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Nightmare, The Dream Time (Part 1 - What I May Be Buying Into On Friday)

|Includes: Popular, Inc. (BPOP), CII, ETY, GEQ, JDD, QQQX

(I started writing this on 11/2/13 and at the request of someone else have split this into two parts as of 11/5/13 - the investing bit and the personal rant - hopefully this will make it more readable)

My current goal is 8% portfolio yield, which in any one thing will be risky. I try to mitigate that by buying into lots and lots of small positions that meet that minimum. I also try to pick potential investments that I believe can keep paying that yield.

I'm going to put out a short list of things that I may be interested in buying into on Friday, but as always, what I end up buying may change from my initial favorites by pay day. I will update as things change. Most of what I'm interested in tends to be thinly traded or sometimes Satan will jack up the prices to unreasonable levels by the time I'm ready to buy.

- Preferred stocks -

(NASDAQ:BPOP) - written about this one numerous times. I'm interested in the preferred shares, specifically bpopo at this point. Puerto Rican bank that has stated numerous times that it wants to exit TARP. Has a positive pe. This preferred has a 9% market yield and is waaaay under par (I believe this is due to hysteria surrounding Puerto Rico's gubmint funding, but what does that have to do with their biggest bank that also has branches on the US mainland?). I have owned this one in the past and rue the day I sold it (not really, I did make a nice profit). I currently own BPOPP and bought that a bit under par. It has taken a tumble since, but not as bad as the O shares. The P shares will be called first. Drawback on the O shares is that it's very thinly traded, so as usual I'll put in a limit order on Friday and after a few hours no shares will be traded and I'll end up buying my second pick.

Did I mention that both the O and P preferred shares are monthly pay?

- Regular CEFs -

I try to be conservative on these. Maybe the most important part of my screen right now is <10% NAV distribution yield. That helps kick out high-yielders that are destroying the fund's NAV or the ones that will have to cut distributions, but it's not 100% effective - you still have to look at the NAV chart.

(NYSE:IGD) - I think I bought some a couple of years ago but quickly sold. -9% discount and the 52 week avg is about -7%. Global exposure can be good. Selling calls on 35 - 75% of the portfolio's value can be good or bad. And I believe from what I'm reading on their website that this is against individual positions in the portfolio, not against indexes.

They have had distribution cuts. What I'm seeing is that since the last distribution cut, the NAV has started to increase. Monthly pay. A maybe.

Edit for 11/5: probably not a maybe. They cut distributions for September and while it's true that the NAV has creeped up, I have no way of telling if they will do another distribution cut soon.

(NYSE:BCX) - a Blackrock commodity fund. Nope. A quick look at the NAV since it started is enough. Going down, they will cut distributions or implode the fund. I owned (NYSEMKT:CFD) earlier this year, and got out of it for a loss. If you check out the NAV, which looks like BCX, you can see why.

(NYSE:GEQ) - Quick look, the NAV is increasing and the market price has been dropping. That's something I usually like. 52 week average discount is about 7% and currently is 12%. Leverage is only about 18%. Fund expenses are cheap. So what's going on?

I will note that they just paid the distribution, so that may have something to do with the price.

Cefconnect reports the avg. eps as .0051. Keeping in mind that the NAV has been going up and that cefconnect is wonderful but can have outdated earnings information, I'm inclined not to worry about this. Particularly since this is described as a covered-call fund.

On the fund's website, I cannot find out how what percentage the covered call strategy is used on assets by the fund. That's not good.

Another thing that's bothering me is that cefconnect and the fund sponsor's website list the top holdings as completely different. Gamestop is mentioned on cefconnect but not mentioned on the sponsor's website as a top holding. I like video games, but I doubt the longevity of stores like Best Buy, even if they're focused on games.

On price vs. NAV alone, I would buy into this fund. I have doubts with the lack of consistent info. Moving on,

(JLA) - NAV creeping up. Home site sez they're selling up to 100% covered calls against the indexes they're following. Next pay day for distributions should be Jan. 1st or thereabouts. Has a ROC component which is nice for taxable accounts if you never sell. At a greater discount than average. Thinking about this or it's sister funds - right now this one makes more sense to me as it's selling at the biggest discount and has the greatest yield.

