The bond market's decline yesterday placed pressure on stocks. The 10 year treasury declined 29/32. The 30 year treasury was hit the hardest with a decline of 2 1/32, raising its yield to 4.25%. TLT, the ETF for the 20+ year treasury, fell 2.2% in trading yesterday. I did not see anyone specific to account for the declines yesterday in the bond market. There is a large contingent of investors and pundits, including Sarah, who believe that QE2 will end up being inflationary and hence ultimately bad for long bond investors. It would not be surprising to see that contingent to gain the upper hand from time to time, even when the inflation numbers remain tame. Another contingent believes that QE2 is basically a currency devaluation maneuver by the Fed. From a foreigners perspective, that view is certainly rational and may cause many of those investors to sell dollar assets, particularly low yielding treasury securities. The rise in the value of the foreign investor's currency against the USD has more than wiped out the stingy interest payments received from the U.S. government. And with the 30 year treasury auction today (Upcoming Auctions), those concerns seem to become infectious and are magnified, as investors worry about demand for that long dated paper under the current circumstances. Notwithstanding all of that, there appears to be a much greater number of investors who will fall over one another for the chance to buy ten year U.S. government paper yielding 2.6%. I am not one of them. If I went crazy later today, maybe I would feed the beast by buying 1 30 year bond. The 30 year treasury bond was yielding 4.25% last night. Maybe everyone is wrong and the two Davids, Rosenberg and Levy, are right for a change. You never really know about the future after all.
1. Sold 101+ of the stock ETF DTD at 45.46 and Bought 100 of the ETF VWO at 48.93 on Monday (see Disclaimer): This was my last pared trade that involves selling Wisdomtree stock ETFs and buying Vanguard stock ETFs, primarily for the purposes described in a previous post. I can buy the Vanguard ETFs commission free in my Vanguard Brokerage account and they can toward a reduced commission on other trades. (Vanguard Brokerage Services - Commission and fee schedules)
DTD is the symbol for WisdomTree Total Dividend Fund (DTD), which has a .28% expense ratio. I last bought shares in DTD at 41.7.
VWO is the Vanguard ETF for emerging market stocks: Vanguard - Emerging Markets ETF. The expense ratio is .27%. This ETF contained 833 stocks as of 9/30. A list can be found at Vanguard's web page for this ETF: VWO- All fund holdings The last semi-annual report for the Vanguard International Index funds can be found at the SEC's web site, starting at page 57. The country breakdown can be found at page 58. As one would expect, China has the greatest weighting at 17.4%, followed by Brazil at 16%. Another ETF for the emerging markets, iShares MSCI Emerging Markets Index Fund (EEM), has an expense ratio of .72%.
VWO was trading below $20 when the market decided to go with the risk trade in early March 2009: Vanguard Emerging Markets ETF ETF Chart I would generally expect an emerging market stock ETF to be positively correlated with U.S. stocks with a higher beta. Emerging Market Currencies and Bonds as Non-Correlated Asset Classes Correlations between asset classes will change over time, and I would not be surprised to see a de-coupling of emerging market stocks from those in the U.S., Europe and Japan within a few years, as the developed countries grapple with slowing growth, aging populations, and debt issues caused by both governments and individuals living way beyond their means. But as shown during the Dark Period, exposure to emerging market stocks will not protect the investor when the U.S. and Europe fall into the crapper. Instability & Volatility in Asset Correlations
2. Sold 50 CSCO at $24.42 on Monday (see Disclaimer): These shares were bought in September at 20.39. As I have emphasized, I am not much of a tech investor and simply look for trading opportunities in this sector when I view the risk/reward attached to renting one for a short period is in my favor. Explaining Low Valuations of Large Cap Tech Stocks Large Cap Valuation Strategy I have managed to hold onto my Intel shares, however, that were bought during the Dark Period between September 2008 and March 2009.
3. Exchanged All Shares of Matthews India (MINDX) into Matthews Growth & Income (MACSX) on Monday (see Disclaimer): I ended up with a good long term gain in my shares in MINDX, although it was one wild wide. I initiated a position in MACSX in September 2009 with a 200 share buy at $15: Item # 1 Bought Matthews Asian Growth and Income (MACSX) The expense ratio is 1.18%. This is a link to the Morningstar page on MACSX. This is a link to the sponsor's web site, Strategies for Investing in Asia - Our Funds, and to the page on MACSX, Overview - Matthews Asian Growth and Income Fund.
