Seeking Alpha

The Protected Principal Retirement Portfolio: Preliminary Rebalancing

by: Real-Time Retired Guy
Real-Time Retired Guy
Long only, long-term horizon, portfolio strategy, dividend investing

As we near the end of 2019, I am starting to look into portfolio re-balancing.

My preliminary goals include increasing both REIT and BDC components.

I'm not happy with MLP performance the last four years, so I will evaluate the possibility of reducing percentage allocation to that sector.

I need to make decisions relative to the nine or ten miscellaneous CEFs comprising the balance of the portfolio.

In late August, I wrote an article updating the content and allocations within the Protected Principal Retirement Portfolio (PPRP) (here). I tried to address changes made and lessons learned since 2012. As of today, the sector allocations remain about the same percentage-wise; however, cash has increased, and I added small positions in FS KKR Capital Corp. (FSK), and GAMCO Global Gold, Natural Resources and Income Trust (GGN). I added (FSK) as I thought it was kind of a special situation within the BDC sector, and (GGN) for exposure to gold and other resources should gold/silver prices really take off. Aside from dividends, neither has done much for me since their addition.

This article will present my current thinking on the markets as we approach year end, changes I would like to make to sector allocations, and how and when I plan to deploy some of the cash reserves recently accumulated.

Preliminary Portfolio Goals - 2020 And Forward

My current thoughts on the markets are that I still see no real direction either way - up or down. Markets seem to be trying to advance in light of stimuli received from the government's quantitative easing - QE2, QE3, QE4, ... QEx, although one would think these would provide a more positive boost to the averages. As I write this article on October 25, the market averages seem headed for a record close.

My gut is telling me that we should have a correction coming, but I have felt this way for well over a year with only the correction of December 2018 to show.

If the markets continue to act as they have recently, I plan to allocate a portion of my cash reserves over the initial months of 2020.

The following depicts current sector allocations and anticipated allocations by early 2020 for the PPRP:


Master Limited Partnerships 30% 20%

Real Estate Investment Trusts 5% 10%

Business Development Companies 7% 12%

Foreign Stocks 0% 10%

Utilities/Infrastructure (Via CEF's) 10% 15%

Misc CEF's (Fixed Income etc.) 20% 10%

Defensive (Options, Gold/Resources) 3% 8%

Cash 25% 15%

Totals 100% 100%

The percentages shown above are all tentative, and I intend to refine them over the coming two months.

Master Limited Partnerships

I am a "sort of a happy owner" of nine MLPs, of which Enterprise Products Partners (EPD) is by far the largest. I have owned it since the early 2000s and it is a lifetime keeper (primarily due to tax issues). It yields over six percent, and although quarterly distribution increases are not as much as they once were, I remain happy.

I also own Delek Logistics Partners (DKL), of which I am also happy since I have been able to write covered calls around the $30 strike price many times without losing any of the underlying units.

Enviva Partners (EVA) is another pleasurable MLP. I purchased it in the teens and today it is close to $33. Increases to quarterly distributions continue to grow and, for now it is a keeper.

PBF Logistics (PBFX) has also been a consistent grower of its distribution, although at a fairly diminished rate. It too is a keeper - at least for now.

Landmark Infrastructure Partners (LMRK) is an interesting MLP, since a portion is also a real estate investment trust. It is supposed to become a REIT, but there is not a lot of information circulating that addresses that conversion. Quarterly distribution increases are historically on the order of one half cent, and so long as these continue I will hold.

Next, let's take a look at the four that I am not exactly crazy about.

Hoegh LNG Partners (HMLP) is a shipping outfit owning floating storage and regasification units (FSRUs) and LNG carriers, which I once thought of as decent areas to have exposure to - but not so sure lately. Their distributions have not been increased in almost two years and unit prices are also pretty stagnant.

USA Compression Partners (USAC), one of about three significant players in the compression services area has shown little price movement except for the days leading up to distribution payments. Unfortunately, the distribution has not been increased since July 2015.

USD Partners (USDP) is a railcar company and provides both terminalling and logistic services for oil and biofuel products. I have held this for several years, since every quarter there is a distribution increase and in times of oil gluts I think they benefit due to their presence in the rail storage sector.

Finally is my biggest enigma - Energy Transfer (ET). Although I feel ET might have the greatest opportunity for total return, I am concerned that at some point in the future, it will be subject to a take under. There is supposedly a chance that distribution increases will resume at some point in 2020, but I am not that optimistic.


At this time, it is my intention to hold all of the EPD, DKL, and EVA. With PBFX and LMRK I plan a "watchful waiting" strategy. In the event that some event adversely impacted these, I would probably put them on the sale block.

Turning to my less favorable positions (HMLP, USAC, USDP and ET) I will be looking for opportunities to sell both HMLP and USAC (sooner, rather than later), keep a close watch on USDP (like to see their distributable cash flow coverage ratio exceed 1.00X), with an eye to possibly selling. With regard to ET, I am concerned that if I go with my gut and sell, it would probably go to $20 in a week, so I will hold and see what happens to the distribution and unit price through 2020.

As far as future MLP purchases go, I will limit them to CEFs that have primary exposure to investment grade partnerships.

Real Estate Investment Trusts

Several months ago, when I was raising cash I believed that many REIT's were fully valued so I sold most of my positions except for New Residential Investment Corp. (NRZ) - a specialty mortgage REIT. I have owned it for years and have received a decent total return, although in recent quarters the dividend has not been increased.

Looking at equity REITs (where I most want to be in the future), I see many that are reaching the upper levels of their valuations. So I believe that this is a good time to be doing research while waiting for an opportunity to be a buyer.


