Our Update And Sell Call On Barings Corporate Investors

Our Update And Sell Call On Barings Corporate Investors

Summary

  • High yield debt fell hard in the fourth quarter, which is likely to be the case when MCI reports its December 31st NAV print.

  • Prices have recovered so far in January - probably at least half of the decline of the fourth quarter.

  • It remains to be seen how investors will react:  Will it be based on the MCI print or will they look ahead at the recovery.

Why Floaters Look Attractive Despite Lowered Rate Expectations

Why Floaters Look Attractive Despite Lowered Rate Expectations

Summary

  • Leveraged loans are a bet on higher interest rates, which seemed all but a forgone conclusion early last year.

  • Today, the case for higher rates is murky to say the least as economic growth slows.

  • Even if rates do not rise, leveraged loans are a value sector of the fixed income market as fund flows have created deep bargains.

Fewer Distribution Cuts For Closed-End Funds In January

Fewer Distribution Cuts For Closed-End Funds In January
  • January had far fewer distribution cuts than what occurred in November with munis being spared.

  • Most of the significant cuts this month came from the global dividend payers which is not surprising given the weakness in the space.

  • We highlight two of those cutters which come from Lazard who adopted a 7% level distribution policy to arrest the NAV decline.

A Preferred Time To Go Yield Shopping

A Preferred Time To Go Yield Shopping
  • The market has gotten bumpier over recent months, but that is starting to shake loose some opportunities.

  • Our alternative income Marketplace panel talks about where they see good ideas and how they're bracing for the riskier climate.

  • While 2018 doesn't leave a great taste in these authors' mouths, there is a bit of excitement among them about what 2019 offers.

Preferred Stock Closed-End Funds: A Review Of The Category - November

Preferred Stock Closed-End Funds: A Review Of The Category -  November
  • Preferred stocks, like most other securities low on the capital structure, have taken a beating lately.

  • However, interest rates have been falling, with the 10-year recently falling under 2.7%.

  • The lower interest rate environment should be supportive of preferred CEF NAVs.

  • We are now past tax loss harvesting season, which should have flushed out many of the sellers.

PODCAST: Lowering Risk Without Lowering Yields With Alpha Gen Capital

PODCAST:  Lowering Risk Without Lowering Yields With Alpha Gen Capital
  • SA Marketplace Roundtable podcast.

  • We discuss the economic factors that have led to the current volatility in the market and how we are positioning ourselves going into 2019.

  • Also discussed is how much longer this correction will continue and where in particular the values are to be had, particularly in the CEF space.


Kimco: Preferreds Are Compelling. This 6.50% Yielder Pays 15% YTW

Kimco: Preferreds Are Compelling. This 6.50% Yielder Pays 15% YTW
  • Preferreds are one of the areas of the market that looks highly attractive here and is a great complement to leveraged closed-end funds.

  • Some investment grade high quality preferreds pay more than 6.5% in yield while also trading well below par.

  • We break down preferreds into three buckets with the goal of creating a diversified income stream of nearly 7%.

  • Our members get a table of quality preferreds with buy-sell ratings from which to select positions.

  • We look at one quality REIT preferred that pays 6.5% and has some upside optionality should the shares be called.

December CEF Distributions Widespread Across Sponsors - DBL Cuts Big

December CEF Distributions Widespread Across Sponsors - DBL Cuts Big
  • December has more significant cuts as compared to November with the changes spread across fund sponsors.

  • Most of the cuts came from the muni fund space, which has been weak all year due to rising rates.

  • As we noted last month, the fundamentals matter, and we see that with the massive cut to DBL - a fan-favorite.

PCI: A Great Bond Fund On Sale Now With A 9% Yield

PCI: A Great Bond Fund On Sale Now With A 9% Yield
  • Discounts on all closed end funds continue to widen and are approaching the widest levels in the last 3 years.

  • PIMCO has not been immune to that selling pressure, and the current discounts are highly compelling.

  • Coverage for PCI jumped significantly, and the yield is approaching 9.00%, and a special distribution is likely.

Relax! A Recession Is Not Around The Corner

Relax! A Recession Is Not Around The Corner
  • We believe the current market volatility is a garden-variety correction that is likely to reverse in short order.

  • The economic fundamentals remain firmly positive as growth continues to trend near the high end of the range for this expansion.

  • Investors should not let emotions stray them from what has been an otherwise sound investment strategy.

  • The sentiment today is very dour but given the old (and somewhat tired) saying of 'blood in the streets', this is a time to put capital to work.

  • We believe that the best area of the market today may be in closed-end bond funds given the historically wide discounts.

Participate In Higher Rates Without Risk Of Principal

Participate In Higher Rates Without Risk Of Principal
  • Dividend rates for mutual insurers that have been declining for 30 years may be coming to an end.

  • For those under the age of 45, "overfunding" an already needed life insurance policy can be a great way to create a safe bucket.

  • For those over 50, income annuities are likely to become much more popular in the coming years as low future returns in the markets cause retirees to seek other means.

  • Some new tools have been created to participate in rising rates without principal reduction - that is rate arbitrage.

Nuveen Short Duration Credit Opps JSD: 7.85% Yield Plus Protection From Higher Rates At An Anomalous Discount To NAV

Nuveen Short Duration Credit Opps JSD: 7.85% Yield Plus Protection From Higher Rates At An Anomalous Discount To NAV
  • The floating rate loan market remains one of the bright spots in an otherwise weak bond market.

  • It remains a significant part of our Core Portfolio's three-legged stool strategy implemented two years ago.

  • While there are risks to the floating rate loan market, we think the cycle still has legs and the current volatility is presenting opportunity.

  • The fund we highlight has a large discount to NAV which we think has all the hallmarks for mean reversion.

Why Fundamentals Combined With Anomalous Discounts Create Winners

Why Fundamentals Combined With Anomalous Discounts Create Winners
  • One of the truisms of buying a closed-end fund is that it has to be at a discount. We believe it needs to be at an anomalous discount.

  • The opportunities today in the closed-end bond space are one of the best in the last 30 years.

  • We believe a combination of tax-loss harvesting, seasonal factors, rising rates, and a bear market scare are combining to create the opportunity.

  • We highlight an example of why looking at both fundamentals and valuation is the key to closed-end fund analysis.

This Tax Free 5.30% Yield Is Still Best In Breed

This Tax Free 5.30% Yield Is Still Best In Breed
  • The municipal bond market continues to be in a state of uncertainty given last year's tax reform and the jump in rates in 2018.

  • High-yield munis have performed well this year despite the rising rates and volatility.

  • Muni closed-end funds are very attractive here from a discount perspective but investors need to analyze these funds closely to avoid distribution cuts.

  • Munis can provide some downside risk and provide very attractive tax-equivalent yields that most investors do not realize.