4. Sold 102+ Exxon at 70.22 on Monday (see Disclaimer): Headknocker was not pleased with the performance of XOM after a 50 share lot was purchased at 71.5 in early November 2009, requiring an average down purchase of 50 shares in December at 67.81. Then the stock tanked, falling briefly below 60 in August 2010: XOM Historical Prices | Exxon Mobil Corporation, Maybe it bears repeating for all of the knucklehead Head Traders here at HQ, HK purred, but a cardinal rule is to buy stocks that go up rather than down. So, in the future, HK intoned in his most fearsome voice, "do not buy stocks that go down". LB had nothing to say, except it remembered that anonymous call earlier in the week about the HK being past his prime and being ready for the Old Folks Home. HK may even be a formidable foe in a game of checkers with the other residents.
5. Bought 200 of the municipal bond CEF BKK at 15.11 on Tuesday (SEE Disclaimer): This purchase represents the first municipal bond addition to the mini-CEF portfolio, and further represents a continuation of a shift toward generating income in the main taxable account. This shift is part of ongoing process to adjust to the FED's Jihad against savers, now in its third year.
BKK is a leveraged term fund that will liquidate in 2020: BlackRock 2020 Term Trust The "goal" of the fund is to return $15 per share in principal to its shareholders on 12/31/2020. This liquidation date does reduce interest rate risk, while the leverage always acts to increase it in my opinion.
The last SEC filed schedule of holdings can be found at bkk. The last SEC filed shareholder report can be found at bkk.htm. The net expense ratio after fee waivers and before interest expense associated with the leverage is shown at page 41 as 1.05%. The leverage factor as of 4/30/2010 was at 38%. This fund invests mostly in investment grade municipal bonds. This is the breakdown as of 4/30 as shown in the shareholder report at page 6:
| Credit Quality Allocations5 | ||
| 4/30/10 | 4/30/09 | |
| AAA/Aaa | 19% | 22% |
| AA/Aa | 10 | 16 |
| A | 23 | 17 |
| BBB/Baa | 29 | 27 |
| BB/Ba | 3 | 1 |
| B | 4 | 3 |
| CC/Ca | — | 1 |
| Not Rated6 | 12 | 13 |
This one was selling at close to net asset value when I made my purchase on Tuesday. BlackRock - Individual Investor - Products - Fund Profile - BKK The NAV as of Monday's close was $15.24 per share.
The current distribution rate is $.06225 per month, producing a yield of 4.94% at a total cost of $15.11. I assume that this is 100% federal tax free income but will not know until I receive a 1099 for 2010. (see BKK page at CEFA)
BKK is ex dividend today, as is PSY and BTZ discussed below.
6. Added 100 of the bond CEF PSY at $10.53 on Tuesday (see Disclaimer): PSY is a similar CEF to BTZ, and both are part of the Blackrock CEFs. The main difference for me is that PSY was acquired some time ago, and I am in a hole with it. I changed my distribution option from cash to reinvestment into additional shares after ceasing the share reinvestment option in 2008. Like BTZ, PSY changed its focus to concentrate on investment grade bonds. Consequently, PSY is now classified as an investment grade bond CEF but was in the "preferred stock" category when I first purchased shares.
As of Monday's close (11/8/2010), the net asset value for PSY was $11.65 and the closing price was $10.55, creating a -9.44% discount to its net asset value. Dividends are paid monthly. The current rate is $.0635 per month: PSY At that rate for 1 year, the yield would be 7.24% at a total cost of $10.53. The credit quality is weighted mostly in the BBB category, with some A to AAA rated debt and some junk or unrated bonds: Fund Profile - PSY
The net asset value fell 9 cents in the bond rout yesterday, but the price gained four cents, which caused the discount to narrow to -8.39. WSJ.com CEFA
In addition to increasing my income distribution levels, I am also increasing my exposure to international stocks. Other nations in the world are not currently embarked on a debasement of their currencies.
I will discuss the remaining trades from Tuesday in the next post.
