Housekeeping: The blog URL started to work again last Thursday, most of the time. I discovered after publication of this post that it quit working again, which is now normal for Google.
I quit accessing this blog with the blog URL. Instead, I will just click the link to the most recent month, and then bookmark that link. Those links can be found under "blog archive", located on the right hand side. Stocks, Bonds & Politics: October 2014
Big Picture Synopsis
Stocks:
Stable Vix Pattern (Bullish)(A Trigger Event Is Necessary to End)
VIX: 21.24 +2.48 (+13.22%)
I quit accessing this blog with the blog URL. Instead, I will just click the link to the most recent month, and then bookmark that link. Those links can be found under "blog archive", located on the right hand side. Stocks, Bonds & Politics: October 2014
Big Picture Synopsis
Stocks:
Stable Vix Pattern (Bullish)(A Trigger Event Is Necessary to End)
VIX: 21.24 +2.48 (+13.22%)
Short Term: Market Needs to Correct 10% to 15%
Intermediate Term: Slightly Bullish (gains to date borrow from the future)
Long Term: Bullish
Last week, the stock market gave the OG motion sickness. I certainly do not like the feel of this market.
The mere hint that the FED might delay raising the federal funds rate sent the DJIA up 274.83 points (1.64%) last Wednesday after that average fell 272.52 points on Tuesday. The S & P 500 rose 1.75% after falling 1.51%. Minutes of the Federal Open Market Committee, September 16-17, 2014 Release Wednesday October 8, 2014
Then, last Thursday, the S & P 500 declined 2.07%, and the DJIA declined by 334.97 points.
Friday capped a bad week with the S & P 500 declining 1.15%. The DJIA is now in negative territory for the year, even though several of its components propped up the average some last Friday.
Closing Prices 10/11/14 for 5 DJIA Components:
DJIA: 16,544.10 -115.15 (-0.69%)
PG: $84.69 +1.03 (+1.23%) : Procter & Gamble
KO: $44.47 +0.60 (+1.37%) : Coca-Cola (hit a new 52 week high during the carnage)
UNH: $85.39 +0.45 (+0.53%) : UnitedHealth Group
WMT: $78.29 +0.43 (+0.55%) : Wal-Mart Stores
DIS: $86.27 +0.56 (+0.65%) : Walt Disney Company
The DJIA did pierce its 200 day SMA line on Friday. Dow Jones Industrial Average Index Chart
The market has recently been supported by a narrower group of advancing stocks.
As a result of the recent decline, the forward P/E for the S & P 500 has fallen to 15.85 based on "operating earnings" estimates. WSJ.com The historical average since the late 1970s is 13.7. Figure 1
Maybe the market has started a much overdue correction.
Since October 2011, the market has given several head fakes, generally referred to as a "dip" that stopped short of a correction (a 10% to 20% decline) A dip is defined as a 5% to 10% decline from a recent high.
Doug Short has a chart showing four dips in the S & P 500 since the last 2011 correction, which he measures at -9.94%, 7.67% and two at 5.76%.
The S & P 50 entered the dip territory yesterday. The recent high close was at 2,011.36. Historical Prices
A 5% dip from that level would be at 1910.79 (15% at 1710).
S & P 500 Close on Friday 10/10/14: 1,906.13 -22.08 (-1.15%)
Yahoo Finance show the 200 day SMA line at 1905.22 as of 10/10/14. S&P 500 Index Chart (currently below the 50 and 100 day SMA lines)
The S & P 500 also closed below its August 2014 closing low of 1909.57 (8/7/14), viewed by some as an important support level and that break at least raises the possibility of lower lows and lower highs pattern. I had selected one stock ETF to sell when and if that August low was breached to the downside. I sold those shares near the close last Friday and will discuss that trade next week.
The NYSE Composite has formed a double top, according to several technical analysts, and has pierced its 200 day line to the downside. NYSE COMPOSITE (DJ) Index Chart
The Russell 2000 has broken support levels. Russell 2000 Index Chart The Russell 2000 volatility index closed last Friday at 24.35 and has been accelerating: RVX: 24.35 +1.00 (+4.28%)
In my Big Picture Synopsis, I have been noting the need for a 10%+ correction for at least a year, and the market has so far refused to cooperate. I view those events as normal and necessary to let the air out before the ballon explodes. It was not until June 2014 that I decided to pare my stock allocation as the market continued to march skyward.
There are a number of talking heads who are predicting more than the usual correction Shawn Tully-Fortune Magazine
++++++
Professor Burton Malkiel, who is known by the Stock Jock crowd for his book A Random Walk Down Wall Street, is recommending that investors focus on emerging market stocks.
He views the U.S. market as pricey based on the Shiller P/E ratio. Barron's
Malkiel recommends low cost index funds, EEM and VWO, since he does not believe in active management based on his efficient market hypothesis which is viewed as snake oil and hokum here at HQ. Efficient Market Hypothesis as Hokum (March 2010 Post); Efficient Market Theory: Do Humans Really Behave Rationally-Seek out Relevant Information & Then Process Information With Good Judgment? (6/8/09 Post)
I own just a few shares of VWO and will be buying shares in small lots commission free in my Vanguard Roth IRA account. Those purchases will be funded with cash flow and/or profits from my bond transactions.
The Vanguard FTSE Emerging Markets ETF (VWO) has a .15% expense ratio and had 962 holdings as of 8/31/14.
I see no reason to own both EEM and VWO. Instead, I am gradually added to the following commission free ETFs in a taxable Fidelity account.
iShares MSCI Emerging Markets Minimum Volatility ETF | EEMV
I have found that the actively managed CEF China Fund (CHN) has better past annualized total return number than China index funds. Emerging markets and small cap stocks are two areas where a competent managers have a decent chance to outperform an index fund.
Another fund that I owned long term, Matthews Pacific Tiger Investor (MAPTX), has consistent past outperformance numbers compared to its benchmark. (YTD, 1 Yr, 3 Yrs, 5 Yrs, 10 Years, 15 years)
++++++++++
Given my views about stretched valuations in the market, and the need for a correction, I am not about to be brave with purchases now.
As previously documented, I reduced my stock allocation by over $72,000, starting with the trades discussed in my 6/14/14 Post through those discussed in the 9/29/14 Post. Stock Allocation and Fund Update I have not been investing my cash flow throughout 2014, generated in my taxable accounts, and have instead allowed those funds simply to increase my overall cash allocation.
The economic news coming out of Europe indicates a more probable than not recession with a best case scenario being anemic growth over the next year. Several emerging markets are slowing down, and it is far from clear whether or not that is just a temporary blip or something more problematic.
Consequently, I am mostly nibbling at a few selected stocks with decent dividend yields, chopping orders into small lots with the anticipation that another purchase could easily be made at a lower price. In most cases, the share price would already be down by more than 10% from its recent high (correction territory) or even more than 20% (bear market territory).
I am by nature an anti-momentum, value stock investor. One problem with that approach is that the share price may be more likely to go down before hopefully going up (recent examples= Ford, ESV, ERF discussed below), which explains the chopping of orders into small pieces.
I am now almost caught up discussing my trades since I have slowed my trading to a trickle as I move into a wait and see mode.
I may have less than five trades to discuss next week.
For me, it is important that my cash flow remain intact during market downturns. That cash flow can then be aggregated and later deployed into whatever security is viewed as presenting the best alternative for income generation and capital appreciation during the market correction process.
I am not optimistic that the market can avoid a correction which is needed in my opinion to bring valuations down from clearly stretched levels.
I see a lot of daylight under the current 200 day SMA line for the S & P 500.
If there are several warnings about future earnings during next week's earnings parade, issued by large and well known multinationals, then I would view a correction as far more likely to occur, just another 5% decline will hit that marker.A lot depends on next week's earnings reports. The market could find its sea legs with several important companies simply hitting estimates and providing no surprises about the 4th quarter.
Mostly, I expect to be on the sidelines next week.
If there is a powerful downside break in the SPX 200 day SMA line, I am likely to go into hibernation for the winter.
My cash allocation is now over 25% earning zilch and that is enough for now given my bond allocation and preferred stock allocation as well as my conservative stock positioning in blue chips and bond like common stocks (e.g. REITs).
Last week, the stock market gave the OG motion sickness. I certainly do not like the feel of this market.
The mere hint that the FED might delay raising the federal funds rate sent the DJIA up 274.83 points (1.64%) last Wednesday after that average fell 272.52 points on Tuesday. The S & P 500 rose 1.75% after falling 1.51%. Minutes of the Federal Open Market Committee, September 16-17, 2014 Release Wednesday October 8, 2014
Then, last Thursday, the S & P 500 declined 2.07%, and the DJIA declined by 334.97 points.
Friday capped a bad week with the S & P 500 declining 1.15%. The DJIA is now in negative territory for the year, even though several of its components propped up the average some last Friday.
Closing Prices 10/11/14 for 5 DJIA Components:
DJIA: 16,544.10 -115.15 (-0.69%)
PG: $84.69 +1.03 (+1.23%) : Procter & Gamble
KO: $44.47 +0.60 (+1.37%) : Coca-Cola (hit a new 52 week high during the carnage)
UNH: $85.39 +0.45 (+0.53%) : UnitedHealth Group
WMT: $78.29 +0.43 (+0.55%) : Wal-Mart Stores
DIS: $86.27 +0.56 (+0.65%) : Walt Disney Company
The DJIA did pierce its 200 day SMA line on Friday. Dow Jones Industrial Average Index Chart
The market has recently been supported by a narrower group of advancing stocks.
As a result of the recent decline, the forward P/E for the S & P 500 has fallen to 15.85 based on "operating earnings" estimates. WSJ.com The historical average since the late 1970s is 13.7. Figure 1
Maybe the market has started a much overdue correction.
Since October 2011, the market has given several head fakes, generally referred to as a "dip" that stopped short of a correction (a 10% to 20% decline) A dip is defined as a 5% to 10% decline from a recent high.