- Tax Free -

I was going to include (NYSEARCA:HYD), but since I'm following a long - term MA strategy for etfs and large funds and this has broken the parameters I'm using, I'm not interested right now. It's a monthly paying muni-cef and currently has about a 6% yield.


This one's trickier. While I do not favor funds that include Cali/Ill/Mich, one thing I will not compromise on is Michigan. No. I ran a screen and had two pop up that have recent financial results where the earnings are > distributions. Both are Blackrock funds. Both have market yields of > 7%. One has more MI bonds in it so it gets thrown out.

The leftover is (NYSE:MYF). Which has large Illinois and Cali holdings. California may overcome hardships, so is my third least favorite state for muni bonds. Illinois I'm not a fan of. But I'm doubting Chicago or SoCal will be allowed to go belly-up the way Detroit has. But then again, Detroit used to be a large city.

A lot of these funds tend to hold bonds from shaky states because these states and cities need money for a reason! Like companies that issue preferreds instead of bonds, things are currently bad, but hopefully will get better. So how to evaluate if things will get better for these states?

An expanding population would help. Should mean a bigger tax base to pull from. When I started to perform my Google-fu for Michigan Population Expansion, Exodus turned up in the auto-complete first. That should tell you all you need to know. Further research by completing the sentence results in 0% pop. expansion, which I suspect is optimistic.

11/5/13 - edit out a violent and personal rant about how much I dislike Detroit and Chrysler in particular. I do know people from Michigan that I like, but they are not from Detroit.

That was not as cathartic as I was hoping, so moving on:

California is growing, slowly.

Illinois hasn't changed much, but is still growing very slowly.

All of these states have ugly pension obligations. The only way they will be able to meet them is to expand population and increase the tax-base. I own a PA cef currently (NYSE:MPA), and while I'm not wild about it, they are rebuilding the oil/gas industry in the NW part of the state. So that may be okay.

Detroit and, unfortunately, the rest of Michigan MUST go to hell. Illinois I'm not a fan of, but hey, we've got a president from Chicago. I've always liked California, but wouldn't want to live there.

MYF's NAV is starting to creep up again while the market price goes lower. That's a positive. The maturity level is far out, which is bad. One thing I've noticed about Blackrock muni-funds is that they seem to consistently cover distributions with eps over the last few years. I don't see too many other fund families selling at a discount that do that. A 7% tax free yield is hard to beat. My question is will they be able to continue?

That's one thing a cef has going for it - the NAV doesn't lie. The eps is reported to be better than the distributions. Accounting gimmicks can lie, but that's a reassuring second opinion.

MYF might be my first pick this week.

(NYSE:MUA) is another Blackrock muni fund I used to own. I liked it because of the low leverage and low exposure to MI. My main issue with it now is that the eps is not greater than the distribution rate. The chart I like as the NAV creeps up while the market price goes down. The problem is that eps thing - if a fund of bonds gets less income than they pay out, then they can't keep paying out that much. So, nostalgia aside and almost nil leverage, this fund isn't making my buying parameters, so I've got to pass.

My first picks this week to buy:


JLA or any other Nuveen equity option fund that meets buying parameters

GEQ, but I really need more concrete info on it.

MYF - tax free is great, but I'm uneasy about government finances and the Detroit bankruptcy. Does this set an example for other cities? Or will they recognize that Detroit made it's own bed and decided to shoot up meth on it's own?

As usual, I don't know. I don't pretend to know where the stock market will go. I don't know when interest rates will rise. I will adjust my buying parameters when that happens.

All I can do is try to find things that I think are undervalued and pay a decent dividend and are likely to continue that. And save. And compound the dividends.

I'm not very happy on the selections I came up with today, so I'll be likely to change my plans over the next week and will update this blog as I do so.

