Monday, January 30, 2012

Portfolio Repositioning at JQC/Sold 230 ERH at $11.9/ Sold 50 GJO at $18.5 & Bought 50 PYT at $16.24-Both Synthetic Floaters

The government's first estimate of 4th quarter GDP growth was 2.8% annual rate. News Release: Gross Domestic Product The expectation was for 3%. Growth was aided by a $56 billion increase in inventories, adding 1.94% to GDP, and by an increase in consumer spending. The Federal Reserve's current estimate for 2012 GDP growth is between 2.2% to 2.7%. That estimate, released last week, was revised down from the November estimate of between 2.5% to 2.9%.

1. Portfolio Repositioning at the CEF JQC: I own over 1000 shares of this CEF which has changed its investment strategy. The repositioning of this fund's portfolio started on 1/23/12.  Update on Portfolio Repositioning 

A comparison of the new and old approach is made in this Nuveen document. I am not likely to do anything until I review the next shareholders report later this year. I want to see what the fund is buying. The new emphasis, 70% of the fund, will be senior secured and second lien loans. A large number of senior secured loans are relatively low yielding, as shown in the dividend yield of ETFs that invest in that sector. Senior Loan Portfolio | BKLN  Investment Grade Floating Rate ETF (FLTR)

Nuveen Multi-Strategy Income & Growth Fund 2 closed at $8.79 last Friday, up 11 cents for the day. Based on last Friday's closing numbers, the fund was then selling at a 9.38% discount to its net asset value. ( see CEFA page on JQC). Link to sponsor's web page: Nuveen

2. SOLD 230 ERH at $11.9 Last Wednesday (see Disclaimer): This is another CEF that is currently selling at a premium to its net asset value. On the day prior to my sell, ERH closed at $11.78 and had a net asset value per share of $11.46. The premium was therefore +2.79%. I made a small profit on the shares plus several monthly dividends. Bought 100 ERH at 11.88 April 2011 Post;  Bought 100 ERH at 11.69 July 2011 PostAdded 30 to CEF ERH  at $10.61. The last small add generated the profit on the shares. 

ERH page at the CEFA 

Wells Fargo Advantage Utilities & High Income Fund closed at $11.66 last Friday. Based on last Friday's data, the fund was selling a .87% premium to its net asset value.

3. Sold 50 GJO at $18.5 and Bought 50 PYT at $16.24 Last Wednesday-ROTH IRA (see Disclaimer): This trade was one of my responses to the FED's statement that it will continue its Jihad against the Saving Class until the end of 2014.  While I feel more secure with the credit risk of a senior bond issue from Wal-Mart compared to a Goldman Sachs trust preferred security, GJO has no minimum coupon and its distributions are tied to a .5% spread over 3 month LIBOR. Short term rates are now likely to remain abnormally low for another 3 years, assuming no change in central bank policies. PYT, on the other hand, pays the greater of 3% or .85% above the 3 month LIBOR rate on a $25 par value. 

Both of these securities are Synthetic Floaters in the Trust Certificate form of ownership. I have made a decent return on PYT by trading it, and really do not want to muck that record up. But, I overcame that psychological issue, barely, and added just 50 shares. 

The underlying bond in PYT is a TP maturing in 2034: FINRA

Assuming GS survives to the par value of the underlying security, and assuming I still own PYT at that time, which has a zero probability,  I would receive PYT's $25 par value, thereby enhancing my yield to maturity.  

Snapshots of the prior trades can be found in Stocks, Bonds & Politics: Trust Certificates: New Gateway Post. I am playing with the house's money on this one with several small realized gains and the following on a 100 share lot:

2010 Roth PYT 100 Shares +$685.02
Merrill Lynch Depositor Inc. PreferredPLUS Floating Rate Callable TRUCs Series GSC-2 for Goldman Sachs Capital I closed at $16.1 last Friday. 

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