Monday, November 22, 2010

Added 200 CBO:CA @ 20.58 CAD, 50 JQC @ 8.8/Bought 100 MSW @ 6.6 & 100 PSY at 10.25 in Roth /Sold GYC at 22.3 in regular IRA


The preceding table is my closed end fund mini-portfolio, which has expanded in terms of holdings and has shifted some to bonds, compared to the last table that I posted in early October: Sold 100 ERC at 16.27.  Several new bond CEFs were recently added, including 6 municipal bond CEFs (BKK, NPF, NQS, NPM, MNP, & the taxable municipal BAB CEF fund NBB), a foreign bond CEF (FAM), as well as a new  U.S. corporate bond fund ( BDF).

Additions were made to other bond CEFs (MMT, PSY). Several stock funds were eliminated (TY, NFJ, MSF, NIE, GGN) or reduced (CSQ, GDV). There was also a small reduction in GDO. Prior to those municipal bond CEF adds, I had never owned one other than NBB which is a taxable municipal bond fund.

Over the past two weeks, the municipal bond market was in a sharp correction as previously discussed in several posts from last week. The leveraged municipal bond CEFs magnified that correction as one would expect.

In his column this weekend, Randall  Forsyth noted the hysteria, apparently caused by easily spooked individual investors redeeming 3 billion from tax-exempt bond funds.

Andrew Bary devoted a column to the latest municipal bond sell-off in his Barrons column, arguing that their low prices now, relative to taxable bonds, "offer bargains" for selective shoppers who focus on bonds backed by essential services, like water, sewer and power.  

The Baltic Dry index continues to look anemic: BDIY: BALTIC DRY INDEX Summary - Bloomberg

1. Added 200 shares of the Canadian bond ETF Claymore 1-5 Year Laddered  Corporate Bond at 20.58 CAD on Friday (see Disclaimer):  This brings me up 300 shares of this Canadian corporate bond ETF that pays monthly dividends. I bought those shares on the Toronto exchange and my dividends will be paid in  Canadian dollars. I also own 400 shares of the Canadian  Claymore 1-5 Yr Ladderred Government Bond.

Both positions are viewed as part of my long term position in Canadian dollars. These purchases are part of my ongoing effort to achieve some yield on my Canadian dollar position. I am willing to accept the currency risks inherent in owning securities denominated in Canadian dollars, realizing that there will be many times when an adverse currency exchange will wipe out the value of the dividends paid by securities whose distributions are paid to me in the Canadian currency, until that change reverses. The Canadian dollar and the U.S. dollar are near parity now. Since I am a long term holder of Canadian dollars, I am not personally concerned about changes in the exchange rates, which will cause significant fluctuations of the securities owed by me and priced in Canadian dollars. I am more interested in just earning a return on my Canadian dollar position, which led me to the purchases of several ETFs traded on the Toronto exchange, a few high yielding commons stocks and three Canadian REITs.    

The symbol for the Claymore 1 to 5 year laddered corporate bond ETF at Fidelity is CBO:CA.

This is a link to the sponsor's web site: Claymore 1-5 Yr Laddered Corporate Bond ETF ( CBO)  As of 6/30, the expense ratio was .27%. The current distribution yield is around 4.6%. The fund owns investment grade Canadian corporate bonds using an equal weighted ladder strategy, buying bonds maturing in 1 to 6 years. As the bonds with maturities between 5 years to 5.99 years mature, the proceeds are rolled in the one year part of the ladder.  This kind of strategy reduces interest rate risk.

A list of this ETF's holdings can be found at CBO Holdings 

The shares of this ETF can be bought in the Grey Market in the U.S., but that market lacks any transparency.

I considered buying another Canadian ETF that is offered by BMO: BMO Mid Corporate Bond Index ETF - Fixed Income - BMO Exchange Traded Funds (ETFs)  I decided to add to the Claymore product instead based on a number of considerations.  I liked the roll and ladder aspects of the Claymore fund which is not present in the one offered by BMO.  Also, I prefer to be paid monthly dividends, and the BMO fund pays quarterly. The Claymore ETF is more actively traded and generally has a lower bid/ask spread.