Doug Short has a chart showing four dips in the S & P 500 since the last 2011 correction, which he measures at -9.94%, 7.67% and two at 5.76%.
The S & P 50 entered the dip territory yesterday. The recent high close was at 2,011.36. Historical Prices
A 5% dip from that level would be at 1910.79 (15% at 1710).
S & P 500 Close on Friday 10/10/14: 1,906.13 -22.08 (-1.15%)
Yahoo Finance show the 200 day SMA line at 1905.22 as of 10/10/14. S&P 500 Index Chart (currently below the 50 and 100 day SMA lines)
The S & P 500 also closed below its August 2014 closing low of 1909.57 (8/7/14), viewed by some as an important support level and that break at least raises the possibility of lower lows and lower highs pattern. I had selected one stock ETF to sell when and if that August low was breached to the downside. I sold those shares near the close last Friday and will discuss that trade next week.
The NYSE Composite has formed a double top, according to several technical analysts, and has pierced its 200 day line to the downside. NYSE COMPOSITE (DJ) Index Chart
The Russell 2000 has broken support levels. Russell 2000 Index Chart The Russell 2000 volatility index closed last Friday at 24.35 and has been accelerating: RVX: 24.35 +1.00 (+4.28%)
In my Big Picture Synopsis, I have been noting the need for a 10%+ correction for at least a year, and the market has so far refused to cooperate. I view those events as normal and necessary to let the air out before the ballon explodes. It was not until June 2014 that I decided to pare my stock allocation as the market continued to march skyward.
There are a number of talking heads who are predicting more than the usual correction Shawn Tully-Fortune Magazine
++++++
Professor Burton Malkiel, who is known by the Stock Jock crowd for his book A Random Walk Down Wall Street, is recommending that investors focus on emerging market stocks.
He views the U.S. market as pricey based on the Shiller P/E ratio. Barron's
Malkiel recommends low cost index funds, EEM and VWO, since he does not believe in active management based on his efficient market hypothesis which is viewed as snake oil and hokum here at HQ. Efficient Market Hypothesis as Hokum (March 2010 Post); Efficient Market Theory: Do Humans Really Behave Rationally-Seek out Relevant Information & Then Process Information With Good Judgment? (6/8/09 Post)
I own just a few shares of VWO and will be buying shares in small lots commission free in my Vanguard Roth IRA account. Those purchases will be funded with cash flow and/or profits from my bond transactions.
The Vanguard FTSE Emerging Markets ETF (VWO) has a .15% expense ratio and had 962 holdings as of 8/31/14.
I see no reason to own both EEM and VWO. Instead, I am gradually added to the following commission free ETFs in a taxable Fidelity account.
iShares MSCI Emerging Markets Minimum Volatility ETF | EEMV
I have found that the actively managed CEF China Fund (CHN) has better past annualized total return number than China index funds. Emerging markets and small cap stocks are two areas where a competent managers have a decent chance to outperform an index fund.
Another fund that I owned long term, Matthews Pacific Tiger Investor (MAPTX), has consistent past outperformance numbers compared to its benchmark. (YTD, 1 Yr, 3 Yrs, 5 Yrs, 10 Years, 15 years)
++++++++++
Given my views about stretched valuations in the market, and the need for a correction, I am not about to be brave with purchases now.
As previously documented, I reduced my stock allocation by over $72,000, starting with the trades discussed in my 6/14/14 Post through those discussed in the 9/29/14 Post. Stock Allocation and Fund Update I have not been investing my cash flow throughout 2014, generated in my taxable accounts, and have instead allowed those funds simply to increase my overall cash allocation.
The economic news coming out of Europe indicates a more probable than not recession with a best case scenario being anemic growth over the next year. Several emerging markets are slowing down, and it is far from clear whether or not that is just a temporary blip or something more problematic.
Consequently, I am mostly nibbling at a few selected stocks with decent dividend yields, chopping orders into small lots with the anticipation that another purchase could easily be made at a lower price. In most cases, the share price would already be down by more than 10% from its recent high (correction territory) or even more than 20% (bear market territory).
I am by nature an anti-momentum, value stock investor. One problem with that approach is that the share price may be more likely to go down before hopefully going up (recent examples= Ford, ESV, ERF discussed below), which explains the chopping of orders into small pieces.
I am now almost caught up discussing my trades since I have slowed my trading to a trickle as I move into a wait and see mode.
I may have less than five trades to discuss next week.
For me, it is important that my cash flow remain intact during market downturns. That cash flow can then be aggregated and later deployed into whatever security is viewed as presenting the best alternative for income generation and capital appreciation during the market correction process.
I am not optimistic that the market can avoid a correction which is needed in my opinion to bring valuations down from clearly stretched levels.
I see a lot of daylight under the current 200 day SMA line for the S & P 500.
If there are several warnings about future earnings during next week's earnings parade, issued by large and well known multinationals, then I would view a correction as far more likely to occur, just another 5% decline will hit that marker.A lot depends on next week's earnings reports. The market could find its sea legs with several important companies simply hitting estimates and providing no surprises about the 4th quarter.
Mostly, I expect to be on the sidelines next week.
If there is a powerful downside break in the SPX 200 day SMA line, I am likely to go into hibernation for the winter.
My cash allocation is now over 25% earning zilch and that is enough for now given my bond allocation and preferred stock allocation as well as my conservative stock positioning in blue chips and bond like common stocks (e.g. REITs).
Bonds:
Short to Long Term: Slight Bearish Based on Interest Rate Normalization
The Difficult Path to Interest Rate Normalization
The Difficult Path to Interest Rate Normalization
That forecast is known as the break-even spread, the average annual rate of inflation for the owner of the 10 year TIP to break even with the owner of the non-inflation protected treasury.
The break-even spread is calculated by subtracting the yield of the TIP
Daily Treasury Real Yield Curve Rates
From the Yield of the Non-inflation protected treasury
Daily Treasury Yield Curve Rates
The break-even spread is calculated by subtracting the yield of the TIP
Daily Treasury Real Yield Curve Rates
From the Yield of the Non-inflation protected treasury
Daily Treasury Yield Curve Rates
The 10 year TIP break-even spread closed today at 1.97% and has been trending down.
Bond CEFs have had a rough few weeks after a performing generally well during the first half.
In last week's "Up and Down Wall Street" column, Randall Forsyth noted that a money manager was buying these funds for his clients, based on their current yields and discounts to net asset value. Barron's One of the funds mentioned was Brookfield Mortgage Opportunity (BOI).
I bought a 50 share BOI lot earlier this year. Item # 4 Bought Roth IRA: 50 BOI at $16.72 (4/5/14) I noted in that post the heavy weighting in CCC rated securities which explains my trepidation.
CEFConnect Page for BOI
Sponsor's Webpage: Brookfield Mortgage Opportunity Income Fund Inc. Overview (current monthly distribution $.1271 per share)
A recent article in Forbes highlighted three bond CEFs including BTZ which I own. BTZ was ex dividend for its monthly distribution yesterday. That fund is weighted in investment grade bonds but has a significant exposure to junk bonds.
CEFConnect for BTZ
While treasuries gained in price yesterday, junk bonds broke out of their recent channel trading range, which I would define as mostly between $40 to $41.5 for the junk bond ETF JNK. High Yield Bond ETF Chart
Last Friday's Close: JNK: $39.49 -0.36 (-0.90%)
That needs to be contrasted with TLT:
TLT: $120.05 +1.18 (+0.99%) : iShares 20 Year Treasury Bond ETF
The German Ten Year Bond closed last Friday at a .89% yield. DE10YT Bond
Bond prices are reflecting a lack of conviction about world growth.
Sponsor's Webpage: Brookfield Mortgage Opportunity Income Fund Inc. Overview (current monthly distribution $.1271 per share)
A recent article in Forbes highlighted three bond CEFs including BTZ which I own. BTZ was ex dividend for its monthly distribution yesterday. That fund is weighted in investment grade bonds but has a significant exposure to junk bonds.
CEFConnect for BTZ
While treasuries gained in price yesterday, junk bonds broke out of their recent channel trading range, which I would define as mostly between $40 to $41.5 for the junk bond ETF JNK. High Yield Bond ETF Chart
Last Friday's Close: JNK: $39.49 -0.36 (-0.90%)
That needs to be contrasted with TLT:
TLT: $120.05 +1.18 (+0.99%) : iShares 20 Year Treasury Bond ETF
The German Ten Year Bond closed last Friday at a .89% yield. DE10YT Bond
Bond prices are reflecting a lack of conviction about world growth.
***********************
Recent Developments:
The German Problem:
German industrial output sank 4% in August compared to July, the largest decline in five years. The consensus estimate was for a 1.5% decline. That report triggered a large decline last Tuesday.
Later in the week, Germany reported that its exports fell 5.8% in August, the largest decline since January 2009. The German government loathes both monetary and fiscal stimulus. In my opinion, the German government is largely responsible for the high unemployment (11.5%) and the anemic growth rates throughout Europe since the Near Depression.
In my opinion, the German government's opposition to fiscal and monetary stimulus has caused in significant part Europe's current woes, including the stubbornly high 11.5% unemployment rate (23.3% for the young), the current recessionary conditions, and the threat of deflation. Given those economic conditions, the German government's emphasis on a balanced budget, the holy grail of "schwarze null", and its imposition of German austerity on other EU nations, has gone way beyond being just idiotic under the circumstances.
++++++++
Recent DSR Data and Unemployment Claims
The FED released the 2014 second quarter DSR ratio. Household Debt Service and Financial Obligations Ratios As an investor, I want to see household debt service payments decline as a percentage of disposable income. The DSR ratio continues to move down, and is now near an all time low, indicating that households have more disposable income after debt service payments to spend and/or save or to use to pay down higher cost debt. The DSR ratio was reported at 9.91 for the 2014 second quarter, lower than the numbers prevailing in the early 1980s before the consumer Age of Leverage began in earnest around 1985.
