The Claymore BulletShares Corporate Bond ETFs declared their monthly distributions on Friday. I own BSCE and BSCF in retirement accounts, and BSCH in a taxable account. Considering the product, my positions have increased in value far more than my very modest expectations since those recent purchases. Bought 100 BSCH at 20.13; Item # 4 Bought 100 BSCE at $20.16; Item # 7 Claymore Introduces Term Corporate Bond ETFs Bought BSCF at$20.18. While the yields are not much, I did notice an increase from the last dividend declaration for the 2017 term ETF, Claymore BulletShares Corporate Bond ETFs Declare Initial Distributions. The 2017, the longest term date, declared a 7 cent monthly distribution last Friday, up from an initial distribution of 4.6 cents. The 2014 increased from an initial 1.6 cents to 3 cents. LB dwells on the pennies. The OG could care less.
I would add a caveat to my prior discussions based on a review of this press release about the dividend. Several of these short term corporate bond ETFs are expanding the number of shares to accommodate new shareholders. The exceptions are the 2016 and 2017 term date ETFs. When the manager adds to existing positions during a corporate bond rally, such as the one being experienced now, the newer positions would be at a higher cost than the ones purchased when I made my purchases. Over time, any of those newly added positions, purchased at over par value, will lose value at maturity and could conceivably have a negative impact on original shareholders. This may even out over time, assuming a correction in the ongoing rally and a continuation of new money buying these ETFs.
1. Bought 50 of the TC PZB at $19.85 in the Roth Friday (see Disclaimer): PZB is a trust certificate containing a senior bond from the Limited (LTD) that I previously bought at $16.05 in a taxable account. This TC has a 6.7% coupon and a $25 par value, whereas the underlying bond has a 6.95% coupon. Yet, based on the respective prices last Friday, the TC had a higher yield than the underlying bond. The last trade for the bond was $89.187, which would produce a current yield of 7.79%. FINRA The TC has a current yield of around 8.44% at a total cost of $19.85. And, given the TC's greater discount to par value, it would have an even better yield to maturity which includes the yield realized by receiving par value at maturity. Using the Morningstar Bond Calculator, the YTM for the TC is 9.17% at a cost of $19.85. The underlying bond would have a YTM of 8.3% based on the $89.187 price.
The YTM for the PZB shares purchased at $16.05, which are still owned, is 11.53.%. For those unfamiliar with buying bonds in the bond market, the price for a $1,000 bond is quoted at 1/10 of the par value or "100". So if I placed a limit order to buy 5 LTD.GE (Cusip 532716AK3) at 89, and the order was filled at that price, then the cost would be $4,450. before commission ($890 per bond x. 5 bonds). Actually filling an order for such a small amount in the bond market would be far easier said than done.
I view this last purchase of PZB to be a trade, an alternative to earning zero on my cash in a money market account. It will go ex interest next month.PPlus Trust Series LTD 1, PZB (my 50 share purchase did not register in the volume displayed for Friday) If I can clip that interest payment and sell the shares for a small profit, I will likely do so. The shares bought at $16.05 with the 11.53% YTM will be held until I become rationally concerned about credit risk. Given the yield for the shares bought at $16.05, I am more concerned about credit risk than interest rate risk over the next 23 years. It is conceivable, with the advent of hyper inflation, that I would sell bonds with high yields including the PZB purchased at $16.05.
This is a link to the prospectus: www.sec.gov
Before I would buy any bond, I would conduct the same research that I would normally do for a stock purchase. The focus and purpose of the inquiry is ultimately to assess credit risk. I want to know about the amount of debt on the balance sheet and particularly the amount of debt at the same and higher priority. For senior debt, I would be concerned about a lot of secured debt and less concerned about junior subordinated debt. I want to know about the earnings history and recent earnings reports. I am also very interested in the firm's cash position. Limited is showing a lot of cash on its balance. This data can be found at LTD: Balance Sheet for Limited Brands or by looking at the last quarterly report filed with the SEC, which I would always do before buying a bond. LTD Quarterly Report for the Q/E 5/2010 This shows 1.188 billion in cash on the balance sheet as of 5/31/2010. The long term debt is shown at 2.523 billion. I would then go and look at the types of debt and the maturity schedules. The long term debt is set out in Item # 9 in these quarterly reports (page 11). I see that almost all of the long term debt is senior debt with the next maturity due in November 2014. Another 350 comes due in 2033 and, which is the bond that is the underlying security in PZB, and a smaller chunk of 300 million in 2037. I also see that the company successfully sold 500 million of 8.5% notes in June 2009 due in 2019. I then checked the last trade of that bond at FINRA, and it was trading on Friday at a 11% premium to its par value suggesting that LTD could refinance now at a slightly lower rate.
