Yield Hunting Newsletter | January 2019 Commentary And Sheets

  • Markets experienced the worst December in decades along with the worst overall year since 2008.

  • The market is currently pricing in a significant slowdown and serious credit issues.

  • While the economy is likely to slow, it will still be faster than it was on average from 2009-2016.  Think about that.

  • We think this is a great buying opportunity in the short-term though we do think the cycle is coming to end in roughly a year.

  • Taking advantage of the opportunity, being nimble, and adjusting to what the market gives us will be key in 2019.

Typically the monthly newsletter is used to focus on economic views, portfolio construction, and retirement strategy.  The weekly commentary's (out each Sunday evening) are more specifically directed towards closed-end funds and individual security opportunities.  To all our new members, you have joined at an exceptionally good time.  For existing members, we believe the first half of 2019 will be significantly better than the back half of 2018.  

Winter Has Arrived... How Are You Handling It?

We wrote our October 2017 newsletter and titled it "Winter is Coming.... Are You Prepared?"  The goal was NOT to state the bull market was over and to go to cash, but to come to grips that the cycle was long in the tooth and would not go on forever.  Preparing early and getting the emotional mindset in order is essential to avoid making irrational decisions.   In that article, we focused on a preparation checklist including:

  1. Shift your asset allocation

  2. Make sure your safe bucket is growing

  3. Improve overall quality

  4. Add protection

The markets had a great year for the first three quarters of 2018 but quickly gave up all of those gains and then some in the fourth.  It comes when we least expect it and how we react becomes the vital to our outcome.  

The key question remains:  should investors accept the market's warning signs of a downturn or embrace risk amid cheaper prices.  

This is the time for 2019 predictions and outlooks.  We have read a multitude of them (>30) and the forecasts range from downright gloomy and recessionary to substantially bullish.  Most centered on the Fed and the forecast for interest rates over the next year.  In fact, Goldman Sachs is contrarian offering up the prognostication that they would likely to raise rates 4 more times in 2019 to bring the terminal rate to 3.25% to 3.50%.  This is two-and-a-half hikes above the market forecast. (and now two days after I wrote this, they backtracked to just one hike) 

Downside risks continue to mount but the rationale for the global equity sell-off seems rather benign.  It is possible that the worrying signs of the length of the bull market and expansion, along with the memory of the last downturn being so sharp and catastrophic in a relatively short period of time, could be sending investors to the exits.  

Global leverage has been rising as a share of GDP for well over a decade.  Thanks to rock bottom interest rates, companies issued significant amounts of debt, levering up in the process, in order to buy back stock and pay higher amounts in dividends.  When interest rates were low, that was not a problem, but now interest rates are rising and that debt needs to be rolled.  When it does, the interest on the new debt is now significantly higher.  Whereas before, the interest expense on all that new debt didn't add much to the overall servicing costs of companies.  That will no longer be the case as all that new debt is going to be relatively expensive going forward.  

Over the next year, debt servicing costs will continue to rise after a decade of low borrowing costs, pressuring balance sheets.  Over the last two years, after bottoming in mid-2016, rates have generally been rising.  Corporate debt spreads became very expensive early in 2018 with spreads as low as 91 bps.  Today, they have "blown out" to 154 bps, the highest since July 2016.  Couple that with treasuries seeing higher yields and you have the corporate master effective yield now over 4.3%.  Meaning you can now get 4.3% on a blend of investment grade corporates, something that we haven't seen since 2010.  

2.png

This is due to a few troublesome players (General Electric, Ford, AT&T, among many others including many energy players).  PIMCO is apparently going hunting in this part of the market seeing some real value in some beaten down BBB and A-rated debt.  The sentiment could not be any worse. 

That said, the economy is still growing, and at a faster clip than at almost anytime of the recovery.  With a growing economy, even if it slows down from the current 3% levels, make it difficult for them to not be able to service those debts.  So the macro remains most important. 

For those that have been with us for quite some time, you know we've focused on the yield curve and the shape of it.  We are closing in on the point where the 10s-minus-2s go below zero.  An inverted curve hurts the economy by constricting bank lending margins as banks make money borrowing short-term (from depositors) and then lending it long-term.  Obviously, an inverted curve makes that business model nonviable.  Bank profits decline and they decrease the amount of lending they conduct.  That has a large effect on the overall economy.  

