Friday, February 25, 2011

Bought 100 of the Bond CEF AWF @ 14.42/CWH HNZ MBC/ Bought Back 100 GGN at $18.65

1. Bought 100 of the Bond CEF AWF at $14.42 on Thursday (see Disclaimer):  This purchase is just part of my continuous effort to increase cash flow, which is used to buy more income producing securities.  

AWF is a world bond fund that is concentrated in junk rated securities issued by corporations and governments.  Holdings and Characteristics:    

Quality Breakdown
(Highest of S&P/Moody’s/Fitch)**
Short Term Investments0.34
Not Rated1.26

Everything below BBB is characterized as junk.

This fund is slightly leveraged.  The expense ratio with interest expense is 1.01% and .97% without that expense, according to page 73 of the last filed shareholder report for the period ending 9/30/2010.  AllianceBernstein Global High Income Fund, Inc.

As of the close on Friday, 2/18/2011, the net asset value was $15.51 and the discount to net asset value was -5.54.  This information can be found each business day at the Closed-End Fund section at WSJ's Market Data Center, at the sponsor's web site, and at the Closed-End Fund Association.

Morningstar currently rates AWF at 4 stars.  Dividends are paid monthly at 10 cents per share as shown at that Morningstar page. The next ex date is 3/2/2011:   Monthly Distribution  The Morningstar page on this CEF shows that none of the dividend has been classified as a return of capital, starting with the one paid in March 2010, the latest data point provided by that service. 

At a $14.41 price, and assuming a continuation of the current dividend rate, the yield would be about 8.33%.   AWF Fund Quote

AWF closed yesterday at $14.43 and had at that time a net asset value of $15.45, creating a discount of -6.6 as of yesterday's close.

2. CommonWealth REIT (CWH)(own senior bond and Common shares): CommonWealth REIT reported funds from operations of 88 cents for the 4th quarter.  There were a number of special items in that number including gains on the sell of some properties, offset in part by impairment and other charges on others.   As of 12/31/2010, 87.7% of CWH's square footage was leased, an improvement over 86.4% at the end of the last quarter.

3. Heinz (HNZ)(own: Dividend Growth strategy):  Heinz expects to report earnings for its fiscal third quarter of "around 84 cents", with organic growth of about 2%, "driven by continued robust growth organic growth of approximately 14% in Emerging Markets."  Heinz expects to report free cash flow of about 440 million in the quarter.   Heinz further raised its estimate for the F/Y to $3.04 to $3.10, up from a prior forecast by the company of $2.95 to $3.05.  Prior to that release, the consensus estimate was for 80 cents in the quarter and $3.09 for the F/Y ending in April 2011.

HNZ shares did rise in response to this press release by the company, crossing above $50 during the day before closing up 64 cents  at $49.58.  I do not anticipate HNZ shares will move much above current levels over the near term.  At $49 per share, the P/E is 15.85 based on estimated earnings of $3.09 for the current fiscal year and  around  14.63 based on the consensus estimate of $3.45 for the F/Y 2012.

Heinz was bought during the Dark Period at $31.67 (3/11/2009 Post).

4. Bought Back 100 of the CEF GGN at $18.65 (see Disclaimer):  The turmoil in the Middle East is making the Old Geezer nervous.  That is the main reason for buying back shares in the CEF Gabelli Global Gold Natural Resources & Income Trust (GGN) whose portfolio contains gold and natural resource stocks.  The other reason was to increase cash flow for future reinvestment.  GGN pays a 14 cent monthly dividend and has about a 9% yield at a total cost of $18.65.  As previously discussed, my main problems with this CEF is that it is selling at a small premium to its net asset value, and the dividend has been supported to a large extent by returning investor's capital to them.   That later problem may change in the coming quarters, as the fund now at least has the option of selling securities at a profit and capital gains have to be the main source for supporting such a liberal managed distribution.

This is a link to the last filed  SEC Form N-Q which contains the fund's holdings as of 9/30/2010.  As shown in that filing, the fund does write calls on many of its individual stock positions.     The fund does show close to a 55 million dollar unrealized profit in its securities as of 9/30/2010, excluding its options' positions, and I suspect that has risen since then.

The last  SEC filed shareholder's report is for the period ending in June 2010.  I would anticipate a new filing soon.

The fund does use leverage, a 6.625% preferred issue with a liquidation amount of about 99 million.  Morningstar states that the leverage percent is 10.84%, but that number is probably stale.

Over the few months, I have traded 100 shares twice:  Sold 100 GGN at 19.36 (1/4/2011 Post)  BOUGHT: 100 GGN @ 17.85 (11/20/2010 Post) Sold: 100 GGN @18.13 (11/17/2010 POST)  /Bought 100 GGN at 17.41 (10/4/2010)

GGN closed yesterday at $18.69, a 4.12% premium to its net asset value:

5. MBC (own):  The recent market slide has firmed up pricing of the "principal protected" note MBC whose interest payments are linked to the price change in the Russell 2000.  I own 200 shares.  I do not recall why I bought 200 of MBC, rather than more of MOU.  The only explanation, and it is not really a good one, is that I was able to buy MBC at less than the $10 par value.   Bought 100 MBC at 9.78  Bought 100 MBC at 9.84

Both MBC and MOU are senior unsecured notes issued by Citigroup Funding, guaranteed by Citigroup, that mature in 2014.  Both have a 3% guaranteed interest payment for their respective annual periods.  Both at least have the potential of paying a great deal more than the guarantee based on the percentage gain of the Russell 2000 in their respective annual coupon periods.

As noted in yesterday's post, MOU just finished with a 27.93% gain:  MOU Ends Second Annual Coupon Period With a 27.93% Gain  So that will be my interest payment on the $10 par value of that note.   MOU is better than MBC simply because it allows for a 37% increase, compared to MBC's 30%, in the Russell 2000 index over its starting value per annual period, before triggering a reversion back to the guarantee of 3%.

The firming in pricing for MBC was due to it approaching its maximum level for the second annual coupon period which ends on 5/20/2011, and the recent slide in the Russell 2000 gave it some breathing room.  So that is a lot of time to stay under the maximum level, which I previously calculated as 844.07 in the Russell 2000 index.  ITEM # 8 MBC  There was a maximum level violation in the first coupon period which triggered a reversion back to the 3% guarantee.

No shares of MBC traded yesterday.

Added: MOU MAY BE EX INTEREST TODAY.  I noticed this morning that the shares were trading up $1.86 to $12.07 after closing at $13 yesterday. 

I will discuss the remaining trades from Thursday  in the next post.  

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