.27% £93.39 15.07% £0.73 10.45% 11.21% £134.32
Gladstone Investment Corp GAIN £7.57 £7.07 177 £1,339.66 £1,252.26 4.46% -£87.40 -6.52% £43.17 -3.30% £0.60 8.48% 7.93% £106.20
Ladder Capital Corp LADR £11.87 £10.28 88 £1,044.12 £904.63 3.48% -£139.49 -13.36% £34.81 -10.03% £0.96 9.34% 8.09% £84.48
Legal & General European Index £2.89 £2.87 30.313 £87.50 £87.12 0.29% -£0.38 -0.43% £0.00 -0.43% £0.08 2.91% 2.90% £2.54
Legal & General Pacific Index £1.10 £1.05 79.868 £87.50 £83.78 0.29% -£3.72 -4.25% £0.00 -4.25% £0.03 2.86% 2.74% £2.40
Legal & General UK Index £1.66 £1.65 52.843 £87.50 £87.35 0.29% -£0.15 -0.17% £0.00 -0.17% £0.06 3.45% 3.44% £3.01
Legal & General US Index £3.80 £3.79 23.02 £87.50 £87.34 0.29% -£0.16 -0.19% £0.00 -0.19% £0.06 1.48% 1.48% £1.30
Lexington Realty Trust LXP £5.66 £7.64 230 £1,301.15 £1,756.10 4.34% £454.95 34.96% £177.37 48.60% £0.53 6.94% 9.37% £121.90
Monroe Capital Corp MRCC £12.54 £10.68 100 £1,254.46 £1,068.33 4.18% -£186.13 -14.84% £91.94 -7.51% £1.12 10.48% 8.93% £112.00
New Residential Investment NRZ £13.29 £12.50 214 £2,844.23 £2,674.72 9.48% -£169.51 -5.96% £94.81 -2.63% £1.58 12.64% 11.89% £338.12
Newtek Business Services NEWT £13.28 £13.31 80 £1,062.13 £1,065.04 3.54% £2.91 0.27% £62.11 6.12% £1.31 9.84% 9.87% £104.80
Omega Healthcare Investors OHI £25.64 £23.83 61 £1,563.99 £1,453.75 5.21% -£110.24 -7.05% £317.82 13.27% £1.98 8.31% 7.72% £120.78
Pennantpark Inv Corp PNNT £6.08 £5.60 205 £1,247.24 £1,147.12 4.16% -£100.12 -8.03% £87.66 -1.00% £0.58 10.37% 9.53% £118.90
PIMCO Dynamic Income PDI £23.47 £23.03 44 £1,032.82 £1,013.10 3.44% -£19.72 -1.91% £100.72 7.84% £2.12 9.21% 9.03% £93.28
PIMCO Income Strategy II PFN £7.53 £7.99 139 £1,047.08 £1,110.10 3.49% £63.02 6.02% £65.77 12.30% £0.77 9.64% 10.22% £107.03
Stag Industrial STAG £11.93 £20.51 105 £1,252.55 £2,154.06 4.17% £901.51 71.97% £148.56 83.83% £1.07 5.22% 8.97% £112.35
TICC Capital Corp TICC £5.49 £5.11 227 £1,245.23 £1,159.97 4.15% -£85.26 -6.85% £133.18 3.85% £0.65 12.72% 11.85% £147.55
WP Carey Inc WPC £42.19 £50.33 25 £1,054.73 £1,258.28 3.52% £203.55 19.30% £135.48 32.14% £2.98 5.92% 7.06% £74.50
Taxable Account (£2000 max)
InfraCap MLP ETF AMZA £7.41 £6.93 279 £2,068.01 £1,934.28 6.89% -£133.73 -6.47% £0.00 -6.47% £1.59 22.93% 21.45% £443.61
2x BDC ETN BDCL £15.33 £13.75 68 £1,042.30 £934.75 3.47% -£107.55 -10.32% £91.17 -1.57% £2.31 16.80% 15.07% £157.08
2x MREIT ETN MORL £12.57 £13.96 83 £1,042.99 £1,158.93 3.48% £115.94 11.12% £141.34 24.67% £2.49 17.83% 19.82% £206.67
Total 2,515 £30,004.49 £30,388.02 100.00% £383.53 1.28% £2,123.01 8.35% 10.61% 10.75% £3,224.15

In the past 3 months the capital gain from the portfolio has declined a further 3.47% and total return by 2.13%. I only made a small number of transactions this quarter due to money constraints, mainly due to unexpected time off work followed by a vacation. The yield on cost of the portfolio has increased slightly to 9.13% after deducting the US withholding tax. Currency has once again been a thorn in my backside, as from July 1st to October 1st, the GBPUSD exchange rate impacted the portfolio by -3.54%, hence explaining the portfolios apparent decline. Since January 1st 2017 the USD has declined by 8.57% against the GBP. While this is not bothersome, it does give the impression to someone glancing the portfolio that I’ve performed rather badly as an investor! However, rest assure my fellow readers, if I was an American my annual return is sitting comfortably on 14.3%, and only 2 of my investments, ARI and AMZA, are showing small losses with AMZA mainly due to going ex-dividend recently!