Household Debt Service Payments as a Percent of Disposable Personal Income
The DSR ratio is dividend into two parts: Mortgage and Consumer. The Mortgage component has fallen to 4.71 from 7.19 in the 2007 4th quarter.
Mortgage Debt Service Payments as a Percent of Disposable Personal Income
For the week ending 10/4/14, the government reported that the 4 week moving average for unemployment claims fell to 287,750, the "lowest level for this average since February 4, 2006". doleta.gov
++++
Ebola
While the ebola spread has not yet come anywhere close to a Black Swan type of event, the likelihood increases as more evidence emerges about what can only be charitably described as incompetence in containing its spread.
The World Bank chief said last week that the global response has "failed miserably" in containing the epidemic's spread. The Guardian That is probably an understatement and far too charitable.
One example is how Spain has dealt with the nurse's aide who contracted ebola from a missionary flown back from West Africa who was near death when that decision was made by Spain's government. "Woman in ER 8 hours after positive Ebola test" - CNN.com; BBC News
The nurse who initially interviewed Thomas Duncan knew that he was displaying Ebola like symptoms (vomiting, fever and abdominal pains) and had recently returned from Liberia. Nonetheless, Duncan was released by the Texas Health Presbyterian Hospital with some antibiotics so that he could possibly spread the virus to others including children. That was just one of the many mistakes made in Dallas (e.g. the ambulance used to transport Duncan was in use for another 48 hours, Fox News) There is no margin for the usual hospital errors when dealing with ebola.
Fortunately for humanity's sake, those hospitals in Texas and Spain did not have to deal with two ebola cases.
The World Health Organization can adopt protocols about the proper way to contain the spread, but the WHO does not have a pill that will insure compliance with those guidelines. One of those protocols needs to be watch out for Dumb and Dumber.
In Sierra Leone, a cargo ship containing protective gear had not been unloaded since August 9, NYT as politicians bickered about who would receive credit for securing that gear donated by the West.
African citizens have attacked healthcare workers, believing that individuals risking their lives to help ebola victims were instead spreading the disease. CBS News; LA Times; 8 on Guinea Ebola team killed - CNN.com
I am curious why the U.S. is allowing non-U.S. citizens to enter the country from those three ebola infected areas, knowing that there is a long incubation period before symptoms are shown.
In a less "politically correct" time, potentially infected people were kept in isolation at two artificially constructed islands in the lower N.Y. bay area before being allowed to circulate disease in the country. Ellis Island then had one of the largest public health hospital in the U.S.
******************
Vanguard Health Care Fund (VGHCX):
The Vanguard Health Fund has been the best performing mutual fund that I own so far in 2014. The fund's YTD total return is more than twice the total return of the S & P 500.
The fund has been fortunate this year to have significant positions in companies that received takeover offers at significant premiums to the market price.
This fund had a huge position in Forest Labs (FRX) when it agreed to be acquired by Actavis as I noted in a 2/25/14 Post. FRX rose 27.52% on the day of that announcement and the merger has now been completed. The last reported VGHCX position in FRX before that announcement was in its Annual Report for the period ending 1/31/14. The number was then 26,666,866. Page 15 PDF
The fund also had a 4,994,700 share position in Covidien, as of 7/31/14, that is in the process of being acquired by Medtronic. Medtronic Inc. - Press Release 6/15/14.
Last week, CareFusion agreed to be acquired by Becton Dickinson. BD To Acquire CareFusion For $12.2 Billion
As of 7/31/14, VGHCX owned 5,661,354 shares of CareFusion and 2,393,100 shares of Becton, Dickinson and Company (BDX). Page 13 Semi-Annual Report I do not know whether those positions were even owned on 10/6/14 or in what amounts. As of 1/31/14, the CareFusion position was lower at 4,970,354 while the BDX position was higher at 2,571,700. Neither position would be in the top 10. This fund also has a significant exposure to international companies including large positions in AZN, NVS, Sanofi, and Roche. (21.3% as of 8/31/14).
Closing Prices On Day of Announcement
CFN: 56.75 +10.58 (+22.92%)
BDX: $124.98 +9.14 (+7.89%)
*******************
General Mills (own)
While the last GIS earnings report is old news now, it did prompt a number of shareholders to abandon ship, including one SA author who sold his shares to buy PG. Seeking Alpha
There would be no argument from me that GIS laid an egg in its last quarterly report. SEC Filed Earnings Press Release (adjusted E.P.S. of 61 cents per share vs. $.7 in the year ago quarter; Earnings Call Transcript | Seeking Alpha; Form 10-Q)
I left several comments to that article explaining why I am keeping my position for now.
I do not talk much about GIS. It is a solid, slow growing company with the possibly the best dividend record among U.S. companies. The company has paid dividends without reduction for 115 years. The company is facing headwinds due to lower demand for its cereal products.
After adjusting for stock splits, the stock price has risen from around $3 in 1983 to over $50 recently. During that period, there have been four 2 for 1 stock splits. GIS Interactive Chart
Closing Price Last Friday: GIS: $49.81 -0.08 (-0.16%)
**************************
Pepsico:
I own both PEP and KO. My position in KO is much larger and has remained relatively stable since I reinitiated a position in March 2009 and then added some shares in 2010.
For PEP, I have had difficulty holding onto the shares. I dumped my shares when I saw the VIX start to explode upward shortly after Lehman's failure. Volatility, Catastrophic Event Formation, Asset Allocation Decision for Pepsi September 2008 I then bought the shares back at less than $50 during May 2009. Pepsico Buy (5/6/09 Post) I managed to hold those shares for two months, selling for a $339.62 profit, snapshot at Item # 5. The shares were sold at $56.63 per share, adjusted for the brokerage commission as shown in that snapshot.
Once the LB gets into a trading rhythm for a particular stock, "thoroughly imbued with the short term vision thing", it is hard to stop. I thereafter bought and sold PEP shares in small lots periodically. {e.g.:Item # 6 Sold 50 PEP at $66.48-ROTH IRA (May 2012)(profit $175.42)-Item # 2 Bought 50 PEP at $62.69-ROTH IRA (February 2012)} The rationale given for that disposition was a poor earnings report.
I even flipped a 30 share lot bought in 2012 for a $182.95 profit after holding the stock for less than 4 months.
This is a teaching lesson by the way. Tunnel vision and myopic thinking are not the best options for a company that has consistently grown its earnings and dividends over a very long period of time. I really could only justify the disposition at over $70 shortly after Lehman's failure, knowing that I would most likely be able to buy the shares back at a much lower price, which did happen with the May 2009 purchase at less than $50.
As I have noted in the past, the "Lay" part of Frito-Lay started in Nashville PEP & Origins of Frito- Lay I told a story in that post about the husband and wife owners of a gas station who invested $8,000 in Herman Lay's company and that couple did not attempt to trade their shares. They gave $25 million to Belmont University in Nashville: New Statue Honors Johnson Family, Belmont Benefactors The LB will simply not listen to those kind of stories told by the RB.
I currently own just 50 shares bought during a February 2014 price dip. Item # 5 Bought 50 PEP at $78.25 (2/25/14 Post)
In a round about way, this brings me to PEP's third quarter earnings report that beat the consensus estimates. PepsiCo reported adjusted E.P.S. of $1.36 per share versus the consensus estimate of $1.29. The company also raised full year growth guidance to 9% from 8% before currency conversions. Organic revenue growth was reported at 3.1%. Frito-Lay had 3% organic growth (2% from organic volume increases and 1% from pricing). Core constant currency E.P.S. grew 11%. South America food sales gained 6%. Revenues in Asia, the Middle East and Africa climbed 11%. Weakness continued in North America carbonated beverage sales however, with sales declining 1.5% and were partially offset by a slight increase in non-carbonated beverages.
Closing Price Last Friday: PEP: $94.65 +1.08 (+1.15%)
************************
MetroPCS and Travelport Bond Redemptions:
Recent Developments:
The German Problem:
German industrial output sank 4% in August compared to July, the largest decline in five years. The consensus estimate was for a 1.5% decline. That report triggered a large decline last Tuesday.
Later in the week, Germany reported that its exports fell 5.8% in August, the largest decline since January 2009. The German government loathes both monetary and fiscal stimulus. In my opinion, the German government is largely responsible for the high unemployment (11.5%) and the anemic growth rates throughout Europe since the Near Depression.
In my opinion, the German government's opposition to fiscal and monetary stimulus has caused in significant part Europe's current woes, including the stubbornly high 11.5% unemployment rate (23.3% for the young), the current recessionary conditions, and the threat of deflation. Given those economic conditions, the German government's emphasis on a balanced budget, the holy grail of "schwarze null", and its imposition of German austerity on other EU nations, has gone way beyond being just idiotic under the circumstances.
++++++++
Recent DSR Data and Unemployment Claims
The FED released the 2014 second quarter DSR ratio. Household Debt Service and Financial Obligations Ratios As an investor, I want to see household debt service payments decline as a percentage of disposable income. The DSR ratio continues to move down, and is now near an all time low, indicating that households have more disposable income after debt service payments to spend and/or save or to use to pay down higher cost debt. The DSR ratio was reported at 9.91 for the 2014 second quarter, lower than the numbers prevailing in the early 1980s before the consumer Age of Leverage began in earnest around 1985.
 |
| DSR Ratio Through 2014 2nd Quarter |
The DSR ratio is dividend into two parts: Mortgage and Consumer. The Mortgage component has fallen to 4.71 from 7.19 in the 2007 4th quarter.
Mortgage Debt Service Payments as a Percent of Disposable Personal Income
For the week ending 10/4/14, the government reported that the 4 week moving average for unemployment claims fell to 287,750, the "lowest level for this average since February 4, 2006". doleta.gov
++++
Ebola
While the ebola spread has not yet come anywhere close to a Black Swan type of event, the likelihood increases as more evidence emerges about what can only be charitably described as incompetence in containing its spread.
