Monday, November 3, 2014

Bought Back 100 NBD at $21.35

Big Picture: No Change

Recent Developments: 

The October ISM manufacturing PMI was reported at 59%. The consensus estimate was for 56.5%. The production component was reported at the highest level since May 2004. The new orders index rose 5.8 points to 65.8.

Preferred Apartment Communities increased its quarterly dividend by 9.4% to $.175 per share. Preferred Apartment Communities reported third quarter AFFO of $.22 per share, up from $.19 in the 2013 third quarter. Normalized FFO per share was reported at $.26. Item # 3 Added 100 APTS at $8.29 (10/21/14 Post)Bought Regular IRA 100 APTS at $8.75 (8/29/14 Post)

MetLife reported third quarter operating earnings of $1.8B, or $1.6 per share, up from $1.34 per share in the 2013 second quarter. The consensus estimate for operating earnings was $1.38 per share. Operating earnings increased 19% in Asia. GAAP earnings were reported at $1.81 per share. Bought 50 MET at $51.76 (3/24/14 Post)

Omega Healthcare announced it would acquire Aviv REIT (REIT) in a stock for stock merger valued at approximately $3B. Brad Thomas published a positive article at Seeking Alpha discussing this acquisition. Item # 2 Bought: 100 OHI at $29.85 (12/23/13 Post)

Bluerock Residential Growth REIT Announces Third Quarter 2014 Results at Top End of Guidance, AFFO at $0.22 per share I recently bought a 50 share lot.  Bought 50 BRG at $11.98-Roth IRA

PBF Energy reported net income of $140.97M or $1.60 per diluted share. The current consensus E.P.S. for 2014 is $3.15. Item # 6 Bought 50 PBF at $25.61 (9/20/14 Post) As noted in that post, the consensus 2014 E.P.S. at the time of purchase was $2.6. Earnings Call Transcript | Seeking Alpha


1. Bought Back 100 NBD at $21.35 (see Disclaimer): This is trade that will hopefully produce some income for a few months.

Snapshot of Trade:

Security Description: The Nuveen Build America Bond Opportunity Fund (NBD) is a leveraged closed end bond fund that invests in taxable municipal bonds issued under the Build America Bond program.

This bond CEF is scheduled to terminate on or around 12/31/2020, "distributing the fund's assets to shareholders at that time".

Data as of Date of Trade 11/3/2014
Closing Net Asset Value Per Share: $23.89
Closing Market Price: $21.36
Discount: -10.59%
Average Discounts
1 Year  -9.66%
3 Years: -8.11

CEFConnect Page for NBD

As of 9/30/14, the fund owned 65 securities. The leveraged adjusted duration was then 11.48 years.

The fund is weighted in "A" or better rated bonds:

Sponsor's Website: NBD - Nuveen Build America Bond Opportunity Fund

SEC Form N-Q (holdings as of 6/30/14; unrealized gain at that time of $40.368+M)

Last SEC Filed Shareholder Report (period ending 3/31/14)

Prior Trades: Item # 3 Sold 100 NBD at $21.86-Roth IRA (5/29/13 Post)-Item # 2 Bought 100 of the Bond CEF NBD at $21.29-Roth IRA (6/21/12 Post)

2013 Roth IRA 100 NBD +$42.33
Item # 7 Sold 100 NBD at $22 (2/27/13 Post)(profit +$4.17, no snapshot)-Item # 2 Bought 100 NBD at $21.8 (9/11/12 Post)

Related Trade: I have bought and sold the functionally equivalent Nuveen Build America Bond Fund (NBB) and currently own 150 NBB shares in a Roth IRA, where I am close to break-even on the shares: Roth IRA: Added 100 NBB at $20.1 (6/14/14 Post)Item # 1 Bought 50 NBB at $20.73-ROTH IRA (June 2012)

NBD has a higher concentration than NBB in AA rated securities (66% vs. 55.29%). NBB has a greater weighting in A rated bonds (26.1% vs. 18.9%) and in BBB rated bonds (7.8% vs. 4.7%) Based solely on the ratings, NBD has a slight edge in credit quality over NBB based on its higher weighting in AA rated bonds.

I have managed to exit my NBB positions profitably so far. Some of that history is linked in  Item # 1 Roth IRA: Added 100 NBB at $20.1

2014 Roth IRA 107 NBB +$91.33

2014 NBB 100 Shares +$40.62
2011 Roth IRA 100 Shares +$108.97
2011 NBB 100 Shares +$40.62

2010 Regular IRA 50 Shares +$25.58

NBB Realized Gains To Date: $307.12

Rationale and Risks: With this buy, I am simply attempting to earn some income on funds that would otherwise be producing .01% in a money market fund. The general idea is to harvest several monthly payments and then to sell the shares profitably. I would be satisfied with a 7% annualized total return.

The fund is currently paying a $.114 per share monthly dividend. The next ex dividend date is 11/12/14: Nuveen Closed-End Funds Declare Monthly Distributions At that rate, the dividend yield is about 6.41% at a total cost per share of $21.35.

While the 2020 term date for the fund gives NBB a feature of an individual bond, the payment of principal at a certain date, a liquidation date for a long bond fund could pose a risk if interest rates are rising later this decade in a troublesome manner, and this fund did not transition to shorter term instruments before that happens.

The duration is long, as noted above, so interest rate risk is high. Bond Fund Duration Vanguard A 1% rise in interest rates for similar duration bonds could result in about a 11.5% decline in net asset value per share.  The current discount to net asset value per share provides some cushion in the event I elect to hold until the liquidation date.  

No comments:

Post a Comment