Adding RMI to the Flex Portfolio.
At the request of a multitude of members, we created an opportunistic income portfolio (formerly Tactical Portfolio) called the Flexible Income Portfolio. It will have a buy-in date of November 1 start date. This will be more of a tactical/strategic portfolio that takes advantage of short-term deviations in the market while generating a high current income of 7-9%. The goal will be to always hold a buy-rated security. Once a fund reached "hold" status, we will immediately be looking to swap in into something we believe is undervalued. That does not mean it will be sold that day but likely will in a few days time.
The objective is to start a real-time, live, tracking portfolio where we can detail the best opportunities. Trade alerts will be issued as soon as an order is executed. The goal would still be a minimum of trading as our goal is to collect income and you need to hold the shares in order to be eligible to earn the distribution. We think there will be AT MOST 1-3 trades per month [and likely 0-1] in this portfolio depending on the movements.
The main purpose of the portfolio, to which I am allocating $100,000 to start, would be, once fully invested, to show a source of cash. In other words, anytime a buy recommendation comes out, it has to be 'funded' with a commensurate sell.
In terms of sectors and categories, the portfolio will continue to have a taxable bond bias but will likely include equities, hybrid, and specialty funds- and on occasion, tax-free munis when warranted. We will be cognizant of over-weighting sectors in order to avoid piling into a specific area that has been beaten down.
We have been loathe to simply create a portfolio that is mimicked though is not a true buy-and-hold strategy. While the Core Portfolio is not simply buy-and-hold, we do see it as a rent-and-hold strategy with the goal of collecting at least six monthly distributions. For those members who do not want to be very active with their portfolios can simply ignore the trades and commentary or use it to augment their current Core Income Portfolios on occasion.
The portfolio will have its own sheet for it to be managed and found more easily. You can find it here by clicking on the link:
The initial portfolio consists of 9 funds that are all in the taxable space. They are not different than what was on their last month though we have added the current weights from purchases made on or prior to November 1. Hence the capital loss already given the weakness in the last two months of the year. We didn't think it was 'fair' to push forward the purchase prices to January 2.
Today's positions: (largest to smallest)
Principal Real Estate Income (PGZ): Most members know about this fund already and the space it occupies. A quick summary is it is more than two-thirds bonds and one-third eREITs. Much of the debt is cMBS (commercial mortgages). The discount today is near 16%, which is the widest in the fund existence. The NAV has held up "ok" despite the market weakness.
Invesco High Income 2024 (IHTA): A target term liquidating in 6 years with a 6%+ distribution yield and another 1.1% kicker on capital gains. The discount is now near 8%, which is the all-time lows for the fund. The underlying portfolio is also mostly cMBS (commercial mortages) the majority of which are investment grade. Despite the sell off, the NAV is only 6 cents off the targeted payout though we have a long way until that date comes.
Ares Dynamic Credit Allocation (ARDC): The fund was at a crazy wide discount of 20% just a week ago and has since rebounded a bit to *just* 14.6%. This is still 400 bps below the average discount that the fund has sported over the last three and five years. In the meantime, you are getting paid over 9.2%.
Blackrock Debt Strategies (DSU): This is a mix floating and high yield bond fund and pays 8.25% in yield. The discount has started closing materially after hitting 16.2% two weeks ago. Today, the shares are now at 12.3%- or nearly 4% of rebound in the last 7 trading days. One thing we are watching is the coverage and UNII figures which have shown some deterioration as of late.
Nuveen Short Duration Credit Opps (JSD): This is one we have been very wrong on over the last few months as the NAV has fallen over 5% since July. The discount widened to over 16% but has since closed 6% of that to just 10%. The yield on the fund is over 8.5% and the NAV is showing signs of reversing course. The discount has averaged about 6% over the last three years. That's another ~4% from here which we hope comes with some gains in the NAV.
PIMCO Dynamic Credit and Mortgage (PCI): This is one well known to all so we won't reiterate any of the specifics of the fund. However, it hit a VERY RARE "Strong buy" signal just before Christmas which we took advantage of using nearly all of the remaining cash. The fund is already down from a "buy" to a "hold" so we will likely look to trim/replace the position soon and move back to target in the Core.
Nuveen High Income 2021 (JHB): Another target term that is near-term and trading well below NAV at nearly a 5% discount. The fund liquidates in less than 3 years so that discount is likely to start tightening soon. The NAV will be critical to watch here to see if cutting the distribution to the bone will be necessary. That is my only hesitation from adding to the position here.
Pioneer Diversified High Income (HNW): The performance of this high yield bond fund has not been good. But the discount was extremely wide and oversold. We will likely not be adding to this position as the discount has already closed some.
Neuberger Berman High Yield (NHS): Another high yield bond fund that was recently at a massive discount to NAV. Today the discount is not as wide as it was just a few weeks ago when it hit 20%. This is another fund that likely will not be added to unless something changes.