Monday, March 5, 2012

TRXT/Sold 100 ETV at $13.12/Sold 50 GSPRD at $20.47/Sold 2 Cenveo 7.875% Senior Sub Bonds Maturing in 2013 at 95/Bought 100 HTGC at $10.35-ROTH IRA

Jeremy Grantham's letter to GMO investors is worth a read. His 10 recommendations for individual investors are certainly worth remembering. He also argues that the U.S. brand of capitalism contains fatal flaw. One of his criticisms, the fact that money buys political influence, has been a flaw since the Gilded Age and will likely continue to be one. His criticism about rewarding reckless and irresponsible risk taking is potentially a major flaw. The Masters of Disaster have already shown their willingness to enrich themselves irrespective of the most extreme adverse consequences to their employers and the entire economic system.

Grantham also provides at page 12 his asset allocation recommendations. At page 3, he provides the GMO asset allocation forecast made in 12/2001 and compares those numbers to the actual results. The forecast was really good in my opinion. Based on the actual results, the top five asset categories were Emerging Market Equities, Emerging Market Debt, U.S. REITs, International Small Cap and U.S. TIPs.  I doubt that many financial advisors or brokers had meaningful concentrations in those five categories.

I read this recent article that contains TheStreet's top ten rankings for international small cap funds. I do not own any of those ETFs but I will consider buying one when and if there is a formation of a Stable VIX Pattern. I would add to that list, due to its low cost and broad coverage. The Vanguard FTSE All-World ex-US Small-Cap ETF (VSS) currently has an expense ratio of .28% and owns 2880 stocks as of 1/31/2012.

PIMCO launched last week an ETF version of its Total Return mutual fund. PIMCO Total Return Exchange-Traded Fund (TRXT) Both funds will be managed by Bill Gross. The ETF will have a lower expense ratio at .55% than the Total Return fund offered to retail investors. Some other differences are discussed in this article at The retail fund has a front end load charge of 3.75%. PTTAX -  PIMCO Total Return A I have never owned it, but did buy TRXT in a trust account on its launch day. {Another version of that fund available through brokerage accounts has the symbol PTTDX, which does not have a load but does have an expense ratio of .75%} This is a link to the sponsor's web site for the ETF: PIMCO Total Return Exchange-Traded Fund

1. Sold 100 of the Stock CEF ETV at $13.12 Last Wednesday (see Disclaimer): Bought 100 of the Stock CEF ETV @ 12.73 (April 2011). This CEF was bought in a satellite brokerage account where the overriding investment principle is preservation of capital. Prior to the onset of the Fed's Jihad Against the Savings Class, the funds were invested in bank certificates of deposit. When those CDs started to mature, the OG refused to roll them over and instead opened a linked brokerage account. The general idea is to collect dividends and hopefully sell the stock positions at a profit. This was accomplished with the CEF ETV, where the dividend yield was greater than 10% at my cost. I received several quarterly dividends and exited the position at a profit.

The dividend was supported in part by a return of capital. In that case, the goal is to realize a positive return on the shares based on my original cost basis and to capture the dividends without losing anything on the shares before the return of capital cost basis adjustment.

Eaton Vance Tax-Managed Buy-Write Opportunities Fund closed at $13.04 last Friday. 

2. Sold 50 GSPRD at $20.47 Last Wednesday (see Disclaimer): These shares were purchased at $18.6. (September 2011). I have been in a trading mode for floating rate equity preferred stocks since the summer of 2008. 

Advantages and Disadvantages of Equity Preferred Floating Rate Securities (snapshots of trades at the end of that post)
Floaters: Links in One Post

2012 GSPRD 50 Shares +$79.48

Goldman Sachs Group Inc. Dep. Shs Pfd. Series D  (GS.PD) closed at $20.5 last Friday.

I still have a position in GSPRA and the synthetic floaters GJS and PYT.

3. SOLD 2 Cenveo 7.875% Senior Subordinated Bonds Maturing 12/1/2013 at $95 Last Wednesday (Junk Bond Ladder Strategy)(see Disclaimer): I recently averaged down on this bond. Averaged Down by Buying 1 Cenveo 7.875% Senior Subordinated Maturing 12/1/2013 at 81.5

On Thursday, CVO announced adjusted earnings of 29 cents per share, much better than the consensus estimate of 19 cents. SEC Filed Press Release The company also announced a tender offer for its outstanding bonds. The terms of that tender are described in this SEC Filing. CVO is offering $972.50 for each 2013 bond plus an early tender premium of $30.

The 2013 rose to trade near its par value in response to the foregoing, so I sold a day too soon. But I have an excuse.

The OG is suffering from what has been diagnosed by the LB as the Eastman Kodak aversion syndrome. RB bought a 2013 EK bond early in 2011 and Headknocker is currently sitting on close to a 70% unrealized loss on that one. This has caused a knee jerk aversion to any junk bond maturing in the later half of 2013.

4. Bought 100 of the BDC HTGC at $10.35-ROTH IRA Last Wednesday (see Disclaimer): I recently sold the shares held in a taxable account after a pop occurring shortly after my purchase. Bought 100 HTGC @ $9.7 (1/26/2012 Post)- Sold 100 HTGC at $10.85 (2/7/12 Post) The pop occurred after Stifel Nicolaus upgraded HTGC to a buy with a $11.5 price target.

As with other BDCs the primary goal is simply to capture the dividend without suffering a loss on the shares.   

Hercules released its 4th quarter results after the close last Wednesday: SEC Filed Press Release Net investment income was 25 cents per share in the 4th quarter, up 25% from the 3rd quarter. This was two cents better than the consensus estimate. Distributable net investment income was reported at 27 cents per share for the 4th quarter. The Board increased the quarterly dividend by 5% to 23 cents per share. At that run rate, the dividend yield at a total cost of $10.35 would be around 8.88%. The next dividend will be payable on 3/15/12. 

HTGC noted that it had entered an agreement to acquire 307,500 Facebook shares at $31.08 per share, subject to certain closing conditions.  As of 12/31/2011, Hercules  owned warrant positions in 109 of its portfolio companies. One of those companies, Cempra, had completed an IPO earlier this year. Six other of those companies had filed S-1 registration statements for an IPO and had not withdrawn that registration as of 2/29/12.

The effective yield on the debt portfolio was 15.6%.

Hercules Technology Growth Capital rose 29 cents to close at $10.61 last Thursday in response to this report.  Last Friday, HTGC declined 16 cents to close at $10.45. 

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