The World Bank chief said last week that the global response has "failed miserably" in containing the epidemic's spread. The Guardian That is probably an understatement and far too charitable.
One example is how Spain has dealt with the nurse's aide who contracted ebola from a missionary flown back from West Africa who was near death when that decision was made by Spain's government. "Woman in ER 8 hours after positive Ebola test" - CNN.com; BBC News
The nurse who initially interviewed Thomas Duncan knew that he was displaying Ebola like symptoms (vomiting, fever and abdominal pains) and had recently returned from Liberia. Nonetheless, Duncan was released by the Texas Health Presbyterian Hospital with some antibiotics so that he could possibly spread the virus to others including children. That was just one of the many mistakes made in Dallas (e.g. the ambulance used to transport Duncan was in use for another 48 hours, Fox News) There is no margin for the usual hospital errors when dealing with ebola.
Fortunately for humanity's sake, those hospitals in Texas and Spain did not have to deal with two ebola cases.
The World Health Organization can adopt protocols about the proper way to contain the spread, but the WHO does not have a pill that will insure compliance with those guidelines. One of those protocols needs to be watch out for Dumb and Dumber.
In Sierra Leone, a cargo ship containing protective gear had not been unloaded since August 9, NYT as politicians bickered about who would receive credit for securing that gear donated by the West.
African citizens have attacked healthcare workers, believing that individuals risking their lives to help ebola victims were instead spreading the disease. CBS News; LA Times; 8 on Guinea Ebola team killed - CNN.com
I am curious why the U.S. is allowing non-U.S. citizens to enter the country from those three ebola infected areas, knowing that there is a long incubation period before symptoms are shown.
In a less "politically correct" time, potentially infected people were kept in isolation at two artificially constructed islands in the lower N.Y. bay area before being allowed to circulate disease in the country. Ellis Island then had one of the largest public health hospital in the U.S.
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Vanguard Health Care Fund (VGHCX):
The Vanguard Health Fund has been the best performing mutual fund that I own so far in 2014. The fund's YTD total return is more than twice the total return of the S & P 500.
The fund has been fortunate this year to have significant positions in companies that received takeover offers at significant premiums to the market price.
This fund had a huge position in Forest Labs (FRX) when it agreed to be acquired by Actavis as I noted in a 2/25/14 Post. FRX rose 27.52% on the day of that announcement and the merger has now been completed. The last reported VGHCX position in FRX before that announcement was in its Annual Report for the period ending 1/31/14. The number was then 26,666,866. Page 15 PDF
The fund also had a 4,994,700 share position in Covidien, as of 7/31/14, that is in the process of being acquired by Medtronic. Medtronic Inc. - Press Release 6/15/14.
Last week, CareFusion agreed to be acquired by Becton Dickinson. BD To Acquire CareFusion For $12.2 Billion
As of 7/31/14, VGHCX owned 5,661,354 shares of CareFusion and 2,393,100 shares of Becton, Dickinson and Company (BDX). Page 13 Semi-Annual Report I do not know whether those positions were even owned on 10/6/14 or in what amounts. As of 1/31/14, the CareFusion position was lower at 4,970,354 while the BDX position was higher at 2,571,700. Neither position would be in the top 10. This fund also has a significant exposure to international companies including large positions in AZN, NVS, Sanofi, and Roche. (21.3% as of 8/31/14).
Closing Prices On Day of Announcement
CFN: 56.75 +10.58 (+22.92%)
BDX: $124.98 +9.14 (+7.89%)
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General Mills (own)
While the last GIS earnings report is old news now, it did prompt a number of shareholders to abandon ship, including one SA author who sold his shares to buy PG. Seeking Alpha
There would be no argument from me that GIS laid an egg in its last quarterly report. SEC Filed Earnings Press Release (adjusted E.P.S. of 61 cents per share vs. $.7 in the year ago quarter; Earnings Call Transcript | Seeking Alpha; Form 10-Q)
I left several comments to that article explaining why I am keeping my position for now.
 |
| 264.346 Shares of GIS |
After adjusting for stock splits, the stock price has risen from around $3 in 1983 to over $50 recently. During that period, there have been four 2 for 1 stock splits. GIS Interactive Chart
Closing Price Last Friday: GIS: $49.81 -0.08 (-0.16%)
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Pepsico:
I own both PEP and KO. My position in KO is much larger and has remained relatively stable since I reinitiated a position in March 2009 and then added some shares in 2010.
For PEP, I have had difficulty holding onto the shares. I dumped my shares when I saw the VIX start to explode upward shortly after Lehman's failure. Volatility, Catastrophic Event Formation, Asset Allocation Decision for Pepsi September 2008 I then bought the shares back at less than $50 during May 2009. Pepsico Buy (5/6/09 Post) I managed to hold those shares for two months, selling for a $339.62 profit, snapshot at Item # 5. The shares were sold at $56.63 per share, adjusted for the brokerage commission as shown in that snapshot.
Once the LB gets into a trading rhythm for a particular stock, "thoroughly imbued with the short term vision thing", it is hard to stop. I thereafter bought and sold PEP shares in small lots periodically. {e.g.:Item # 6 Sold 50 PEP at $66.48-ROTH IRA (May 2012)(profit $175.42)-Item # 2 Bought 50 PEP at $62.69-ROTH IRA (February 2012)} The rationale given for that disposition was a poor earnings report.
I even flipped a 30 share lot bought in 2012 for a $182.95 profit after holding the stock for less than 4 months.
This is a teaching lesson by the way. Tunnel vision and myopic thinking are not the best options for a company that has consistently grown its earnings and dividends over a very long period of time. I really could only justify the disposition at over $70 shortly after Lehman's failure, knowing that I would most likely be able to buy the shares back at a much lower price, which did happen with the May 2009 purchase at less than $50.
As I have noted in the past, the "Lay" part of Frito-Lay started in Nashville PEP & Origins of Frito- Lay I told a story in that post about the husband and wife owners of a gas station who invested $8,000 in Herman Lay's company and that couple did not attempt to trade their shares. They gave $25 million to Belmont University in Nashville: New Statue Honors Johnson Family, Belmont Benefactors The LB will simply not listen to those kind of stories told by the RB.
I currently own just 50 shares bought during a February 2014 price dip. Item # 5 Bought 50 PEP at $78.25 (2/25/14 Post)
In a round about way, this brings me to PEP's third quarter earnings report that beat the consensus estimates. PepsiCo reported adjusted E.P.S. of $1.36 per share versus the consensus estimate of $1.29. The company also raised full year growth guidance to 9% from 8% before currency conversions. Organic revenue growth was reported at 3.1%. Frito-Lay had 3% organic growth (2% from organic volume increases and 1% from pricing). Core constant currency E.P.S. grew 11%. South America food sales gained 6%. Revenues in Asia, the Middle East and Africa climbed 11%. Weakness continued in North America carbonated beverage sales however, with sales declining 1.5% and were partially offset by a slight increase in non-carbonated beverages.
Closing Price Last Friday: PEP: $94.65 +1.08 (+1.15%)
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MetroPCS and Travelport Bond Redemptions:
I received last week the redemption proceeds resulting from an early optional call of 1 MetroPCS Wireless 7.85% senior unsecured bond maturing in 2018. A small premium had to be paid for this optional redemption:
Bought 1 MetroPCS 7.875% Senior Bond Maturing 9/1/2018 at 98 (8/26/11 Post)
I also lost my last Travelport bond to the issuer's optional redemption:
Bought 1 Travelport 11.875% Senior Sub Maturing 9/1/2016 at 92 (4/29/11 Post)
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1. Bought 50 ERF at $17.6 Roth IRA (See Disclaimer): The chart for this stock clearly indicates a falling knife, and the price continued to decline significantly after my purchase.
Snapshot of Trade:
 |
| 2014 Roth IRA Bought 50 ERF at $17.6 |
NYSE Listed Shares Priced in USDs: ERF: $17.55 -0.45 (-2.50%)
Toronto Listed Shares Price in CADs: ERF.TO: C$19.75 -0.35 (-1.74%)
The difference in the two percentage decline has to do with the CAD declining in value on 10/3/14.
Snapshot of Currency Exchange as of 10/3/14:
Currency Converter
Assume conversion at the CAD's 5 Year Peak Value: 7/18/11
So taking the 7/18/11 CAD value and the C$19.75 price for the ordinary shares, the USD price for ERF would be $20.7 rather than $17.54.
Company Description: Enerplus Corp (ERF:NYSE) is a Canadian energy company. I bought the USD priced shares traded on the NYSE. The price of those shares will reflect the price of the ordinary shares traded in Toronto converted from CADs into USDs. Since the CAD has been falling in value recently, that price decline, which flows through in the USD price, has resulted in the NYSE shares underperforming their counterpart priced in CADs. If the CAD strengthens after my purchase, that would be a place for the ERF share price as well as the value of the dividends paid in CADs and converted into USDs before being deposited in my account.
This snapshot shows the CAD priced shares starting to turn up in price, resulting in about a 20% gain over the past year while the USD priced shares are up about 1/2 as much. That difference is due to the weakness in the CAD:
Key Statistics Date of Trade: 10/3/14
ERF Key Statistics
P/B: 2.12
Dividend Yield: About 5.1%-fluctuates with currency conversion and before 15% Canadian withholding tax
The current dividend is paid monthly at C$.09 or C$1.08 annually. Enerplus Corporation-Dividends
I took a snapshot of what C$1.08 would be worth at the 10/3/14 exchange rate, just to form an idea about the dividend yield in USDs:
The actual value will depend on the rate at the time of exchange. If the CAD gains strength from the conversion rate shown in that snapshot when the dividend is converted from CADs to USDs, then the yield would go up and vice versa.