Portfolio Transactions

In total I deposited £1,200 into my brokerage account for Q3, and below is a table of where that fresh capital was spent.

Date Company Action Shares Price Total Total Return
7/14/2017 CEFL SELL 78 £13.72 £1058.39 13.09%
7/14/2017 AMZA BUY 139 £7.52 £1057.61
8/10/2017 European Index BUY 13.107 £2.86 £37.50
8/10/2017 Pacific Index BUY 34.372 £1.09 £37.50
8/10/2017 UK Index BUY 22.686 £1.65 £37.50
8/10/2017 US Index BUY 9.845 £3.81 £37.50
8/11/2017 AMZA BUY 140 £7.13 £1010.40
9/11/2017 European Index BUY 17.206 £2.91 £50
9/11/2017 Pacific Index BUY 45.496 £1.10 £50
9/11/2017 UK Index BUY 30.157 £1.66 £50
9/11/2017 US Index BUY 13.175 £3.80 £50

My article appropriately named “Why I’m Selling My CEFL Position” highlights the reasoning for removing the holding from the portfolio. I disagreed with how the ETN’s holdings are chosen, as it’s compiled based on yield, discount to NAV and liquidity.

In the comment section of the article, I can be found explaining that the capital was replaced with my new position, the Infracap MLP ETF, and not only did it diversify the portfolio in a beaten-down sector, it also boosted my income due to the depressed yield!

Due to being automatically enrolled in a pension scheme with my employer, and finding information about how it’s managed, averaging 5% annual growth a year. I decided to cancel it and create my own small pension within my portfolio, using the exact same amount as what was taken from my employer, £200 every 4 weeks.

The company Legal & General in the UK has been operating since 1836 and has £894 billion assets under management. It deals in retirement schemes, investment management, savings and capital loans.

While I would typically have chosen Vanguard for all of my 4 (soon to be 5) indexes, with my broker Hargreaves Lansdown, L&G actually beat Vanguard in terms of expense ratio. These are the expense rates I’m getting below:

L&G European Index: 0.09%

L&G Pacific Index: 0.19%

L&G UK Index: 0.06%

L&G US Index: 0.06%

L&G Emerging Markets: 0.33%

Vanguard Emerging Markets: 0.27% ← Winner Winner Chicken Dinner!

As you can probably tell, I’ll be adding Vanguard’s Emerging Markets (NYSE: VWO) to my pension package this month, splitting £200 between the 5 Indexes.

Portfolio Dividends

For Q3, the dividends amounted to £587.74, for a monthly average of £195.91 ($259.47). This is a change of 12.36% compared to Q2. This was mainly due to receiving my first dividends from ARI and BXMT while also receiving a very generous special dividend from ECC, it’s second special this year! This is a great result as I’m still suffering from the currency impact and you can see the slight fluctuations in the image provided above.

In terms of dividend increases, OHI announced a 1.6% increase on July 13th and WPC announced 0.5% on September 20th.

Portfolio Future Outlook


In the month of October alone I’m expecting 19 dividend payments! That’s amazing and it’s a little daunting when it comes to inputting the data onto my spreadsheet, the great news is I’m expecting over £400 from this month alone! Thanks to my first expected dividend from my MLP ETF.

I did manage to take advantage of a Free Trial period for Rida Morwa’s marketplace research, and took down some notes on the MLPs his portfolio has for his subscribers. I won’t be revealing them here as I think that’d be morally wrong. I’d also like to mention that I’ve read every book from Tony Robbins, and he seems to love MLPs as he mentions them a few times in his latest 2 books, so I thought I better invest in some myself, though they obviously will not all be in the energy sector. The advantage is that they are also RICs, so it fits into my portfolio nicely, since they are required by law to distribute 90% of all taxable income to shareholders. It does mean, however, that you’ll need K-1 forms when filing your taxes. Luckily for me I can avoid this being an international investor.

I wish there was more for me to say this month, but unfortunately it’s been uneventful. I’m hoping for Q4 I can allocate some fresh capital and make a few purchases before the year is over, this will undoubtedly be hard to do with Christmas round the corner, damn 2017 has gone fast! I wish my portfolio readers all the best for Q4 and wishing you in advance a Merry Christmas and Happy New Year!

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I'm long everything in the portfolio!