2. Sold 200 ATP:TO at $13.14 Friday (see disclaimer): I viewed my shares of Atlantic Power to be a temporary placeholder for some of my Canadian dollars. The stock just went ex dividend, and I was able to sell the shares at a profit. Bought 100 ATP:TO at 11.97 CAD Sold 100 MCQPF at $7.18 and Bought 100 ATP:TO at 13.01 CAD If I buy the shares back at some point, I will buy them on the NYSE and use my CADs to buy another dividend paying Canadian ETF.
Atlantic recently listed the shares on the NYSE under the "AT" symbol. The dividend yield is almost 8.5% at the closing price ($12.95 USD) of the NYSE listed shares on Friday. Atlantic Power Corp, AT Dividends are paid monthly, and an earnings report is due in early August. This stock has been volatile in a 11 to 13 CAD range. ATP.TO: Historical Prices I would hope to pick up the NYSE listed shares at below $12.
Given the rise in the Canadian dollar against the USD on Friday, the NYSE listed shares were up 2.98% when I sold my Toronto listed shares which were then up 1.54%. The Canadian shares ended the day up 3.32% and the NYSE listed shares closed up 3.98%. The CAD rose almost .8% against the USD on Friday. If I took the closing price on the Toronto exchange, which will ultimately govern the ADR price adjusted for the current exchange rate, the price on the NYSE should have been about $13. USD rather than $12.95. Currency Converter
This is an example of how currency conversion will impact the ADR price. It works both ways. At the YF currency converter I went back to March 6, 2009, a recent low point in the CAD's value against the USD. I then converted the ATP:TO closing price from last Friday, 13.39 CAD into USD. This would equal a price of 10.39 U.S.D., a 19.76% decline from the NYSE closing price on Friday at $12.95. Atlantic did trade at that time on the pink sheets. So if the CAD had closed 7/30/2010 at the same value as 5/6/2009, AT's price would not be $12.95 but $10.39. So, there is both an enhanced opportunity and risk associated just with the currency issue. It worked in favor of the U.S. buyer of Atlantic Power on the Pink Sheet exchange back in March 2009, but may go the other way too.
Before buying any ADR of a foreign company, an investor needs to become thoroughly conversant with how currency fluctuations impact ADR share prices. I discuss some of these issues in the following posts: International Trading and Currency Risks ; Bought 100 AXAHY at 14.69 (EURO) ADDED 50 NABZY AT 19.51 (National Australia Bank (AUSTRALIAN DOLLAR); Added 70 RHHBY at 34.07-Completing Round Lot/ Swiss Franc-Euro (SWISS FRANC-subsequently sold the Roche shares Sold 100 RHHBY at $36.2 ); Bought 100 NVS at 49.08 (SWISS FRANC); see also, Strong U.S. Dollar + Weak Market=Time to Start Looking Overseas).
Headknocker was not please with this transaction, noting that ATP.TO closed at 13.39 CAD on Friday, leaving $50 CAD on the table. HK wanted to know whether the OG got the shakes again, which caused this fifty Canadian dollar depletion in HK's capital position. The OG said that he "did not care about $50, or 500 dollars for that matter, and could not remember what happened ten minutes ago, let alone from Friday mid-day."
LB, the author of this minutes of HQ's storied trading operation, wants all readers to know that it views OG's statement about not caring about "50, or 500 dollars" to be SACRILEGE, reconvene the Spanish Inquisition and burn the OLD GOAT at the stake. LB views $1 to be the same as 5 million dollars, every $1 counts. LB wants Headknocker to know that it really, really and truly, cares about every dollar in HK's capital position.
HK was inclined to agree with LB's sacrilege accusation against the Old Geezer but thought that burning the OG at the stake might be viewed as cruel and inhuman punishment for such an offense in this modern age populated by a bunch of liberal pansies.
All of this squabbling about 50 Canadian dollars made the RB wonder whether HQ will ever be in a position to acquire Canada, all of it. If any of the loonies up there read these minutes, it might put them at ease, no need to worry about HQ acquiring their country and renaming it "Greater Tennessee", thinking no doubt that HQ's staff is disorganized and out of kilter, and then RB can spring its trap. Maybe, RB mused, it would be better to work with LB than the Old Goat.
3. Sold 50 of the TP USBPRF at $23.94 Friday (see disclaimer): This TP goes ex interest on August 11, and I bought my 50 shares a few days ago at 22.54. At the $23.94, this TP would have a current yield of around 6.13% with a maturity in 2035. After thinking about that some, I decided that this kind of yield for a TP maturing in 2035 was not worth the risk.
I am wary of these long term bonds yielding in the 5% to 7% range. I discussed my longer term forecast in an email to a reader on Friday: