Friday, June 8, 2012

Bought 50 NBB at $20.73-ROTH IRA/Added 50 RVT at $12.37/VLY NOK TINY RSH/CHINA and Europe/

Nokia unveiled three new phones for customers in emerging markets. WSJ The press release announcing these new models can be found at Nokia. I own NOK shares as a LT. Bought 50 NOK at $2.88-LT Category The common stock  (NOK ADS) appears to be stable around $2.8, having fallen from a five year high of $39.72 (10/2007), NOK Stock Chart. A NOK 2019 bond appears to have stabilized at above 80, at least for the time being, after trading above par earlier this year. 

The BDC Harris & Harris (own as a LT) periodically issues press releases relating to developments at its portfolio companies. In a recent announcement, the company noted that Nanosys had entered into a collaboration agreement with MMM to commercialize Nanosys'  Quantum Dot Enhancement Film. The OG is always interested in these new technologies even though he lacks the knowledge to understand them. Apparently, this technology creates a high quality backlight designed for liquid crystal display devices. 

In another announcement, Harris & Harris noted that OpGen had entered into a collaboration agreement with Life Technologies intended to improve surveillance and detection of microbial outbreaks. Another press release focuses on a collaboration agreement between Ensemble Therapeutics and Genentech.

As of 3/31/12, TINY estimated a net unrealized loss in its Ensemble and Nanosys positions. SEC Form 10-Q at p. 7. 

Harris & Harris Group (TINY) declined five cents in trading yesterday to close at $3.55.

China's central bank cut its benchmark rate by 25 basis points yesterday. That cut reduces the one year yuan lending rate to 6.31%. Hopefully, that is the first among many stimulus bullets to be fired by China.

A head of China's sovereign wealth fund, with approximately $410 billion in assets, stated that he sees too much risk in Europe's markets and has cut back the fund's exposure to European stocks and bonds. WSJ

Fitch has threatened the U.S. with a downgrade of its debt unless a credible debt plan is adopted in 2013. Reuters I no longer view U.S. government debt as AAA anyway, more like a BBB+.

Fitch lowered Spain's credit rating three notches to BBB, not too far from junk, and kept a negative outlook. Fitch believes that Spain's banks may needs as much as €100 billion. Whatever the number turns out to be, I doubt that Spain has the ability to deal with its banking problems, and the EU will need to provide massive assistance.

Valley National (own) was downgraded by Raymond James to market perform. As explained in a CNBC article, this action was part of a sector downgrade based primarily on net interest margin contraction and slowing loan growth. Net interest margin contraction due to abnormally low rates is a known and easily understood risk for banks now. Until recently, the banks have benefited by customers rolling over certificates of deposit at lower rates. When loan rates start to move back up, which is not likely to happen anytime soon, the net interest margin will expand as bank customers are locked into the abnormally low current rates on their CDs.

Radioshack announced that it had entered into a joint venture with Cybermart to operate small retail format stores in China, Taiwan, and Hong Kong.  SEC Form 8-K It is my understanding that Cybermart is an affiliate of the Taiwanese company Hon Hai Precision that does business as Foxconn. The common shares (RSH) declined 4.58% or 21 cents in trading yesterday to close at $4.38.

Morningstar published an article about using Multiasset ETFs to achieve a diversified income stream. Among the ETFs mentioned in that article, I have very small positions in CVY an HGI. Another article at Morningstar focuses on the new SPDR SSgA Income Allocation ETF (INKM).  I have a subscription to Morningstar which entitles me to receive their analyst reports, but a number of articles at that site are available to non-subscribers. SPDR SSgA Income Allocation ETF (INKM) rose 3 cents in trading yesterday to close at $29.42 on just 800 shares in volume.

Freddie Mac reported yesterday that the average interest rate on a 30 year mortgage declined to 3.67% for the week ending 6/7/12. Primary Mortgage Market Survey (PMMS) - Freddie Mac

Susquehanna Capital I 9.375% Cap Secs. Series I (SUS.PA) (own) was ex interest for its quarterly distribution yesterday.

I am not going to invest much money in anything until I become more comfortable with the big picture issues.

1. Bought 50 NBB at $20.73 Last Wednesday-ROTH IRA (see Disclaimer): NBB is a closed end bond fund that invests in taxable municipal bonds. Of course, I would never buy a tax free municipal bond in a retirement account and have only owned such funds in a taxable account. The taxable municipal bonds will have a higher yield than the tax free ones. In the ROTH IRA, the taxable municipal bond becomes in effect a tax free one. 

