Thursday, September 1, 2011

Closed End Fund Table as of 8/31/11/ Bought Back 50 HBAPRG at 19.29/Bought 200 NPT at 12.2/PSEC NHTB/Bought 1 Cascades 7.75% Senior Bond Maturing on 12/15/2017 at 96.5

New Hampshire Thrift Bancshares (own) announced that it had redeemed the government's preferred stock.

Prospect Capital filed its Annual Report with the SEC showing a net asset value as of 6/30/11 at $10.36 per share. (p. 98). A list of its investments can be found starting at page 102.

The government reported that new orders for manufactured goods rose 2.5% in July. Excluding transportation, new orders were up .9%.

The S & P 500 average declined 5.7% during August. It seemed worse. The decline started in earnest on July 22, when the S & P 500 closed at 1345.02. The close on 8/31 was 1218.89, a 9.38% decline from 7/22. It is really hard to see much upside from here until the economic data turns decidedly better.

According to the WSJ, Goldman Sachs recently circulated a report estimating that as much as 1 trillion dollars may be needed to shore up European banks.

1. Bought 50 HBAPRG at $19.29 Last Monday (see Disclaimer):  HBAPRG is non-cumulative equity preferred stock, issued by HSBC USA, an indirect wholly owned subsidiary of HSBC Holdings. HBAPRG is a floating rate preferred stock that pays the greater of 4% or .75% above the 3 month LIBOR on a $25 par value. Advantages and Disadvantages of Equity Preferred Floating Rate Securities


This is a perpetual security, as is common stock, but HSBC has the option to redeem it now at par value plus accrued dividends. I doubt that will happen. 

I view myself as ahead on this security by simply selling 50 shares at a higher price a few months ago. Comparing HBAPRG to BMLPRJ Sold 50 HBAPRG at 24.02 (April 2011 Post). 

This security may start to look better when the float provision is activated by a rise in the LIBOR rate. Due to the Federal Reserve's Jihad against the Saving Class, likely to last at least another two years, the short term rates are abnormally low. Historical 3 month LIBOR rates can be found at LIBOR Rates History (Historical)

At a 5% 3 month LIBOR rate during the relevant computation period, the coupon would become 5.75% which translates into a 7.45% yield at a total cost of $19.29 (.0575% x. $25 par value=$1.4375 annualized divided by total cost of $19.29=7.45%). 

When the short rates start to reflect a premium over the inflation rate, this kind of security provides a measure of inflation protection, while the minimum coupon comes into play during periods of deflation, low inflation, or Jihads by central banks against the saving class as now.  Inflation or Deflation: Bond Alternatives I have been discussing these securities since starting this blog in 2008: Bary's Column In This Week's Barron's: Floating Rate Preferred Stocks METPRA GSPRA HBAPRF BACPRE (December 2008 Post); LIBOR AND THE AEGON FLOATING RATE Stock AEB (October 2008); LIBOR AND THE MET LIFE FLOATING RATE PREFERRED STOCK (October 2008). 

HSBC USA Inc. Dep. Shs (Rep. 1/40th of a share of Fltg. Rate Non-Cum. Pfd. Series G (HBA.PG) closed at $20 yesterday, up 35 cents for the day.

I mentioned HBAPRG in a recent post discussing certain classes of securities which will show a strong downside bias during periods of market stress. Item # 1 Fear and Enhanced Volatility in Certain Classes of Income Securities (August 9, 2011 Post)

I am not much of a believer in the Fed's forecast that inflation will start to come down and remain tame when its policies appear to be designed to increase inflation. If taming inflation was the goal now, the federal funds rate would be close to 4%.

2. BOUGHT 1 Cascades 7.75% Senior Bond Maturing on 12/15/2017 at 96.5 Last Tuesday (Junk Bond Ladder Strategy)(see Disclaimer): Cascades is a Canadian company, whose common stock is traded on the Toronto exchange. CAS.TO It makes commercial and food packaging products, tissue paper, fine papers, outdoor furniture and other products. Cascades - Cascades' history Cascades Inc (CAS.TO) Company Profile

This is a link to the FINRA information on this bond:  FINRA

Moody's rates the bond at Ba3 while S & P has it at B+.