ERF Stock Chart
Enerplus Profile Page at Reuters
Enerplus Key Developments Page at Reuters
ERF Key Statistics Page at Yahoo Finance
Based Earnings Through 6/30/14 and an $18.6 price
Forward P/E: 12.74
Estimated 5 Year P.E.G.= .35
P/B: 2.25
P/S: 2.89
Shortly after my purchase, RBC Capital Markets upgraded ERF to outperform with a $28 price target. That certainly looks more than a tad optimistic now with ERF shares being battered by both the decline in the CAD and the precipitous drop in oil and energy stocks.
Prior Trades: I sold out of my position in the ordinary shares earlier this year. Item # 5 Sold: 200 CA:ERF at C$22.14 (4/18/14)(snapshot of USD Profit=$389.87).
In one respect, I sold those shares too early, as the CAD price continued to rise eventually topping out near $27 last July. ERF.TO Interactive Chart I thought that the shares were overpriced some at C$22.14, and the price was almost 2CADs below that price when I decided to nibble in a Roth IRA.
I have owned this security in a Roth IRA prior to this last purchase. There was no dividend tax withheld by Canada for dividends paid into that account. Canada will withhold a tax from "distribution" made by Canadian REITs and royalty trusts paid into a U.S. citizen's retirement account.
Recent Earnings Report: ERF reported net income of $.19 for the 2014 second quarter.
Production increased 15% to 103,987 BOE/day, compared to a year ago. The company is on track to deliver approximately "5% crude oil and liquids" growth.
Oil and gas revenues increased 25% to $504.5M and to $414.9M net of royalties.
Funds flow for the quarter was $213.2 or $1.04 per share.
The trailing 12 month debt to funds flow ratio was 1.3x.
SEC Filed News Release
Management Discussion (all amounts in Canadian Dollars)
Rationale: While oil prices and the CAD may continue trending down, I view the current USD price for Enerplus to be within a fair value range as a going concern, recognizing that both the value of the CAD and energy prices will fluctuate up and down significantly over time.
I only know for sure that the recent weakness in both the CAD and energy prices has caused a spike down in the NYSE listed ERF shares. I would not attribute the recent weakness in ERF shares to company news. I thought the last earnings report was overall favorable.
For a U.S investor, the time to start buying foreign assets is when the ordinary shares have been shellacked for reasons that may easily prove to be temporary, and our USDs have risen in value against the local currency, thereby making good use of a strong currency against a weaker one when both are known to have their ups and downs.
Risks: The earnings of energy companies are subject to frequently unpredictable swings in commodity prices.
I noted last week that oil prices were in a bear market with a significant price since mid-June.
The ETF for the S & P 500 energy companies is near its February 2014 low, a time when the S & P 500 was near 1750. SPDR Energy ETF Chart
The First Trust ISE-Revere Natural ETF and the SPDR S&P Oil & Gas Exploration & Production ETF have already pierced the February 2014 lows to the downside by a significant percentage.
Energy stocks are leading the way down.
The currency issue is front and center with the decline in the CAD. USD/CAD Currency Conversion Chart
I do know based on my prior ownership of ERF that Canadian does not withhold a tax for dividends paid by ERF into an IRA. Canada will withhold a tax for "distributions", which are not considered dividends under the tax treaty between our two nations. So, I have confirmed that a Canadian REIT distribution paid into a U.S. citizen's IRA will have a withholding tax applied to it and consequently would not be owned by me in a retirement account since that tax would be unrecoverable.
Future Buys and Sells: Given the falling knife, I am not likely to buy more shares in an IRA and will reinvest the dividend. I may buy shares back in my main taxable account, using my CADs to buy in Toronto on a further spike down in the ordinary share price. I will need to see some stabilization in oil/natural gas prices before committing more funds.
Closing Price Last Friday: ERF: $15.53 -0.16 (-1.02%)
2. Bought 100 DOC at $13.75 (see disclaimer): I mentioned this REIT when discussing a recent 50 share purchase of MPW. Item # 4 Bought Roth IRA: 50 MPW at $12.33 (10/4/14 Post)
Snapshot of Trade:
Company Description: Physicians Realty Trust (DOC) is an internally managed REIT that owns healthcare properties. It is a new REIT that was organized in 2013 and completed its IPO on 7/24/13.
Company Website
At the time of my trade, DOC's share price had fallen below its 50 and 100 day SMA lines, but was still hovering over its 200 day SMA line. DOC Interactive Chart
Brad Thomas has a favorable view of this REIT: Seeking Alpha
Physicians Realty recently declared its regularly quarterly dividend of $.225 per share. Marketwatch shows the ex dividend data as 10/15/14.
Physicians Realty closed on 10/1/14 the acquisitions of seven different properties for approximately $114M.
Physicians Realty sold last month 10.925M shares at $14.
The initial public offering consisted of 10.434+M shares and was priced at $11.5 (7/2013).
Another 8.3M shares were sold in December 2013 at $11.5 per share.
An earlier 11M share offering this year was priced at $12.5. Prospectus
All of the foregoing share amounts exclude the over-allotment option granted to the underwriters. The May 2014 offering included an option for an additional 1.65M shares (15% of the initial total underwriter commitment).
It is also important to keep in mind that the REIT will receive less per share than the price paid by the public. For the May 2014 offering, the estimated proceeds to DOC was $11.9062 after the underwriting discount and before other expenses paid by DOC in connection with the offering (e.g. legal expenses).
A prospectus will generally be assigned the SEC number 424B4.
DOC Filings at the SEC
In the top left hand box, "Filing Type", I can limit the search to the 424B4 filings which pulls up Prospectus filings.
DOC 424B4 SEC Filings
I now see the prior two Prospectuses for post IPO share offerings:
Prospectus-July 2013
Prospectus December 2013
Most of the time, the underwriters will exercise the full over-allotment option. I generally do not check to see what happened there. It is possible to find out but a lot of hunting needs to be done which is just not worth the time.
Some firms will issue a press release announcing that exercise. The easiest way to find a press release is at the firm's website under "investor relations" and then look for Press Releases. Press Releases
I can see from a 5/27/14 press release that the full over-allotment option of 1.65M shares was exercised by the underwriters. Physicians Realty Trust Announces Closing of Public Offering of Common Shares
The information can generally be found in a 10-Q, but the location will vary: DOC 10-Q at pages 7-8
Prior Trades: None
Last Earnings Report: For the 2014 second quarter, Physicians Realty reported a normalized funds available for distribution (FAD) at $.16 per share. Please note that the quarterly dividend was $.225 per share for the quarter. I am giving this new REIT some leeway temporarily in the payout ratio due to its ramp up period as a new REIT. But, until I see better FAD numbers, I am not going to buy more shares.
During the 2014 second quarter, DOC acquired nine medical office buildings in nine states, containing 279,056 leasable space for approximately $73.6M. 10-Q at page 23
As of 6/30/14 for all information in this paragraph, DOC owned 49 properties in 17 states, with approximately 1,731,069 net leasable space that was approximately 94.24% leased. The weighted average lease term was then 9.7 years. Approximately 87.4% of the annualized base rent payments were made pursuant to triple net leases. The triple net lease requires the tenant to pay all operating expenses related to the property (e.g. real estate taxes, insurance, routine maintenance utilities). Those leases "typically" have annual rent escalators of "approximately 2%". Page 23 10-Q for Q/E 6/30/14
Rationale and Risks: The payout is currently exceeding funds available for distribution. That is a negative, but I am giving this REIT some leeway on that issue since it is in the build phase.
The main reason for investing in this REIT is to generate income. The funds used to pay for this purchase are earning zilch due to the FED's ZIRP monetary policy. I am now sitting on an abundance of cash in my brokerage accounts earning zilch.
At the current quarterly rate, the dividend yield is about 6.55% at a total cost of $13.75 per share.
The company discusses risks incident to its operations starting at page 31 of its last filed SEC Annual Report. 10-k
Future Buys and Sells: I am not likely to buy more shares until I see consistently much better FAD numbers. I will consider selling this small position when and if I hit a 10% annualized total return.
Closing Price Last Friday: DOC: $13.79 -0.19 (-1.36%)(traded as high as $14.24 before the bottom fell out during late afternoon trading)
3. Added 50 IRC at $9.93-Satellite Taxable Account (see Disclaimer): This trade is an average down from a previous purchase. I now own 200 IRC shares in this satellite taxable account.
I am reinvesting the monthly dividend.
Snapshot of Trade:
Company Description: The Inland Real Estate Corp. (IRC) is a self-advised and managed small REIT that owns retail centers, primarily in the Chicago and Minneapolis MSAs. IRC owned interests in 135 properties with 15M square feet of leasable space as of 6/30/14. The company is expanding into the Southeast. Corporate Profile
Pictures of Recent Acquisitions
Company Website: Inland Real Estate
Inland Real Estate Profile Page at Reuters
Inland Real Estate Key Developments Page at Reuters
IRC recently declared its regular monthly dividend of $.0475 per share which went ex dividend on 9/26/14. Inland Real Estate Corporation Pays September and Declares October Cash Distribution to Common Stockholders
I view this REIT's dividend history extremely negatively for two reasons. First, there was a monthly dividend slash from $.08167 to $.0475, effective for the May 2009 payment. Second, the dividend has not been raised since that slash. Inland Real Estate Corporation (IRC) Dividend History or Inland Real Estate Corporation-Dividends
Tax Allocation of 2013 Cash Distributions
The long term chart shows a rise from $9.5 (May 2004) to $20.83 (February 2007), followed by a downward sloping plunge to $6+ in March 2009. IRC Interactive Chart Hardly reassuring. No stocks splits are shown on this YF interactive chart.
The last investor presentation was made in September 2014: Investor_Presentation.pdf (map showing concentration in Chicago and Minneapolis at page 8)
SEC Filings for IRC
Inland Real Estate sold 4M shares of a 6.95% series B cumulative preferred stock last week. The offering price to the public was $25, raising an estimated $96.45M net of the underwriting discount and before IRC's expenses related to the offering. Trading will normally start on the stock exchange within thirty days (symbol at Fidelity with be IRCPRB)
Inland Real Estate announced on 10/6/14 that it had completed the acquisition of Prairie Crossings cash consideration of $24.7M. That retail development is in "an affluent southwest suburb of Chicago" and consists of approximately 109,000 square feet of leasable space. The anchor tenants are Office Depot, Bed Bath & Beyond, Kohl's and Sports Authority. Other tenants include Panera Bread, Game Stop and Chipotle. The press release has a picture.
