Monday, June 30, 2014

Update for Regional Bank, Lottery Ticket and REIT Basket Strategies/Bought 50 NKSH at $30.4

The regional bank, REIT and lottery ticket basket strategies are updated on the last Monday of each month. The price shown in the following tables will be from last Friday.

Last Update 5/26/14: Updates for the Regional Bank, REIT and Lottery Ticket Basket Strategies/ Bought 50 ONB at $13.29/Bought 30 MGIC at $7.9/BHB Stock Split

I frequently use a basket approach, particularly with industry sectors, that will vary in size as to the number of components. The focus will be on the total return of the basket, rather than individual components. Some of the advantages to this approach include diversification and risk mitigation. I am not concerned about a few mishaps provided other components are doing better than I anticipated when I made the initial purchase. As noted previously, I have been surprised by some of best and worst performers in the regional bank basket.


1. Update of Lottery Ticket Basket Strategy 

The Lottery Ticket Basket Strategy uses a deep contrarian value strategy, appropriately characterized as catching a "falling knife". A common criteria for the stocks contained in this basket is a smashed stock price at the time of purchase and an ugly looking chart, though I may occasionally buy one who does not fit those common criteria. Any technical analyst would most likely have a sell rating on the stock.

See 2004 Study by the Brandes Institute: "Falling Knives Around the World" 

Selections are made primarily on statistical criteria including price to book, price to sales, forward P/E, cash per share and/or free cash flow. I spend anywhere from thirty minutes to an hour researching a potential purchase prior to purchase.

For many selections, I may be pessimistic about the firm's future, but not as pessimistic as the market. I will also occasionally see a ray of light at the end of a dark tunnel. Since I expect failures, which are inevitable and unavoidable in this kind of approach, I limit my exposure to $300 per stock plus any prior trading profits. 

After experiencing some success with this strategy, I now have a requirement that my total investment in all LT holdings can not exceed my total realized gains for this basket strategy. My total exposure is currently slightly under $6,000.

The name of the strategy aptly describes the risk. It is somewhat analogous in many cases to playing a hand of blackjack for the purchase amount knowing that the card count favors the house. It is a form of entertainment and an alternative to a casino visit.

Based on the results to date, this strategy is far more likely to produce positive results even with the LB's skill at the tables. The primary purpose of the LT strategy is to entertain Right Brain, let it swing for the fences with up to $300, and to keep the Nit Wit from interfering with Left Brain's management of Headknocker's portfolio.

Snapshots of realized gains can be found at the end of the Gateway Post on this topic: Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post

There were no additions or deletions since the last update.

Net Realized Gains: $14,024

Click to Enlarge:
Lottery Ticket Basket as of 6/27/14
Snapshots of Unrealized Gains as of 6/27/14 over 30%: 


AMOT +136.63%
RFMD +75.31%
FCA/A +69.52%
ING +56.06%
FCF +49.88%
AWCMY +40.98%

NPBC +31.32%
I have noted in the past that several of these selections have a tendency to crater in price after my purchase. I am obviously unconcerned by those events since I have so little exposure and the strategy is call a Lottery Ticket Basket for good reasons. Several stocks which have cratered have subsequently recovered in price.

One recent selection, Iridium Communications, went down steadily after my purchase and has subsequently recovered in price. Bought 40 IRDM at $6.82 This stock closed at $8.28 last Friday, but that is a decent percentage recovery (55%) from the $5.45 close on 11/13/13: IRDM Interactive Chart None of that matters when I own 40 shares.

2. Update for REIT Common and Preferred Stock Basket:

This basket is starting to contract, primarily though preferred stock deletions under the current trading guidelines. The first publication of this basket was made on 3/5/14: Stocks, Bonds & Politics: Equity REIT Common and Preferred Stock Table as of 3/5/14

I am using a blended strategy of including both common and preferred stocks. I am not likely to add back preferred stocks until there is another meaningful correction in their prices.

Since the last update on 5/26/14, I have discussed adding the following securities:

Added 100 D_UN:CA at C$28.8 (6/21/14 Post)

Bought: 300 DIR_UN:CA at C$9.53 (6/7/14 Post)

Added 200 HLP_UN:CA at C$10.2 (5/31/14 Post)

I have discussed selling the following securities:

Sold ROTH IRA: 50 EPRPRF at $24.65 (6/28/14 Post)

Sold 50 EXL at $13.68 (6/14/14 Post)

Sold 50 ARCPP at $23.75 (6/7/14 Post)

Sold 200 KMP:CA at C$10.45/Sold: 50 OFCPRL at $26.21, 50 CBLPRE at $23.81 (5/31/14 Post)

I have not yet discussed selling my 200 shares of Canadian Apartments which will be discussed in a later post, probably in about two weeks. That position has been deleted from the following table. This REIT was my lowest yielding Canadian REIT. I realized a gain for tax reporting purposes of USD$275.8, but my gain in CADs was higher at C$460.