As we progress through the first quarter of 2019, we will look for a rebound in credit and equities, along with tighter discounts.  When they occurs, our focus will then be on insulating portfolios and hedging to protect principal.  

--------------------------------------------------------

Here is the link for the new portfolio list:

January Google Sheet

Introduction

We are continuously revamping and trying to improve our service given the amount of information we provide along with the complexity of it. In the next couple of months, we want to introduce a procedure for implementing the "system" in a straightforward manner.

Most financial advisors do a significant amount of work on the front-end even if their 'systems' are cookie-cutter for all clients. This is what most do-it-yourself investors lack. They lack the plan and the structure preferring to lop together a bunch of stocks, bond funds, and cash into an allocation.

Please note that the Google Sheet is new this month as it is every month. There is a date at the top in the title of the sheet as well as the date in the spreadsheet itself. On the first of each month, we create a new sheet and link. Please bookmark it or access if via the "tools" drop down in the service.

New members should start with the "Welcome to Yield Hunting! Alternative Income Opportunities" and should read our primer titled: "Yield Hunting | How to Get Started- A Primer on DIY Income" under the "Getting Started" menu drop down.

On the Google Sheet, we now have an "Instructions" tab as a quick guide for more novice investors.

Please visit our new website at YieldHunting.com. It has all of our public articles and soon will have the functionality for members to 'login' and see marketplace articles.

Lastly, we now have 83 reviews on our service with nearly all being five-star. If you haven't left a review, we would very much appreciate you doing so. Click the link below which should allow you to write feedback.

We are going to start to separate out the newsletter and manage three real time portfolios:  Core, Mini Core, and Opportunistic.  Look for more direction on managing these along with more ideas centered around swapping and deep value.  The general objective is to be buy and hold while also taking better advantage of opportunities in specific sectors while avoiding losses in others.

Yield Hunting: Alt Inc Opps - Marketplace Reviews

Looking Back at 2018

Returns through December 26th:

This is what we wrote in our January 2018 letter:

Investors should try to remain content with lower returns while being on guard for a large correction. While that moment many not come in the next year (though we think we are closing in on it), we are content to outperform over the entirety of the cycle.

What do we recommend if you're retiring soon?

Keep a cash holding and other very defensive securities into what we call a "Safe bucket".That "safe bucket" should have many months (low end) to as much as two years' worth of spending.Reduce risk in a rising market, not a falling one.Seek to achieve a moderately high yield across a diversity of industries and sectors that help meet your spending needs.The combination of the safe bucket and income needs from the Core Portfolio help to provide a NO WITHDRAWAL PORTFOLIO.The rest of the capital you have can be invested as a long-term bucketing strategy, either into individual equities or higher-risk funds to achieve superior long-term (10-years plus) returns.

Remember, a couple who are 65 and retiring has at least another 25 years to live (40% of couples at 65 will have one of those two reach age 95). For someone likely to reach that age, you do need to have some exposure to higher-growth asset classes like equities.

The question is do you get in now or ease in. For most new clients we see, they are getting in slowly. Approach your allocation with the goal of being fully invested in those stocks over the course of a multi-year period. Invest a small percentage each month. If the market corrects, you can ramp up that systematic investing strategy.

Hedging looks better and better. That can be done through ETFs (that short the market) or through options/futures. We also like gold here and have been adding slowly to portfolios.

       ...........

Predictions For 2018 - What To Watch For?

These are the things that we think could see move the markets this year.

1. Valuations Start to Matter - They haven't for so long as the entirety of the market has melted up. This is what has been driving investors into ETFs as a low-cost mechanism into a broad basket of stocks at very low cost.

2. Value Will Outperform - Growth has outperformed value decidedly in the last couple of years. These indices tend to mean revert over time. We think value, led by financials, will be a good place to be in 2018.

3. Quality Will Be the Best Factor in 2018 - Higher quality tends to outperform over longer periods of time, when measured from similar points on the business cycle. Given this stage in the cycle, we think we want to be in quality- both stocks and bonds- with actual earnings growth and defensive/sustainable business models.

4. China Becomes An Issue - The debt accumulation from their shadow banking system is likely to have reverberations. The leadership is cracking down on the 'grey rhino' strategy and other debt-fueled issues.

Looking back at 2018, it is a tale of three phases. 

Phase 1:  We started the year off strong with the markets rising nearly 9% through the first 3 weeks of the year.  