2. Bought 100 MSW at 6.6 in Roth IRA on Friday (see Disclaimer):  Mission West Properties, Inc is a REIT that owns controlling general partnership interests "of 24.44%, 21.86%, 16.32% and 12.52% in Mission West Properties, L.P., Mission West Properties, L.P. I, Mission West Properties, L.P. II and Mission West Properties, L.P. III, respectively, which represents a 20.83% general partnership interest in the operating partnerships, taken as a whole, on a consolidated weighted average basis."  (page 4 10q).  Through those operating partnerships, the company owns interests in 112 R & D/office properties in the Silicon Valley region in California.

I view this REIT to be both speculative, given the current over-capacity of buildings in this area, and a decent income generator provided no cuts in the current distribution.   The current quarterly dividend is 15 cents per quarter which results in over a 9% yield at a total cost of $6.6. The main problem, other than the ownership structure and some litigation, from my point of view is the vacancy rates in the Silicon Valley, discussed at page 14 of the 10-Q.

The occupancy rate for the properties owned by the operating partnerships is a really low 67.8% as of 9/30/2010.  So, this one is viewed as risky but a potential turnaround too. However, that turnaround may take years due to the large vacancy rates in this area. 

3. ADDED 50 to JQC at $8.8 on Friday (see Disclaimer):  I will periodically add shares to the balanced CEF.   It has been some time since I last added shares to my position.  I added 50 shares at $6.97 in November 2009, 100 shares at $6.31 in July 2009, and 50 shares at $4.83 in October 2008, shortly after starting this blog.  I started to reinvest the dividends again in the 3rd quarter of 2009. This last purchase 50 share purchase brings me to over 500 shares. 

On 11/18, JQC closed at $8.85 and had a net asset value then of $10.14 per share, creating a discount to net asset value of -12.72. On 11/19, the shares closed at $8.79 and the NAV increased 1 cent to $10.15 which expanded the discount some to -13.4.   The current distribution rate at that market price is 7.91%, paid in quarterly installments.  The current quarterly distribution is 17.5 cents per share.  The fund does use leverage.  The current allocation as of 9/30 is close to 60% debt/40% equity including convertibles.  

The debt is mostly investment grade with some junk (14.9% BB, 11.7% B, 2.4% CCC, 01% CC and 1.7% not rated).  Most of the investment grade is in the BBB category (at 40.4%). The fund had 965 holdings as of 9/30. 

This is a link to the last filed shareholder report: 

4. Sold 40 of the Synthetic Floater GYC at $22.3 in regular IRA on Friday (see Disclaimer): Most of the securities in my regular IRA were transferred to the Roth IRA, starting in October 2008, and all of those transfers worked out extremely well on a timing basis.  

Generally, when I have some money to invest in the regular IRA now, I only have sufficient funds to buy a small odd lot of an income security, like the 40 shares of GYC which were bought at $21 last September. I still own 50 shares of GYC in the Roth bought at  $15.5 in May 2009. GYC is a synthetic floater tied to a senior AT & T bond that pays the greater of 3.25% or .65% above the 3 month Libor with a maximum rate of 8%. Par value is $25. The underlying bond matures in 2034. I simply do not find this security very attractive at the current price. I will have some more funds to invest in the regular IRA when I receive the proceeds from Delphi's redemption of its senior bond DFY in late December.

Synthetic Floaters
Trust Certificates: Links in One Post Duplicate Post

5.  Bought 100 PSY in the Roth IRA at 10.25 on Friday (See Disclaimer):  I also own PSY in a taxable account and recently added to that position at a slightly higher price. ITEM # 6 Bought  100 PSY @ 10.53  I have nothing to add to that discussion about this bond CEF.  On Friday, PSY closed at $10.25 and had a net asset value then of $11.39 per share, creating a discount of -10.01 to NAV.

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