Inland Real Estate also announced in October a joint venture to develop a 158,000 square foot retail power center in Elizabeth City, N.C. that is approximately 70% pre-leased to several retail firms including TJ Maxx, Dollar Tree and Hobby Lobby.
Prior Trade: Item # 6 Bought: 150 IRC at $10.35 (3/3/14 Post)
Last Earnings Report: For the 2014 second quarter, IRC reported a 9.5% increase, compared to the 2013 second quarter, in "recurring FFO". The portfolio was 95.% leased as of 6/30/14. During the quarter, IRC sold 4 "non-core properties" for $42.1M, recording a net gain of $10M, and acquired with a joint venture partner property in the Cincinnati MSA for $43.3, subject to future earnout payments. That property is described by IRC as a "high-barrier-to-entry infill market" in the Cincinnati MSA (property is in Newport, KY.), with 222,230 square feet that is 98% leased to Kroger and other retailers.
IRC-2014.6.30-10Q
Rationale and Risks: Inland is a relatively small REIT with a market capitalization of about $990M at a $9.9 price. Given its concentration in two geographic areas and small size, I would view it as a potential takeover target for a larger U.S. or Canadian REIT operating in the same property category. Daniel Goodwin owns directly or indirectly 23,495,880 shares and is a Director of the company. He is 70 and profiled in this article at Crain's Chicago Business and in this biography at the The Inland Real Estate Group, Inc. The total number of shares is slightly over 100M so Goodwin has a veto over any acquisition as a practical matter with an ownership interest near 25%.
The current FFO estimate is for $.95 per share in 2014 and $1.01 next year. IRC Analyst Estimates That is a low P/FFO number.
As noted above, I have nothing really positive to say about the dividend history. I would just note that the dividend yield at the current monthly rate ($.0475) is about 5.89% at a total cost of $9.83 per share.
To me that looks good only based on the assumption that a ten year treasury will stay under 3% for several more years, with inflation bobbing up and down between 1.5% to 2%, and at least a penny per share dividend raise within the next three years and of course no more dividend slashes.
The dividend slash in 2009, going from $.08167 to $.0475, and the lack of any raises since that slash, takes the air out of meaningful capital appreciation possibilities. In my view, the main near or intermediate best option for IRC shareholders would be an acquisition at a premium price (20% to 30% above the current market price). It is hard for me see the current management generating material upside share appreciation given this REIT's history.
The company discusses the risk factors incident to its operations starting at page 7 of its 2013 Annual Report. IRC-12.31.2013-10K
Future Buys: I may buy another 50 share lot, but I will need about a 5% to 10% correction from $9.93. In the event I am able to buy more at that lower price, I will consider selling up to 100 shares of the highest cost lot when and if I have a profit on those shares, a very typical small ball trading routine for me that hopefully results in capturing a number of dividend payments, lowering my average cost per share while harvesting small taxable gains on the highest cost lots using FIFO accounting.
Closing Price Last Friday: IRC: $10.13 +0.03 (+0.30%)
4. Bought 100 EWS at $13.27 (see Disclaimer):
Snapshot of Trade:
Security Description: The iShares MSCI Singapore Index Fund (EWS) is an ETF that owns stocks in a Singapore stock index.
Sponsor's webpage: iShares MSCI Singapore Index Fund (EWS)(expense ratio .47% as of 6/30/14; 30 holdings as of 10/3/14; 5 year total annualized returns of 8.37% and 11.21% over ten years through 9/30/14)
EWS Page at Morningstar
I took a snapshot of the top holdings, which included most of the stocks owned by this ETF:
The Singapore market has been a lackluster performer over the past year. As of 10/3/14, the total return for 2014 was just 1.87% and 2.99% over the past year. EWS Total Returns The total return for 1 year is slightly less than the dividend payments, which are made semi-annually. The fund paid $.2589 per share last December and $.1907 back in June 2014. The total over the past 12 months is $.4496 per share or about 3.39% at a total cost of $13.27 per share.
Prior Trades: Item # 2 Sold Taxable 100 EWS at $13.69(7/26/14 Post)-Bought Back 100 EWS at $13.1 (12/17/13 Post)(realized gain $44.25); Bought 100 EWS at $12.96 (September 2012)-Sold EWS @ $13.91 (April 2013)(realized gain +$79.22); BOUGHT 100 ETF EWS AT $10.9 February 2010-Sold EWS at $11.55 June 2010 (realized gain +$47.15)
I have not yet caught the wave on this yet. I really can not say that keeping those shares bought at $10.9 back in February 2010 would have been worthwhile, given the almost five year time elapse since that purchase and comparing the return with a U.S. stock index ETF like SPY.
EWS has had some stellar years. I want count the +67.47% total return in 2009 after the disastrous 2008. The fund did have recent total returns of +24.58 (2010) and +31.79% (2012) compared to SPY's 15.06% and 15.99%. The EWS total return in 2013 was -.02%, so that market and the U.S. are not in tandem to the upside, but both will go down when the U.S. catches a cold.
Rational and Risk: With this ETF, I achieve some diversification into a developed market that will participate long term in Asia's growth. The dividend yield provides some support.
EWS will have a much higher standard deviation than SPY. Morningstar calculates the 3 year standard deviation for EWS at 17.46 and 22.47 over ten years-through 9/30/14.
Standard Deviation Defined
One risk is highlighted by the -45.95% total return in 2008. Any foreign country fund will a number of important risks, including currency risks and what is generally labelled "country risk". Singapore is going to have less country risk than other Asian markets or any Latin America stock market. Singapore is not viewed as emerging market and consequently would not be included in an emerging market stock fund.
If the U.S. market is now in a correction mode, it will likely take down the rest of the world's stock markets. It would probably be futile to find a stock market that would buck a serious U.S. stock market correction.
The Singapore dollar is a relatively stable currency against the USD which militates currency risk. The SGD can be volatile within a range, however. The Singapore manages the SGD's value against a basket of currencies. At the time of my purchase, the SGD was in a tiny slide, falling from .8083 (7/24) to .7862 (10/6/14). The volatile movement within a relatively narrow band does not concern me.
Future Buys/Sells: I am not likely to buy more. As to when I will sell, hard to say. It is a question of feel more than anything. If I "feel" that the Singapore market is going to churn, with no wave to catch on the horizon, then I may sell for a small profit again, and then try again later. I may also reach the point where I just forget about it and let that wave come to me when it is ready.
Closing Price Last Friday: EWS: $13.05 -0.23 (-1.70%)
5. Bought Back 100 ZTR at $13.7-Roth IRA (see Disclaimer): I bought this balanced CEF the day before the monthly ex dividend date.
Snapshot of Trade:
Security Description: The Zweig Total Return Fund (ZTR) is a balanced CEF.
Data on 10/8/14-Day before purchase
Closing Net Asset Value Per Share= $15.24
Closing Market Price: $13.74
Discount to Net Asset Value= -9.84%
CEFConnect Page for ZTR
The bond allocation is weighted in TIPs:
The Zweig Total Return Fund, Inc. ($94.817M unrealized gain)
The corporate bonds are investment grade and include bonds issued by Chevron, GE Capital, Verizon, Dupont, CSX and Ingersoll-Rand.
The fund does some short selling and had a $754,000 unrealized loss on its short positions as of 6/30/14. There were then three short positions: Mattel, Manitowac and Analog Devices.
Since 6/30/14, the shares of Mattel, Manitowoc and Analog Devices have declined significantly in value. I have no idea whether those positions are still open.
Manitowac (MTW) released a disappointing earnings report before the market opened yesterday and was one of the leading decliners yesterday on the NYSE: MTW: $18.76 -2.77 (-12.87%)
Analog Devices had a bad day along with the semiconductor stocks after Microchip Technology warned about a slowdown: ADI: $43.45 -2.89 (-6.24%)
The Zweig closed end funds are now part of Virtus Investment Partners.
Sponsor's Website: Virtus Investment Partners
Morningstar page on ZTR (rated 2 stars; no leverage)
Prior Trades: I sold my position held in the Roth a few months ago. Item # 1 Sold Roth IRA: 100 ZTR at $14.43 (7/26/14 Post)(snapshot of profit=$147.08)-Item # 4 Bought 100 ZTR at $12.82-ROTH IRA (7/16/13 Post) The total return was about 19.6% in about one year.
I have also bought and sold this CEF in a taxable account. SOLD: 209+ ZTR at $13.88 (January 2014)(snapshot realized gain=$198.52)-Item # 2 Bought 200 ZTR at $12.835 (March 12, 2013 Post)
Rationale: Decent Balanced Portfolio with Dividend Income: The fund changed its distribution from quarterly to monthly in 2012 and reduced the annual managed distribution rate. The quarterly dividend amount was a destructive return of capital which is one reason for the two star rating by Morningstar. Another 2012 change was to reduce the amount of cash in the portfolio which had been large.
The current distribution is to distribute 7% of the Fund's net asset value on an annualized basis (down from the previous 10%), including all available investment income. Consequently, there will be some variance in the dividend.
Dividends are paid monthly. The last distribution was $.089 per share, sourced from income and long term capital gains. The Zweig Total Return Fund, Inc. Declares Distribution The prior monthly dividend was $.092. The Zweig Total Return Fund, Inc. Declares Distribution
At the $.089 penny rate, the dividend yield would be about 7.8% at a total cost per share of $13.7 (or about 8.1% at the $.092 run rate) In the Roth IRA, the dividends became tax free.