In the past, I have successfully used CEF's as a means to gain a diversified exposure to the REIT sector. I still like that approach, although I would mix it with purchase of individual REITs in the future. The two I like (and would buy) in particular are Cohen & Steers Total Return Realty (RFI), and CBRE Clarion Global Real Estate (IGR). RFI is an unleveraged fund that has performend well in the past, while IGR offers a combination of both US and foreign REITs in their portfolio.

With respect to individual equity REITs, I think that private correctional facilities are presently undervalued, and depending on the 2020 elections, these could regain favor with the investment community. I also have been following Tanger Factory Outlet Centers (SKT). There is a large Tanger Outlet close to me, so I have the opportunity to kind of monitor their popularity with the retail crowd.

Business Development Companies

My present exposure to the BDC sector is through one company and one CEF. The company is (FSK), which I think could be a turn around situation, and the CEF is First Trust Specialty Finance and Financial Opportunities Fund (FGB). FGB always seems to have as their top holdings the BDCs with the most favorable coverage here on Seeking Alpha.

I continue to read articles posted on SA by BDC Buzz and Factoids, whom I have the utmost respect for when it comes to BDC research.


I would not hesitate to add to current FGB holdings when (and if) the price returned to a discount to net asset value. Will continue to hold FSK for a few quarters to see how earnings go. In the meantime the dividend should keep me happy.

Other BDC possibilities that I am currently researching include: Stellis Capital Investment Corp. (SCM) and Whitehorse Finance Inc. (WHF).

Foreign Stocks

As I have stated in prior articles, I group foreign stocks into two categories: global/international and emerging markets. My recent research has focused on the foreign stock sector as I currently have no exposure to either global/international stocks or emerging markets.


I have mentioned in previous articles that I view this sector from the standpoint of using a ratio of about 2:1 (global/international : emerging markets) when I decide to enter the arena - so to speak.

I have neither the financial means, nor the time necessary to investigate individual stocks, so I have decided that I will use CEFs to gain my desired exposure.

My choices have (at least for now) been reduced to three funds - two global/international funds and one emerging market fund. The global/international funds are: First Trust Aberdeen Global Opportunity Income Fund (FAM) and Aberdeen Global Income Fund (FCO). The only emerging markets fund that I particularly like is Western Assets Emerging Markets Debt Fund (EMD).

Utilities and Infrastructure

The PPRP's exposure to utilities and infrastructure has been through four CEFs. Duff & Phelps Global Utility Fund (DPG) includes holdings in MLPs, gas & electric companies, and communications companies. It has increased by about 40 percent year-to-date while yielding about nine percent. Brookfield Real Assets Income Fund (RA), while focusing primarily on debt instruments is primarily spread among real estate, energy, and utilities. Its price does not fluctuate as much as do pure equity funds, but has increased 30 percent year-to-date. Add to this a dividend yield of about 10.5 percent and one has a nice total return. Cohen & Steers Infrastructure (UTF) is a gem - pure and simple. It has exposure to utility companies, energy, rail, communications and water utilities. Year-to-date it has returned about 45 percent plus UTF yields about seven percent. The final CEF in our portfolio is Virtus Total Return Fund (ZF), soon to merge into Virtus Global Dividend & Income Fund (ZTR). ZF's price has appreciated over 50 percent year-to-date, and with a yield in excess of 12 percent has been nothing less than an outstanding performer.


I wish I had a greater allocation to this sector, and I am hopeful to increase it during the coming months. Am considering selling ZF and redeploying these funds among the other three utilities and infrastructure funds presently held. In the rare event that UTF corrects, I would not hesitate to commit additional funds to their capable management.

Miscellaneous CEFs

We own several of what I choose to call "miscellaneous funds," whose investments include fixed income, preferred stocks, financials etc. Among these are Aberdeen Income Credit Strategies (ACP), which until a recent rights offering was doing fairly well. The rights offering expires in November, and if I can figure it out I will have a better idea as to how to proceed with ACP. The second fund worth mentioning here is Miller Howard High Income Equity Fund (HIE). It is kind of a mixed bag of equities, but has been a decent performer, with a year-to-date return of over 35 percent and a dividend yield of 12 percent.


These funds provide overlap with some of the other PPRP CEF holdings, and I would look to exit from one, or more as we get closer to end of this year. At this time I am looking at two other CEFs into which I could deploy some of these funds: Gabelli Convertible & Income (GCV), and Advent Claymore Convertible & Income (AVK) . Either of these would provide exposure to convertible stocks - a sector presently missing from the PPRP.

Defensive Positions

I rarely consider defensive stocks, since in a correction, bear market or recession, virtually all will decline in value. So I usually just hold the ones I am most confident in, and raise cash with the others.

There are two exceptions that I have; covered call options and gold/natural resources. At present we own Eaton Vance Risk-Managed Diversified Equity Income (ETJ) and GAMCO Global Gold Natural Resources & Income (GGN) - very little of the GGN portion.

I have held ETJ for years after noting that it is one of very, very few stocks or funds that actually increased in value in 2008. So, while it currently does nothing but pay a dividend on the order of almost a ten percent yield, I will continue to hold it.

GGN is iffy, but has a higher yield, and if nothing happens to gold prices, I will probably sell it in 2020.


I have no intention of adding anything in this sector.


There you have it - for what it is worth. My thoughts on portfolio re-allocation. I have a lot of work to do over the next two months or so, but hopefully it will be worth the effort.

I know that many of you go through the same process, and I would be very interested on your take with regard to reallocation, since, along with Christmas, this is the appropriate time of the year.

Disclosure: I am/we are long ACP, DKL, DPG, EPD, ET, ETJ, EVA, FGB, FSK, GGN, HIE, HMLP, LMRK, PBFX, RA, USAC, USDP, UTF, ZF. 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.