NBB invests in Build America Bonds: NBB - Nuveen Build America Bond Fund As noted at the sponsor's website, this fund has a contingent term provision. If there are no new issuances of BABs or similar U.S. treasury subsidized taxable municipal bond within 24 months ending on or before 12/31/2014, the fund will terminate on 6/30/20. I seriously doubt that there will be any such issuances. So, without a change, NBB will likely be a term bond fund that liquidates in about 8 years. If that in fact happens, the managers of this fund may have to be nimble trading long bonds as that deadline approaches. 

This is the credit quality breakdown as of 4/30/12: 

NBB page at the Closed-End Fund Association  

SEC Form  N-Q listing holdings as of 12/31/11

SEC Filed Shareholder Report for period ending 9/30/11

On the day before my purchase, the NBB closing price was $20.83 and the fund had a net asset value of $22.17, creating at that time a -6.04% discount to NAV. 

I have traded this bond CEF for small profits:

2011 ROTH IRA 100 NBB +$108.97
2011 Taxable 100 Shares +$49.61

2010 Regular IRA +$25.58
Total: $184.16

The goal with this bond CEF is simply to collect several monthly dividend payments and then to sell the position for any profit whatsoever. I have held some shares for over a year. So far at least, I have not had to sell the shares for a loss. 

NBB is a leveraged fund. NBB Fund Data Page As such, the fund currently benefits by being able to borrow funds at abnormally low short rates to buy long term bonds, at a time when the prices of long term bonds were rising. In that kind of optimal environment, the fund can make a spread on the difference in yields and also have many of the bonds purchased with borrowed funds rise in value creating capital gain opportunities. Needless to day, the reverse can also happen. A leveraged bond fund is not an appropriate investment in a rising interest rate environment.  

NBB has been paying a monthly dividend of $.1085 per share which was reduced from $.117 last April. NBB Distributions The next ex dividend date is June 13th. Nuveen Closed-End Funds Declare Monthly Distributions Assuming a continuation of that rate, which is of course in no way assured, the dividend yield would be approximately 6.28% at a total cost of $20.73.

There is an ETF that invests in BABs which I have owned in the past: PowerShares Build America Bond Portfolio (BAB)

Last Wednesday, the fund closed with a net asset value per share of -5.25. The closing price that day was $20.74 and the net asset value per share was $21.89.

I will probably by another 50 shares when and if the price falls below $20, provided the discount to net asset value per share exceeds 5%.

Nuveen Build America Bond Fund (NBB) declined 15 cents in trading yesterday to close at $20.59. Adjusted for the $.109 May dividend, NBB has risen 1.78% since 5/1/12, while the S & P 500 has declined 6.46% over the same period. This indicates to me that NBB can be negatively correlated with stocks during market declines.

As of 6/7/12, the net asset value per share was reported at $22.01, creating a discount to net asset value of -6.45% based on yesterday's closing price of $20.59.

2. Added 50 RVT at $12.37 Yesterday (see Disclaimer): This add brings me up to 373.421 shares of this closed end stock fund. On 6/4/12, RVT went ex dividend for its quarterly distribution of 16 cents per share. Royce Value Trust Declares Second Quarter Common Stock Distribution of $0.19 Per Share I am reinvesting the dividend and will receive shares purchased with that dividend on 6/25 based on the price as of 6/13.

My last add was back in August 2009. Added to RVT at $9.69

I was more aggressive in averaging down in Royce Micro-Cap Trust shares during 2010:

RVT will invest primarily in small cap stocks using a value approach.

Sponsor's webpage: Royce Value Trust (RVT)

Small cap stocks, always a favorite here at HQ, performed terribly during the Near Depression period. That period hurt RVT's five and ten year average total return. As noted earlier, the Royce CEFs did suspend their dividends during the 2019-2010 time period, and resumed paying a managed distribution in the 2011 first quarter. I would prefer having no dividend than one supported only by a return of capital.

Over the past 20 and 25 years, however, the average annualized return is over 10%.

The fund does use some leverage.

RVT Page at Morningstar
RVT Page at the CEFA

SEC Form N-Q listing holdings as of 3/31/12

SEC Filed Shareholder Report for the period ending 12/31/11

Steve Forbes interviews Royce at Video Network.

Royce Value Trust (RVT) closed at $12.29, below my purchase price, as the market rally yesterday faded into the close.

As of 6/7/12, the net asset value per share was reported at $14.03. Based on yesterday's closing price, the discount to net asset value was -12.4. 

No comments:

Post a Comment