Prospectus: SEC.

Interest is paid semi-annually in June and December.

This is a link to Cascades' quarterly report for the Q/E 6/30/11: SEC The company reported operating income before depreciation and amortization of 65 million CADs on sales of 991 million.

My confirmation states that the current yield at my cost is 7.965% and the YTM is 8.306%.

3. BOUGHT 200 of the Leveraged Municipal Bond CEF NPT at $12.1964 Last Tuesday (see Disclaimer): After the FED announced that it would likely continue its Jihad against the savings class for another two years, I cancelled some GTC limit orders to sell some leveraged municipal bond closed end funds. Many of these funds are yielding close to 7%, paying tax free dividends. That result can be achieved by borrowing money at the current ridiculously low short rates and investing the proceeds into long dated municipal bonds.

Hopefully, I can exit the positions before the funds can be squeezed by a rise in their borrowing costs and a fall in their bond holdings caused by a rise in long term rates. I still own several of these funds after paring my overall exposure a few weeks ago.

NPT is a Nuveen fund called  Nuveen Premium Income Municipal Fund 4, rated 4 stars by Morningstar.

As of 8/29/11, it had a net asset value of $12.95 per share and was then selling at a -5.48% discount to its net asset value.  Information about NAV can be found at the sponsor's website: NPT - Nuveen Premium Income Municipal Fund 4, Inc. This type of information is also available at the Closed-End Fund Association. The NAV rose 1 cent on 8/30/11 and the discount widened to -5.71 based on the closing price that day of $12.22.

Dividends are paid monthly, always a plus, at the current rate of $.0710 per share. NPT Distributions  This gives me about a 6.98% yield at a total cost of $12.2.

As of 7/29/11, the fund had 294 holdings with an average maturity in years of 18.74. This will give the fund a lot of interest rate risk. Most of the holdings were rated "A" or higher, with 19.4% at BBB which gives the fund some yield juice. Ratings information on the holdings can be found at NPT Holdings.

The fund shows effective leverage at 38.41% as of 7/29/11. Total expenses, including interest expense, was 1.29% as of 7/29/11. Interest rate expense is of course very low now.

This is a link to the last SEC filed shareholder report for the period ending in April 2011:  NPT SEC

Nuveen Premium Income Municipal Fund 4 closed at $12.34 yesterday.

I had one other trade from Tuesday that I will discuss in the next post.

4. Closed End Fund Table as of 8/31/11: I updated yesterday my table for the CEFs that I own, including recent reinvested dividends, additions and deletions.  I have started to add some to closed end leverage municipal bond funds. I discuss the addition of NPT above. I did not discuss the addition a few weeks ago of NQS. Other recent additions and deletions include the following: SOLD 100 BDF at $18.85 (8/24/11 Post); Sold 200 IGI at $21.52+ (8 19/11 Post); Added to CEFs BTZ SWZ GDV and ERH (8/9/11 Post);  Bought 200 ACG at 7.85 (8/8/11 Post);  Sold 300 WIW at 12.85-Bought 100 IGI at 20.69 (8/4/11 Post); Added 50 CSQ at 9.2 (8/3/11 Post);  Added 50 SWZ at 13.75 (8/2/11 Post); Bought 100 of the Bond CEF BBN at 18.15 (7/29/11 Post);  Bought 100 ERH at 11.69  (7/28/11 Post); SOLD: 100 APF @ 17.47, 100 PEO @ 30.62 (7/27/11 Post);  Pared JSN-Sold 100 at 12.38 in ROTH IRA (7/26/11 Post);  Sold CEF JDD at 11.28 (7/22/11 Post).

I took my stock allocation down some in late July, added to the bond allocation, and then started to add back stock CEFs around 8/8. I have ceased reinvesting the dividends for BTZ, SGL and GDO, effective with the last distributions. I omitted one small position since I may sell it soon due primarily to it now selling near its net asset value. I estimate that the portfolio is evenly split between stocks and bonds at the moment, which is a higher than normal bond allocation for me. I have tilted the bond part to investment grade corporates and municipal bonds.

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