I looked at the portfolio and am comfortable with most of the holdings. Every fund owns some stocks that I would not buy. The fund owns Pfizer, for example, and I view that company negatively (e.g. the amount paid for acquisitions since the late 1990s far exceeds the current market cap). I also did not like seeing Ford and Freeport-McMoRan in the fund's top ten list as of 6/30/14. Ford would be fine as a small contrarian bet.
Risks: (1) Bond Allocation Is Mostly In Low Yielding TIPs: I do not own any treasuries. I am not enthusiastic with this fund's allocation to low yielding TIPs when inflation is not likely to be a problem prior to those bonds maturing on 1/15/15, 1/15/16 and 1/15/17. The fund has a decent profit in those bonds though. When I sold out of my individual TIPs back in 2012, I noted then the profit would exceed the total amount of interest payments until those bonds matured in 2019. Item #1 Sold 3 TIP Bonds Maturing in 2019 at 120.45 (5/24/12 Post)(snapshot of Profit=$838.87 and bonds were then paying less than $60 per year in interest).
I would just prefer that the fund harvest most of the profits now and invest the proceeds in higher yielding corporate bonds. Those same TIPs were owned in the same amounts as of 9/30/12: 9/30/12 Report It looks like that the fund will be holding until maturity, and I simply disagree with that decision.
(2) Normal Risks Associated with Stocks and Closed End Funds: With any CEF, the price in relation to net asset value is determined by market participants and can consequently expand or contract with or without a rational reason.
Stocks may be moving toward a correction. Assuming the high quality bonds remain stable or rise in price during a stock market correction, this fund's net asset value per share will go down, and the discount will likely expand, making a deferred purchase better than a current one. I already have an unusually high for me cash allocation in the IRAs that are weighted in bonds and bond funds. If cash was paying 4% in a MM fund, I might even have more cash now, but I can only dream about that "risk free" 4% return when money market funds are paying .01%.
I will be reinvesting the dividends as a means to average down.
Closing Price Last Friday: ZTR: $13.41 -0.23 (-1.69%)
Snapshot of Trade:
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| 2014 DOC Bought 100 Shares at $13.75 |
Company Website
At the time of my trade, DOC's share price had fallen below its 50 and 100 day SMA lines, but was still hovering over its 200 day SMA line. DOC Interactive Chart
Brad Thomas has a favorable view of this REIT: Seeking Alpha
Physicians Realty recently declared its regularly quarterly dividend of $.225 per share. Marketwatch shows the ex dividend data as 10/15/14.
Physicians Realty closed on 10/1/14 the acquisitions of seven different properties for approximately $114M.
Physicians Realty sold last month 10.925M shares at $14.
The initial public offering consisted of 10.434+M shares and was priced at $11.5 (7/2013).
Another 8.3M shares were sold in December 2013 at $11.5 per share.
An earlier 11M share offering this year was priced at $12.5. Prospectus
All of the foregoing share amounts exclude the over-allotment option granted to the underwriters. The May 2014 offering included an option for an additional 1.65M shares (15% of the initial total underwriter commitment).
It is also important to keep in mind that the REIT will receive less per share than the price paid by the public. For the May 2014 offering, the estimated proceeds to DOC was $11.9062 after the underwriting discount and before other expenses paid by DOC in connection with the offering (e.g. legal expenses).
A prospectus will generally be assigned the SEC number 424B4.
DOC Filings at the SEC
In the top left hand box, "Filing Type", I can limit the search to the 424B4 filings which pulls up Prospectus filings.
DOC 424B4 SEC Filings
I now see the prior two Prospectuses for post IPO share offerings:
Prospectus-July 2013
Prospectus December 2013
Most of the time, the underwriters will exercise the full over-allotment option. I generally do not check to see what happened there. It is possible to find out but a lot of hunting needs to be done which is just not worth the time.
Some firms will issue a press release announcing that exercise. The easiest way to find a press release is at the firm's website under "investor relations" and then look for Press Releases. Press Releases
I can see from a 5/27/14 press release that the full over-allotment option of 1.65M shares was exercised by the underwriters. Physicians Realty Trust Announces Closing of Public Offering of Common Shares
The information can generally be found in a 10-Q, but the location will vary: DOC 10-Q at pages 7-8
Prior Trades: None
Last Earnings Report: For the 2014 second quarter, Physicians Realty reported a normalized funds available for distribution (FAD) at $.16 per share. Please note that the quarterly dividend was $.225 per share for the quarter. I am giving this new REIT some leeway temporarily in the payout ratio due to its ramp up period as a new REIT. But, until I see better FAD numbers, I am not going to buy more shares.
During the 2014 second quarter, DOC acquired nine medical office buildings in nine states, containing 279,056 leasable space for approximately $73.6M. 10-Q at page 23
As of 6/30/14 for all information in this paragraph, DOC owned 49 properties in 17 states, with approximately 1,731,069 net leasable space that was approximately 94.24% leased. The weighted average lease term was then 9.7 years. Approximately 87.4% of the annualized base rent payments were made pursuant to triple net leases. The triple net lease requires the tenant to pay all operating expenses related to the property (e.g. real estate taxes, insurance, routine maintenance utilities). Those leases "typically" have annual rent escalators of "approximately 2%". Page 23 10-Q for Q/E 6/30/14
Rationale and Risks: The payout is currently exceeding funds available for distribution. That is a negative, but I am giving this REIT some leeway on that issue since it is in the build phase.
The main reason for investing in this REIT is to generate income. The funds used to pay for this purchase are earning zilch due to the FED's ZIRP monetary policy. I am now sitting on an abundance of cash in my brokerage accounts earning zilch.
At the current quarterly rate, the dividend yield is about 6.55% at a total cost of $13.75 per share.
The company discusses risks incident to its operations starting at page 31 of its last filed SEC Annual Report. 10-k
Future Buys and Sells: I am not likely to buy more shares until I see consistently much better FAD numbers. I will consider selling this small position when and if I hit a 10% annualized total return.
Closing Price Last Friday: DOC: $13.79 -0.19 (-1.36%)(traded as high as $14.24 before the bottom fell out during late afternoon trading)
3. Added 50 IRC at $9.93-Satellite Taxable Account (see Disclaimer): This trade is an average down from a previous purchase. I now own 200 IRC shares in this satellite taxable account.
I am reinvesting the monthly dividend.
Snapshot of Trade:
Company Description: The Inland Real Estate Corp. (IRC) is a self-advised and managed small REIT that owns retail centers, primarily in the Chicago and Minneapolis MSAs. IRC owned interests in 135 properties with 15M square feet of leasable space as of 6/30/14. The company is expanding into the Southeast. Corporate Profile
Pictures of Recent Acquisitions
Company Website: Inland Real Estate
Inland Real Estate Profile Page at Reuters
Inland Real Estate Key Developments Page at Reuters
IRC recently declared its regular monthly dividend of $.0475 per share which went ex dividend on 9/26/14. Inland Real Estate Corporation Pays September and Declares October Cash Distribution to Common Stockholders
I view this REIT's dividend history extremely negatively for two reasons. First, there was a monthly dividend slash from $.08167 to $.0475, effective for the May 2009 payment. Second, the dividend has not been raised since that slash. Inland Real Estate Corporation (IRC) Dividend History or Inland Real Estate Corporation-Dividends
Tax Allocation of 2013 Cash Distributions
The long term chart shows a rise from $9.5 (May 2004) to $20.83 (February 2007), followed by a downward sloping plunge to $6+ in March 2009. IRC Interactive Chart Hardly reassuring. No stocks splits are shown on this YF interactive chart.
The last investor presentation was made in September 2014: Investor_Presentation.pdf (map showing concentration in Chicago and Minneapolis at page 8)
SEC Filings for IRC
Inland Real Estate sold 4M shares of a 6.95% series B cumulative preferred stock last week. The offering price to the public was $25, raising an estimated $96.45M net of the underwriting discount and before IRC's expenses related to the offering. Trading will normally start on the stock exchange within thirty days (symbol at Fidelity with be IRCPRB)
Inland Real Estate announced on 10/6/14 that it had completed the acquisition of Prairie Crossings cash consideration of $24.7M. That retail development is in "an affluent southwest suburb of Chicago" and consists of approximately 109,000 square feet of leasable space. The anchor tenants are Office Depot, Bed Bath & Beyond, Kohl's and Sports Authority. Other tenants include Panera Bread, Game Stop and Chipotle. The press release has a picture.
Inland Real Estate also announced in October a joint venture to develop a 158,000 square foot retail power center in Elizabeth City, N.C. that is approximately 70% pre-leased to several retail firms including TJ Maxx, Dollar Tree and Hobby Lobby.
Prior Trade: Item # 6 Bought: 150 IRC at $10.35 (3/3/14 Post)
Last Earnings Report: For the 2014 second quarter, IRC reported a 9.5% increase, compared to the 2013 second quarter, in "recurring FFO". The portfolio was 95.% leased as of 6/30/14. During the quarter, IRC sold 4 "non-core properties" for $42.1M, recording a net gain of $10M, and acquired with a joint venture partner property in the Cincinnati MSA for $43.3, subject to future earnout payments. That property is described by IRC as a "high-barrier-to-entry infill market" in the Cincinnati MSA (property is in Newport, KY.), with 222,230 square feet that is 98% leased to Kroger and other retailers.
IRC-2014.6.30-10Q
Rationale and Risks: Inland is a relatively small REIT with a market capitalization of about $990M at a $9.9 price. Given its concentration in two geographic areas and small size, I would view it as a potential takeover target for a larger U.S. or Canadian REIT operating in the same property category. Daniel Goodwin owns directly or indirectly 23,495,880 shares and is a Director of the company. He is 70 and profiled in this article at Crain's Chicago Business and in this biography at the The Inland Real Estate Group, Inc. The total number of shares is slightly over 100M so Goodwin has a veto over any acquisition as a practical matter with an ownership interest near 25%.
The current FFO estimate is for $.95 per share in 2014 and $1.01 next year. IRC Analyst Estimates That is a low P/FFO number.