Phase 2:  We then experienced our first "correction" in some time with the market falling ~10% as bond yields spiked.  The downturn lasted only a couple of weeks before the market started to rise again.  It took several months before we reached new highs in late Spring. 

Phase 3:  The summer was a good one with most asset classes showing strength. 

Phase 4:  Starting in late September, the bear market began.

Obviously, the safe bucket showed its worth in 2018.  Having a diversified basket of ultra-low risk positions that still produce some income can help mitigate years like 2018 when everything (but cash) is down.  The benefit for us is that 2018 was the first year that cash really started to earn something.  Today, the 2-year yield is right around 2.60% which means you have a real yield of 50-100 bps depending on the inflation barometer used.  

Having a diversified portfolio didn't help much either.  It was the worst year since 2008 in that regard as well.  

We in the United States, tend to live in a small bubble with blinders about what is going on across the rest of the globe.  During 2018, most international stocks were down- and down big- for most of the year.  By the start of the fourth quarter, the S&P 500 was up single digits compared to most other country indices down at least 10%.  

The rolling bear market eventually reached our shores.  The chart below shows the S&P 500 [blue], the MSCI EAFE [orange] and the MSCI EM [red] ETFs as proxies for global equities.  You can see that the orange and red lines have been trending down for almost the entirety of the year.  Compare that to the blue line which, after the correction in January and February, trended higher for most of the year until October.  

8.JPG

This appears to be a non-recessionary bear market.  On average, these last about 9 months with a peak-to-trough decline of 25.4%.  They tend to be shorter and less severe than bear markets that coincide with a recession.  With the economy growing by 3% in the fourth quarter, this would be the first time since 2010 that GDP grew when the S&P fell by at least 10%.  And it's just the seventh time since 1969 that this has occurred.  

What To Expect In 2019

According to market history, JP Morgan was once asked what is his prediction for the stock market. His response was, "I believe it will fluctuate."

Making general predictions and forecasts about what is going to happen next year is not very helpful.  Portfolio construction in 2018 was the hardest that I can ever remember- which translated also to the returns department.  Markets are now pricing in a slower-growth environment, tighter monetary conditions, and a turbulent political environment across the globe.  After a strong 2017, investors decided that the risks were too great for the forward returns.  

In 2019, Central Bank policy will be the most crucial again and will determine market sentiment.  While they are likely to slow the number of rate hikes that were embedded into the market, they are likely to go at least once.  Economic fundamentals remain strong and this Fed seems to take their cues from the data more so than the markets.  

Outside of the Fed, the ECB is likely to stop their QE program but unlikely to start raising rates any time soon.  Still, without QE, they are still moving to a tighter policy regime.  

It is our contention that at least the first half of 2019 there is room to take risk in some areas of the market- including the Core Portfolio strategy.  The appealing valuations, lack of significant interest rate increases going forward from here, and the large spreads, offer up a decent reward potential.  

The case for being in short-duration is likely declining as slowing growth momentum likely means reduced pressure on the Fed towards normalization.  Even owning treasuries is no longer a significant negative though we would favor long-dated munis.  In addition, look toward real assets as the slower/lower interest rate regime should aid REITs and allow investors to capture liquidity premiums in the market.  

This is the change in HY spreads in the two years prior and two year after the start of a recession. The current trend assumes the next recessions begins in Q1 2020.

This is the change in HY spreads in the two years prior and two year after the start of a recession.  The current trend assumes the next recessions begins in Q1 2020.  

This is the change in the S&P 500 P/E in the two years before and after a recession starts in the U.S..  The current trend assumes it begins in Q1 2020.  

The charts above suggests to us that the credit market is implying a recession in the near-term, something the economic data does not back up.  Spreads and volatility are overshooting which is typical late in the cycle.  Meanwhile, the S&Ps de-rating is undershooting.  This is consistent with a recession that starts in 3 to 6 months which is in all likelihood too short to see that kind of slowdown. 

So the question remains, is the bond market correct or the equity markets?  Hard to know for sure but equities tend to overreact (I know, I know, efficient market hypothesis).

To us, this looks like a bear market non-recession move.  As such, we want to keep our positions in tact and prepare for the rebound though it appears that it may take some time.  

We want to be going more on the offense now rather than the defense.  But the next time the markets calm (VIX below 14, HY spreads below 350-375) we will be looking at becoming more durable and flexible.  