Update for 11/4 - The ever elusive BPOPO as first pick and JLA as second. I dug around on GEQ's home site. Can't find out how much option coverage they use, but I'm happier with the portfolio that they list than the one on cefconnect. Problem is there won't be another distribution until the end of Jan. If the price stays depressed by next month, I may consider buying some in December.

So even though I didn't cover it in this blog, my third pick will be (NYSE:CII). It's been a minute, but I have covered it before. Less option coverage than JLA and pays about the same time. About the same market yield. Below the 52 week discount average.

Another pick - (NYSE:JDD) - this is a quick look as of this writing, but looks to be well below the 52 week discount avg. and has about 50% of its bonds as convertibles (this is generally viewed as a positive for rising interest rates, but we never know, do we?).

Again, the eps # is well below the distribution using cefconnect, but I'm looking at the NAV chart since the fund started and it's nice. The home site says that the policy is to divide between US and Intl stocks, REITs, emerging market sovereign debt, and adjustable senior loans. Pretty diversified, right?

One thing that impresses me is that looking back through the good old days of 2008 and beyond, is that the fund has increased both its NAV and distribution (some times). There is a major disconnect between what the NAV of the fund is doing and what the market price is.

This did not show up on my screen on Saturday when I first started writing this blog. I do believe that this may be my first pick unless something changes.

So, as of 11/05, my first pick is bpopo (like I'll ever be able to buy it again), 2nd is JDD (diversified, but more importantly seems to be well managed just looking at the charts of the NAV), 3rd will be JLA or CII.

edit for 11/07 - I had the opportunity to sell off a couple of bums in my Roth and a couple of winners yesterday. Proceeds went into bpopo (yay! got some for under $18!) and various Vanguard etfs that I can trade for free. Outside the scope of these blogs, but I'm experimenting with a momentum strategy for various etfs for my retirement accounts.

Anywho, bpopo is off the table for the account I'm writing these posts for - I've owned the same things in both before and that doesn't make for good diversification. And since this is a taxable account, holding preferreds in a non-taxable account will make more sense over the long haul.

So. For tomorrow. (JDD) most likely. I like the diversification, I like the disconnect between what the NAV is doing and what the market price is doing.

(CII) or (JLA) or (NYSE:ETY) as a second pick. CII and ETY both have about 50-60% option coverage. CII has the below - 52 week discount advantage.

ETY I'm familiar with from holding it in the past, even though I didn't write about it this week in earlier updates. Monthly pay and tech heavy. Sells options on about 50% of its holdings (I can't remember if it's an index or the actual holdings off hand).

Anywho, both should be able to do well in a bull market over the next year. Which I have no way of predicting how markets will do, nor will try to do so.

JLA sells options close to the max - value of its NAV. That should protect the NAV of the fund fairly well in a bear market. A look at the chart of the NAV over the last year should show that - very sloooowly going up when the S&P has skyrocketed. But you would have collected that 8-9% yield along the way. Hopefully would perform the same way in a market down-turn (the market price might match the general chaos, but eventually would match up with what the NAV of the fund is doing).

At this point in time, I'm probably going to buy JLA one way or another. Defensive against market shabbiness and has some tax benefits. The other two will pay out at the same time, but JDD, from what I've seen of their current holdings, looks to be pretty well diversified. CII may well be undervalued because it's a Blackrock fund and has cut the distributions, but may be at a point where they can sustain it.

ETY went to monthly pay last year and initiated a buy-back program. I have not checked in several months, but I'm sure that buy-back program for the fund has expired. And I would like it to be a bit cheaper, like November last year.

So. JLA for sure, unless it bounces 10% by the time I get up tomorrow or something, JDD a likely second. CII and ETY can wait a minute. I usually try to pick things that pay different times of the year and are from different fund families, but I realize that even with the pathetic amount of money I have, I am getting dividends/distributions every two weeks.

For those folks that are unfamiliar with cefs, please think about this. The bulk of the shares of all these funds are held by retail investors. Not hedge-funds or mutual funds or other entities. This might be the only place in the stock/bond market to put your nerve up against another individual's.

edit for 11/08 - picked up JLA and JDD