I used CADs to buy that security and received CADs when I sold the units (technically not shares). However, for tax reporting purposes, both the purchase amount and the proceeds are converted into USDs. Since the CAD declined in value against the USD during my holding period, I had a lower profit for tax reporting purposes than my actual profit in CADs.

My goal for purchasing securities on the Toronto exchange is to earn income on my CAD stash and to realize gains from trading in CADs, thereby increasing my CAD stash over time for diversification purposes. I do not mind receiving a greater profit in CADs than the amount used for reporting gains after converting CADs into USDs.

I will also discuss in a subsequent post selling 50 DLRPRE at $25.5 for the usual reasons.

I have sold my small position in VNQ profitably and will deploy the proceeds into a higher yielding security.

Click to Enlarge:

Equity REIT Basket as of  6/27/14

3. Update for Regional Bank Basket Strategy:

This strategy is explained in my Gateway Post on this topic:

Snapshots of realized gains and losses can be found at the end of that post.

The dividend yield showed in this table is calculated by Yahoo Finance based on last Friday's close. My dividend yield for each position will be different based on my total cost numbers. In most cases, with FNFG and VLY being notable exceptions, my dividend yield will be higher.

Dividend Yields 5% or higher: Based on Total Cost
NYCB: 8.44%
UBCI: 7.66%
WASH: 7.56%
CZNC: 5.39%
FNLC: 5.38%
TRST: 5.1%
CCNE: 5.%

I am not tracking reinvested dividends in the following table. The unrealized gains per holding do not include reinvested dividends.

Over the life of this basket strategy, I anticipate that the dividends will provide 40% to 50% of the total return. I am generally keeping my total exposure between $40,000 to $50,000.

After a number of adds, I am now over my minimum $40,000 allocation after a bout of profit taking last year. 

I have not been impressed with several of the 2013 4th quarter and the 2014 first quarter earnings reports from regional banks. While net interest margin has not contracted much, it is yet to show any expansion either for most banks. Chart: Net Interest Margin for all U.S. Banks - St. Louis Fed

One ETF will own several of the small cap regional banks and REITs that I own now or have owned in the past: PSCF | S&P SmallCap Financials Portfolio

In 2013, my dividend total from this basket totaled $1,932,93, up from $1,896.25 in 2012 and $1,660.57 in 2011. I will have to increase my current exposure in order to exceed the 2013 amount this year, given my light exposure for the first four months which was several thousand below the "minimum" level.    

Regional bank stocks are in a funk this year as interest rates started to go back down. One of the regional bank ETFs, KRE, closed at $40.61 on 12/31/13 and at $40.33 last Friday, but has closed as low as $36.84 (2/3/14). SPDR S&P Regional Banking ETF ETF Chart That ETF has now worked its way back over its 50 and 200 SMA lines.

The abnormally low rates benefited banks some when deposit yields were repriced down, but even 5 year bank CDs taken out in 2008 at higher rates have now matured, and the positive impact of that repricing is no longer present. Instead, the decline in rates compresses net interest margin. When rates were rising last year, regional bank stocks were in an uptrend based on the common belief that higher intermediate and long rates would be a net positive for them, particularly when short terms were likely to remain near zero through mid-2015 and then rise slowly and modestly in 2016-2017. The rate spike starting last May impacted intermediate and long term rates. Short term rates remained anchored by ZIRP. 

I have used the downdraft in prices earlier this year to add positions to my basket. Some of the stocks have started to move back up in price some.

My worst performing position is First Niagara (FNFG) whose stock was driven into a multi-year decline by a boneheaded mistake made by its former CEO that was sanctioned by the Board of Directors. First Niagara: Just Another Incompetent Bank Board of Directors (12/8/11 Post).

The current FNFG CEO has embarked on a spending spree to upgrade FNFG's systems that will retard earnings for several years and have uncertain benefits. That plan caused a slide in the price earlier this year, FNFG Interactive Chart. (price went from $10.48 on 1/22/14 to $8.22 on 2/3/14). FNFG is easily the worst managed bank in my basket. I am hoping that another bank will end the misery of FNFG's shareholders by making a generous acquisition offer, sending the current management team and Board into an early and much deserved retirement where they can not inflict further harm on the innocent. Perhaps, that "hope" is born from early onset dementia. I am reinvesting the dividend which was cut in half a few years ago to help finance the indefensible acquisition of HSBC branches for $1B in cash which was called a "home run" by the now departed CEO who engineered it. First Niagara Dividend Slash (12/7/11 Post); First Niagara Financial Group Inc. (FNFG) Dividend Date & History - NASDAQ.com There was earlier this year a downgrade by Moody's from Baa2 to Ba1: Moody's downgrades First Niagara Financial (senior to Ba1)

The problem for earnings growth among regional banks is highlighted by regional bank earnings for the first quarter. For several small banks more dependent on mortgage originations, the uptick in rates last year hurt their mortgage origination business and caused Y-O-Y declines in earnings. So, a rise in intermediate and long term rates may help net interest margin but hurt in other areas of the business. The actual impacts are more complex than the normal assumptions made by many investors. 