As noted above, I have nothing really positive to say about the dividend history. I would just note that the dividend yield at the current monthly rate ($.0475) is about 5.89% at a total cost of $9.83 per share.
To me that looks good only based on the assumption that a ten year treasury will stay under 3% for several more years, with inflation bobbing up and down between 1.5% to 2%, and at least a penny per share dividend raise within the next three years and of course no more dividend slashes.
The dividend slash in 2009, going from $.08167 to $.0475, and the lack of any raises since that slash, takes the air out of meaningful capital appreciation possibilities. In my view, the main near or intermediate best option for IRC shareholders would be an acquisition at a premium price (20% to 30% above the current market price). It is hard for me see the current management generating material upside share appreciation given this REIT's history.
The company discusses the risk factors incident to its operations starting at page 7 of its 2013 Annual Report. IRC-12.31.2013-10K
Future Buys: I may buy another 50 share lot, but I will need about a 5% to 10% correction from $9.93. In the event I am able to buy more at that lower price, I will consider selling up to 100 shares of the highest cost lot when and if I have a profit on those shares, a very typical small ball trading routine for me that hopefully results in capturing a number of dividend payments, lowering my average cost per share while harvesting small taxable gains on the highest cost lots using FIFO accounting.
Closing Price Last Friday: IRC: $10.13 +0.03 (+0.30%)
4. Bought 100 EWS at $13.27 (see Disclaimer):
Snapshot of Trade:
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| 2014 Bought Back 100 EWS at $13.27 |
Security Description: The iShares MSCI Singapore Index Fund (EWS) is an ETF that owns stocks in a Singapore stock index.
Sponsor's webpage: iShares MSCI Singapore Index Fund (EWS)(expense ratio .47% as of 6/30/14; 30 holdings as of 10/3/14; 5 year total annualized returns of 8.37% and 11.21% over ten years through 9/30/14)
EWS Page at Morningstar
I took a snapshot of the top holdings, which included most of the stocks owned by this ETF:
The Singapore market has been a lackluster performer over the past year. As of 10/3/14, the total return for 2014 was just 1.87% and 2.99% over the past year. EWS Total Returns The total return for 1 year is slightly less than the dividend payments, which are made semi-annually. The fund paid $.2589 per share last December and $.1907 back in June 2014. The total over the past 12 months is $.4496 per share or about 3.39% at a total cost of $13.27 per share.
Prior Trades: Item # 2 Sold Taxable 100 EWS at $13.69(7/26/14 Post)-Bought Back 100 EWS at $13.1 (12/17/13 Post)(realized gain $44.25); Bought 100 EWS at $12.96 (September 2012)-Sold EWS @ $13.91 (April 2013)(realized gain +$79.22); BOUGHT 100 ETF EWS AT $10.9 February 2010-Sold EWS at $11.55 June 2010 (realized gain +$47.15)
Total Trading Gains: $170.82
I have not yet caught the wave on this yet. I really can not say that keeping those shares bought at $10.9 back in February 2010 would have been worthwhile, given the almost five year time elapse since that purchase and comparing the return with a U.S. stock index ETF like SPY.
EWS has had some stellar years. I want count the +67.47% total return in 2009 after the disastrous 2008. The fund did have recent total returns of +24.58 (2010) and +31.79% (2012) compared to SPY's 15.06% and 15.99%. The EWS total return in 2013 was -.02%, so that market and the U.S. are not in tandem to the upside, but both will go down when the U.S. catches a cold.
Rational and Risk: With this ETF, I achieve some diversification into a developed market that will participate long term in Asia's growth. The dividend yield provides some support.
EWS will have a much higher standard deviation than SPY. Morningstar calculates the 3 year standard deviation for EWS at 17.46 and 22.47 over ten years-through 9/30/14.
Standard Deviation Defined
One risk is highlighted by the -45.95% total return in 2008. Any foreign country fund will a number of important risks, including currency risks and what is generally labelled "country risk". Singapore is going to have less country risk than other Asian markets or any Latin America stock market. Singapore is not viewed as emerging market and consequently would not be included in an emerging market stock fund.
If the U.S. market is now in a correction mode, it will likely take down the rest of the world's stock markets. It would probably be futile to find a stock market that would buck a serious U.S. stock market correction.
The Singapore dollar is a relatively stable currency against the USD which militates currency risk. The SGD can be volatile within a range, however. The Singapore manages the SGD's value against a basket of currencies. At the time of my purchase, the SGD was in a tiny slide, falling from .8083 (7/24) to .7862 (10/6/14). The volatile movement within a relatively narrow band does not concern me.
Future Buys/Sells: I am not likely to buy more. As to when I will sell, hard to say. It is a question of feel more than anything. If I "feel" that the Singapore market is going to churn, with no wave to catch on the horizon, then I may sell for a small profit again, and then try again later. I may also reach the point where I just forget about it and let that wave come to me when it is ready.
Closing Price Last Friday: EWS: $13.05 -0.23 (-1.70%)
5. Bought Back 100 ZTR at $13.7-Roth IRA (see Disclaimer): I bought this balanced CEF the day before the monthly ex dividend date.
Snapshot of Trade:
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| 2014 Roth IRA Bought 100 ZTR at $13.7 |
Data on 10/8/14-Day before purchase
Closing Net Asset Value Per Share= $15.24
Closing Market Price: $13.74
Discount to Net Asset Value= -9.84%
CEFConnect Page for ZTR
The bond allocation is weighted in TIPs:
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| Bond Allocation as of 6/30/14 |
The corporate bonds are investment grade and include bonds issued by Chevron, GE Capital, Verizon, Dupont, CSX and Ingersoll-Rand.
The fund does some short selling and had a $754,000 unrealized loss on its short positions as of 6/30/14. There were then three short positions: Mattel, Manitowac and Analog Devices.
Since 6/30/14, the shares of Mattel, Manitowoc and Analog Devices have declined significantly in value. I have no idea whether those positions are still open.
Manitowac (MTW) released a disappointing earnings report before the market opened yesterday and was one of the leading decliners yesterday on the NYSE: MTW: $18.76 -2.77 (-12.87%)
Analog Devices had a bad day along with the semiconductor stocks after Microchip Technology warned about a slowdown: ADI: $43.45 -2.89 (-6.24%)
The Zweig closed end funds are now part of Virtus Investment Partners.
Sponsor's Website: Virtus Investment Partners
Morningstar page on ZTR (rated 2 stars; no leverage)
Prior Trades: I sold my position held in the Roth a few months ago. Item # 1 Sold Roth IRA: 100 ZTR at $14.43 (7/26/14 Post)(snapshot of profit=$147.08)-Item # 4 Bought 100 ZTR at $12.82-ROTH IRA (7/16/13 Post) The total return was about 19.6% in about one year.
I have also bought and sold this CEF in a taxable account. SOLD: 209+ ZTR at $13.88 (January 2014)(snapshot realized gain=$198.52)-Item # 2 Bought 200 ZTR at $12.835 (March 12, 2013 Post)
Total Realized Gains: $345.6 plus dividends
Rationale: Decent Balanced Portfolio with Dividend Income: The fund changed its distribution from quarterly to monthly in 2012 and reduced the annual managed distribution rate. The quarterly dividend amount was a destructive return of capital which is one reason for the two star rating by Morningstar. Another 2012 change was to reduce the amount of cash in the portfolio which had been large.
The current distribution is to distribute 7% of the Fund's net asset value on an annualized basis (down from the previous 10%), including all available investment income. Consequently, there will be some variance in the dividend.
Dividends are paid monthly. The last distribution was $.089 per share, sourced from income and long term capital gains. The Zweig Total Return Fund, Inc. Declares Distribution The prior monthly dividend was $.092. The Zweig Total Return Fund, Inc. Declares Distribution
At the $.089 penny rate, the dividend yield would be about 7.8% at a total cost per share of $13.7 (or about 8.1% at the $.092 run rate) In the Roth IRA, the dividends became tax free.
I looked at the portfolio and am comfortable with most of the holdings. Every fund owns some stocks that I would not buy. The fund owns Pfizer, for example, and I view that company negatively (e.g. the amount paid for acquisitions since the late 1990s far exceeds the current market cap). I also did not like seeing Ford and Freeport-McMoRan in the fund's top ten list as of 6/30/14. Ford would be fine as a small contrarian bet.
Risks: (1) Bond Allocation Is Mostly In Low Yielding TIPs: I do not own any treasuries. I am not enthusiastic with this fund's allocation to low yielding TIPs when inflation is not likely to be a problem prior to those bonds maturing on 1/15/15, 1/15/16 and 1/15/17. The fund has a decent profit in those bonds though. When I sold out of my individual TIPs back in 2012, I noted then the profit would exceed the total amount of interest payments until those bonds matured in 2019. Item #1 Sold 3 TIP Bonds Maturing in 2019 at 120.45 (5/24/12 Post)(snapshot of Profit=$838.87 and bonds were then paying less than $60 per year in interest).
I would just prefer that the fund harvest most of the profits now and invest the proceeds in higher yielding corporate bonds. Those same TIPs were owned in the same amounts as of 9/30/12: 9/30/12 Report It looks like that the fund will be holding until maturity, and I simply disagree with that decision.
(2) Normal Risks Associated with Stocks and Closed End Funds: With any CEF, the price in relation to net asset value is determined by market participants and can consequently expand or contract with or without a rational reason.
Stocks may be moving toward a correction. Assuming the high quality bonds remain stable or rise in price during a stock market correction, this fund's net asset value per share will go down, and the discount will likely expand, making a deferred purchase better than a current one. I already have an unusually high for me cash allocation in the IRAs that are weighted in bonds and bond funds. If cash was paying 4% in a MM fund, I might even have more cash now, but I can only dream about that "risk free" 4% return when money market funds are paying .01%.
I will be reinvesting the dividends as a means to average down.
Closing Price Last Friday: ZTR: $13.41 -0.23 (-1.69%)
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