Key themes to watch:

  • Liquidity continues to dry up.  This could have a significant effect on the overall market as tighter financial conditions could constrict the economy.  The decade of unparalleled liquidity is being dried out.  The reverberations of which cannot be clearly known.  We think we may have only begun to see the effects in 2018.                                                                                     

  • Emerging market rebound.  After a weak 2018, the fundamentals of EM countries/markets is actually fairly strong outside of a few trouble spots.  We are still concerned about China but other countries like India, Russia, South Africa, and Latin America appear to be getting back on track.                    

  • The dollar weakens finally.  In order for international stocks to "work."  We do need the dollar to at least stop strengthening.  We do see that on the horizon, and likely more in the back half of 2019.                                        

  • Crude oil stabilizes and rises back up.  Though we are long-term oil bears, we know it does overshoot and we do think it is incorporating far too bearish a forecast for global growth/demand.  As OPEC cuts with demand not falling as much as expected, we think oil could see a bit of a rebound back into the high-$60s.                                                                            

  • Most importantly, the Fed raises twice in 2019.  While they will be data dependent, they do have a bias towards historical, near-term data.  As such, the Fed is likely to ratchet back from four hikes to just two for the next year.  Our guess would be a late spring/early summer (Apr/May/Jun) hike and an autumn hike (Sept/Oct).  The Fed will once again be the center of attention and greater importance will be placed on the speeches given by the regional Fed governors and voters.  

The Core Income Portfolio Strategy

The basic foundation of the Core Income Portfolio is that of income production to meet spending needs (call it a personal asset-liability matching strategy).  Sequence of returns risk, which we are seeing the effects of today, whereby recently or soon-to-be retired investors start drawing on their portfolio just as the bull market ends, can be catastrophic for longevity needs.  

On the plus side, the current yield of the Core Income Portfolio sits today at 8.75%, the highest it has been in a long time. This is up from 7.8% in September.  In other words, the market is saying that the portfolio is worth about 10% less from the peaks but for those entering now, rebalancing, or reinvesting monthly coupons, they are able to purchase at lower prices and generate higher yields per dollar of capital invested.

Let's get a lay of the land.  The capital losses on paper are significant, most of which is due to price movements, not NAVs.  Just about every one of our positions now has a paper loss and negative total return in the last year.  This is not dissimilar to where we were three years ago when spreads were wide and discounts extremely wide.  

I just wanted to reiterate that we started this service based on that environment three-plus years ago.  In other words, we are right back at that great opportunity.  If the markets calm down (which we are already seeing) and economic growth remains moderate (2+%), the opportunity is tremendous.

The volatility is why we build out a safe bucket.  That safe bucket, which is hopefully at least 10% of the total portfolio even for risk averse investors, can be tapped for retirement income (if in retirement), a rainy day fund, or plowed into more of the Core opportunistically (like today) if you have a long enough time horizon.

I am fully invested in the Core Portfolio and now significantly overweight and not selling.  While I personally am not drawing income from my portfolio, some of the money managed by me for friends and family are in distribution mode.  For those individuals, we are tapping some of the safe bucket, other cash reserves, and/or reducing spending, in order to reinvest the coupons produced by the Core.  Having this flexibility is key to ANY financial plan.

As we have noted, there is a confluence of events that all came together this year.  Investors have realized losses across nearly all asset classes and underlying securities.  This is scaring investors to go to cash or ultra-safe assets selling indiscriminately.  In prior weak periods, there have been at least some areas of the market that performed well to buffer the pain.  

The image below shows the percentage of assets with a negative total return in USD.  In other words, there was no where to hide but cash.  

This is common when you have a central bank bubble with the overwhelming majority of global assets above valuations trends.  Monetary policy (i.e. ZIRP/NIRP from the Central Banks) drove assets to those levels.  We now have those same Central Banks rolling those policies off, reversing that trend.  You also have algo-driven and passive investments that can exacerbate the moves- in both directions.  When markets are rising, investors are willing to accept more risk but when they start falling, investors pull their money out or shift to safe investments.  A bottom will be found when these marginal, trigger-happy investors, institutional momentum players, and algos all finished their selling programs.  

Summing it up, literally nothing has worked this year.  For those that are getting in here, they are getting the benefit of a higher yield and wider discounts compared to any time over the past three years.  The income stream is intact, and unlikely to be cut any time soon.  The cash income I receive is almost identical to what I was receiving back in September when those paper losses were mostly gains.  

