Wednesday, January 18, 2012

Bought 50 of the Stock ETF VFH at $29.2/Sold 1 Cooper Tire 7.625% Senior Bond Maturing in 2027 at 96/Sold 100 NPBCO at $25.87/Bought 100 of JLA at $11.69-Roth IRA

While I am certain there are many exceptions, I have always viewed  financial professionals as primarily interested in lining their own pockets with customer money. As a consequence of that belief, I have relied only on myself to make investment decisions.

Virtually every week, I read a story that reminds me why I have chosen the path of self reliance. A story in the NYT, written by Gretchen Morgenson, is just the latest among thousands. She details how Citigroup misled two of their large customers, who won an arbitration award against that bank for $54.1 million, which included punitive damages.

Barrons published over the weekend the report card for the Roundtable panelists 2011 selections. Why would anyone pay a fee for those results?  Of the 2012 selections made so far by the panelists, I am evaluating only Novartis for a potential purchase. It fits under my Large Cap Valuation Strategy and Common Stock Dividend Growth Strategy.

Enerplus, which was discussed in yesterday's post, declined in trading yesterday after CIBC downgraded the stock to underperform from neutral. Last Friday, UBS upgraded Enerplus to buy. Both of those rating actions occurred after my purchase which occurred last Thursday.  Added 90 ERF at $24.69 USDs I do not have access to either report so I am in no position to evaluate the merits of either of them. After the close yesterday, ERF announced that it was selling on a bought deal basis 12.79 million common shares at $23.45, plus an over allotment option for an additional 1.9165 million shares. Enerplus Announces Equity Offering ERF also announced its intent to spend $800 million in 2012 to generate "significant growth in production, reserves and cash flow". Enerplus Announces 2012 Capital Spending Program Importantly, given the low natural gas prices prevalent now, the company stated that oil production will rise to approximately 50% in 2012 from 45% in 2011.

The NY Federal Reserve reported yesterday that its Empire State index for manufacturing rose five points to 13.5. The consensus estimate was for a rise to 11.3 according to MarketWatch. The new order component rose 8 points to 13.5,  Empire State Manufacturing Survey (overview) - Federal Reserve Bank of New York

For reasons that are not readily apparent, many investors were comforted yesterday by a slowdown in China's growth. The general belief underlying that comfort is that both a cooling economy and less bothersome inflation numbers will cause China to start a credit easing cycle.

1. Bought 50 of the ETF VFH at $29.2 Last Thursday (see Disclaimer):  This ETF was purchased before JPM's 4th quarter earnings report that cast a pall over large cap financials. 

VFH is another low cost ETF from Vanguard that owns stocks in the U.S. financial sector. The expense ratio is currently .23%. The fund owned 513 stocks as of 11/30/11.

I noticed last Thursday that this ETF had recently crossed above its 50 day SMA line and was approaching its 200 SMA line. Vanguard Financials ETF ETF Chart 

For now, I just bought back 50 shares of the 100 sold at $34.88 last February.  I had bought those shares in November 2010. Item # 7 Bought 100 ETF VFH at 30.85  As a Vanguard brokerage customer, I do not have to pay commissions on either the purchase or the sale of Vanguard ETFs.

Vanguard Financials ETF  (VFH) quote

I was thinking about buying JPM, USB and/or WFC and decided instead to take the scatter gun approach with a financial stock ETF. This Vanguard ETF will be weighted in those large cap names, but will own all kinds of financial institutions including REITs and insurance companies. 

A list of the holdings can be found at Vanguard.

Vanguard Financials ETF closed at $28.95 in trading yesterday.

2. SOLD 100 Cooper Tire 7.625% Senior Bond Maturing in 2027 at 96 Last Thursday (Junk Bond Ladder Basket Strategy)(see Disclaimer): I sold this bond simply to shorten my average maturity some of the remaining bonds held in this basket. This bond matures in 2027, and the OG is becoming concerned again about interest rate risk. Credit risk is more than enough risk for these junk bonds.  I sold the bond at near break-even.  Bought 1 Cooper Tire 7.625% Senior Bond Maturing 3/15/2027 at 96.647 (April 2011). 

3. Sold 100 NPBCO at $25.87 Last Thursday (see Disclaimer):  I still own 50 shares of the trust preferred security in the ROTH IRA, bought at close to the same price as the 100 shares sold last Thursday. Those 100 shares were bought near par value back in April 2011. Bought 100 NPBCO at 24.91 The TP and its underlying bond mature in 2032. NPBCO has a 7.85% coupon on a $25 par value. I am not interested in holding long term this kind of junior bond with a long maturity, particularly when the purchase is made at or near par value. 

4. Bought 100 JLA at $11.69 in the ROTH IRA Last Thursday (see Disclaimer): JLA is a stock closed end fund that seeks to replicate a 50%/50% combination of the S & P 500 index and the Nasdaq-100 index. As a result of this strategy, this will necessarily be a large cap U.S. stock fund.

This stock CEF is not leveraged and uses a buy-write strategy. I added this CEF to my Roth IRA to give that account more stock exposure.

The fund has cut its quarterly dividend several times starting in 2008, JLA Distribution History. The last quarterly dividend was $.284 cents per share. The dividend has been supported by a return of capital, viewed negatively by me. The only way for the fund to earn the dividend is with realized capital gains.

This fund is currently weighted 4 stars by Morningstar. As shown in the data at the foreign linked page at Morningstar, the averaged 3 year discount to net asset value is 7.9%.

For this kind of investment in an IRA, I will be content to collect several quarters of dividends and to sell the stock for any profit.

Last SEC Filed Form N-Q, listing the holdings as of 9/30/11:

On the prior to my purchase, the net asset value per share was $13.36. Based on a closing price of $11.73 on 1/11/12, the discount to net asset value was then -12.2.  On 1/12/12, the net asset value per share was $13.37 which, along with the small drop in JLA's market price, caused the discount to widened a tad to -12.49.

Closed-End Fund Association page on JLA

Last SEC Filed Shareholder Report for the period ending 6/30/11:

This brings me up to 300 shares. I am in the red on the 200 shares bought in the taxable account, though the dividends paid on those shares would bring me into profit territory on a total return basis. I am not reinvesting the dividend. Bought 100 of JLA at 12.84 (January 2011); Added 100 to the Stock CEF JLA @ 12.67 (April 2011). Part of the decline in the shares has been due to an expansion of the discount since me purchases last year.

Nuveen Equity Premium Advantage Fund closed at $11.66 yesterday.

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