This image (below) is worth a thousand words and sums up the process/strategy/results perfectly!  The following fund is PIMCO Corporate & Income (PTY) going back to its inception in 2003.  The dollar values are the income that is produced each calendar year based on the yield on cost and special distributions (it has paid one most years).  The price paid for that income stream has oscillated over the last 16 years, starting at $15, falling as low as ~$6, and rising as high as $23.  But if you do not sell, you are not realizing those gains or losses.  You are simply buying it for the income production.  Today, PTY is very close to that initial $15 IPO price, so no price gains/losses over 16 years.  However, the fund has paid you over $2,000,000 in income, double the initial capital invested, over that time frame.  

Think of this as a way to build an annuity.  Annuities- like closed-end funds- are not for all investors.  However, the benefit of the annuity is that it pays a steady stream of income over the life of the annuitant.  PTY can be used as an annuity paying you an income stream in perpetuity (if PIMCO management does its job).  The benefit of PTY is that you are not giving up that principal at the start and have full liquidity.  However, in order to get that benefit, you have to see swings in that value of that liquidity on paper.  The annuity is no different as the general account of the insurance company is seeing swings in the underlying value of the securities held based on day-to-day price movement.  You just do not see those moves.  Ignorance, sometimes, can be bliss!

Building a diversified portfolio of these instruments across various categories in fixed income, preferreds, and even some safer areas of the equity markets, we can build our own annuity.  But again, you need to have a stomach for it.  We wrote a piece back in October titled, "Is Your Stomach Strong Enough To Be A CEF Investor".  We would encourage newer members who haven't read it to do so and for those who have been members to do so again.  

From that report:

Having been in the wealth management industry for a long time, we know how the typical client and investor tends to think. If we had a nickel every time a client said that they wanted to buy rental property as the income is stable and the "principal" doesn't move. But just know this is an illusion that satiates a behavioral trait. The illusion is the notion that the "principal"- the home value- doesn't move or moves like a glacier.

This is patently false. The value of the home is moving daily- even hourly based on mortgage rates, demand, supply (how many homes nearby are on the market), and a host of other factors both macro and micro. But the illusion that the value doesn't change helps create the misconception that the principal is not really at risk.

The second notion in regards to the above thinking is that a house (or any 'real' asset) is not at risk. A home does carry a certain amount of risk of loss- similar to a bond defaulting- including the geography coming out of favor, destruction, economic, etc.

But that hardly changed many investors' minds. Not having to open your monthly statements- or worse yet, login to your brokerage each day- and see a "change in value" that was down can provide a significant support artifice to the psyche. That is something that has to be dealt with if you are going to be a passive investor in the public markets.

Above we used the value of a home compared to that of a closed-end fund's price.  The annuity could easily be substituted in for the house.  As we wrote above, we like certain annuities as they can play a vital role in the retirement income plan.  However, everything has a place and a responsibility.  

“An ounce of prevention is worth a pound of cure”   -Ben Franklin

We've stressed this barbell approach in having ultra-safe income streams like annuities combined with the higher yield and higher risks of a closed-end fund portfolio.  The two pieces work extremely well together.  Annuities are not very well liked for many good reasons given the industry tends to create a lot of crap that dilutes out the good stuff.  It is my belief that if you simply relabeled annuities "private one-pay pensions" they would be a thousand times more popular.  

Annuities make so much more sense today because of the death of the defined benefit pension plan.  Previously, investors had their private pensions plus in most cases, Social Security providing them a significant amount of base income.  That was augmented with their portfolios and savings.  Today, investors have 401Ks which are market-based so, other than Social Security, they are nearly 100% exposed to the roller coaster of the market.  They roll these 401Ks into an IRA upon retirement and then have little idea of what to do in order to provide that same paycheck-like income they have been used to for decades.  This is where a financial advisor can come in, unfortunately many of them do not even know what to do.  

One of the largest anxiety creators is the shift from accumulation to distribution mode.  For approximately four decades, as bills (liabilities) came in, you primarily paid them out of cash flow-  that is income from wages or other activities.  Once you retire, those liabilities have to be satisfied through savings.  That is something that can be stressful for so many investors.  The first time you dip into 'savings' in order to pay a bill after three or four decades of using steady cash flow can be beyond worrisome.  By creating an income stream that is very similar to a pay check (and combined with other base income sources like Social Security) it can meet a good deal of your liabilities.  This helps alleviate a lot of the stress associated with drawing on your portfolios.  

Combining The Different Pieces

Having a diversified mix of these income sources is imperative to avoiding a blow up.  The investors that only have Social Security and their portfolios tend to be far more worried and vulnerable, especially early on in their retirements.  Those that have multiple income sources, including significant amounts of base income (uncorrelated sources from the market) that make up 30% to 50% of income needs (the more the better), the happier their retirements tend to be.  

Core Portfolio Changes

We made several changes this month to position the Core in the best possible position to capture what we think could be a significant snap back opportunity.  Look for more "buy alerts" and "potential swap alerts" as January unfolds.  We think it will be an active month given the potential for large discount closures.

  • Increase MHI to 5%

  • Increase PCI to 18%

  • Increase JRI to 7%

  • Increase ARDC to 6%

  • Decrease BTZ to 4%

  • Decrease GBAB to 5%

  • Decrease BLW to 4%

Mini Core Changes:

  • Increase PCI to 16%

  • Added DBL at 7%

  • ARDC increased to 7%

  • Decreased GHY to 6%

  • Reduce BTZ to 6%

  • Used up most of the cash (4%)

Rationale:

Most of these rationales are self-explanatory with the portfolios looking to both get more defensive while not capping or reducing the upside opportunity.  We continue to look to add greater non-agency MBS to the overall portfolios by adding DBL and DMO.  On DMO, the fund has since run away from us  after we added some and is now more of a "hold" rather than a "buy" with a 5+% premium.  We aim to be patient on this one and wait for it to get back down closer to par.  Look out for a buy alert when we think its good to get in.  

We had also added to PTY, another PIMCO fund that was recently added to a CEF index causing the price to spike up over 13% in a week.  This is one that is also closer to a sell than a buy.  

DBL is currently attractive as the selloff is unjustified.  The fund paid 34% in ROC and decided to cut the distribution by 34% recently.  This sent the shares reeling.  Either investors didn't know the fund was paying out that much in ROC or they are too lazy to simply sell a few shares each month to get the distribution back around 10%.  Either way, we think this is one of the more attractive options today, especially if the 10-year yield doesn't reverse course and head back above 3%.  We added it to the Mini Core but not yet to the Core instead adding more to PCI.  But as the floaters recover along with some of the HY positions, we will likely make a swap.  For those that do not want to wait or have cash to deploy after tax loss harvesting, we do think you can add here or lower.

We decided to reduce Blackrock Credit Allocation IV (BTZdown in the Mini Core and Core as the fund continues to climb down the quality ladder and is increasing its high yield exposure.  We already have plenty of that allocation and would rather add to DBL or DMO (or even PCI/PDI) and munis for our ballast/quality allocation.  I know this will rub some posters the wrong way after we added to it late summer when it subsequently fell.  However, we want to be in the areas of the market that are best positioned for what we see as the coming rebound.  

Nuveen Real Assets (JRI) hasn't performed nearly to our liking but given the positioning, appears poised for a rebound.  Rates are down which should aid its REIT and preferred positions.  We think it could have a good January which is why we made it one of our top picks (below).  

Top Picks (Both Inside and Outside of Core)

  1. Nuveen Real Assets Income & Growth (JRI): A terrible performer in 2018 after a strong run in 2017, mostly due to the rise in interest rates. The discount today is a absurd 17.6% compared to a 52-week average of 12.5%, and a five year average of 9.40%. In addition, interest rates have retreated back down which should be supportive of the NAV.

14.png

2. Highland Floating Rate Opportunities (HFRO): This is a relatively new name and was a conversion to a CEF from open-end fund. The one-year z-score is now -4.10 with a nearly 13% discount to NAV. The fund incorporates a managed distribution policy and currently pays 7.7%.

15.JPG

3. DoubleLine Opportunistic Credit (DBL): We've talked about this one for a bit now. The opportunity isn't as great as when we first mentioned it but at a 4.5% discount, and mostly non-agency MBS, we think this could be a long-term core position. I would rather be buying around a 5.5%-6.0% discount but even at 4.5%, it offers up a relatively strong risk-return profile.

23.JPG
24.JPG
29.JPG
30.JPG