Money center banks have sources of income that are not meaningfully available to small banks whose bread and butter primarily involves taking deposits and lending those funds to small businesses and individuals. 

Since my last update, I bought 50 shares of NKSH, discussed below, and sold 50 shares of LARK after a brief pop in the share price. Sold  50 LARK at $23.5 (6/28/14 Post)

Realized Gains 2010 to Date: $15,982.65 (snapshots in Gateway Post)
Dividends Received 2010 through 2013)=$6,623.72

Click to Enlarge:
Regional Bank Basket as of 6/27/14
Comparison Data From the St. Louis Fed:
Net Interest Margin for all U.S. Banks
Net Interest Margin for U.S. Banks with average assets under $1B
Net Interest Margin for U.S. Banks with average assets between $1B and $15B
Return on Average Equity for all U.S. Banks   (abbreviated to "ROE")
Return on Average Assets for all U.S. Banks (abbreviated to "ROA")
Nonperforming Loans (past due 90+ days plus nonaccrual) to Total Loans for all U.S. Banks (abbreviated to "NPL ratio")
Charge-Off Rate On All Loans, All Commercial Banks
Assets at Banks whose ALLL exceeds their Nonperforming Loans (coverage ratio over 100%)(ALLL=Allowance for loan losses)

A. First Bancorp (FNLC): The First Bancorp raised its quarterly dividend by 1 cent per share. The new rate will be $.21. I recently bought back 50 shares. Bought:  50 FNLC at $15.6 (5/24/14 Post). At a total cost of $15.6 per share, the new dividend rate results in about a 5.38% yield.

B. Bought 50 NKSH at $30.4 (see Disclaimer): I bought this stock last Friday and decided to discuss it here, rather than in the weekly blog, since I am not discussing much of anything new in this update other than repeating my negative opinions about FNFG's management and Board.

First, I want to emphasize that National Bankshares is a micro cap bank holding company whose stock is thinly traded with a large bid/ask spread. The market capitalization is slightly over $200M.

I placed a limit order to buy 50 shares at $30.4, when the ask price was $.5 per share higher, and I would not have been surprised with a partial fill. I was fortunate to get a fill for the entire 50 share bid:

2014 Bought 50 NKSH at $30.4-Satellite Taxable Account
I also own some other bank stocks in this account including CBU and partial positions in FNB and NBTC.

Shortly after my trade was executed, the stock moved up and closed last Friday at $31.24 +0.48 (+1.56%). Volume was heavy at 17,162 shares.

This bank holding company is headquartered in Blacksburg, VA. NKSH is the holding company for the National Bank, "a 123-year old community bank with 25 offices throughout Southwest Virginia".

This bank pays dividends semi-annually, with the last payment of $.55 per share going ex dividend in May. National Bankshares, Inc. Declares Semi-Annual Dividend

The next payment is generally made in November and is slightly higher than the first payment. National Bankshares, Inc. (NKSH) Dividend Date & History - NASDAQ.com Taking just the last two payments, the total is $1.13 per share, which would translate into a dividend yield of 3.72% at a total cost of $30.4 per share.

For the 2014 first quarter, National Bankshares reported net income of $4.4M, compared to $4.22M in the 2013 first quarter:

Net Income Per share: $.63
Net Interest Margin: 4.12%
Efficiency Ratio: 47.56%
ROA: 1.61%
ROE: 11.92%
NPL Ratio: 1.85% (down from 2.35% as of 3/31/13)
Coverage Ratio: 136.51%

This bank reports its capital ratios in its 10-Q filings. These ratios are excellent:

Click to Enlarge:

Page 43: 10-Q

This bank has been on my monitor list for some time. Recently, the shares have declined sufficiently for me to take a nibble. The shares were trading over $38 last summer and over $36 as recently as 4/11/14: NKSH Interactive Chart

I am not aware of any analyst estimates. The bank reported net income of $2.55 per diluted share in 2013. If I assume very modest growth this year to $2.65, which appears to be a reasonable ballpark type number, then the P/E based on that $2.65 estimate would be about 11.47 at a total cost of $30.4 per share.

Other relevant information includes the following:

I view it as important that a bank remained profitable during the recent Near Depression period and at least kept from reducing its dividend. Historical earnings information can be found in the 10-K's filed with the SEC. I found the relevant information in NKSH's 2010 Annual Report. Between 2006-2010, NKSH's net income and annual dividend rate increased each year. That is impressive under the circumstances.

Click to Enlarge:

Page 11: form10-k_2010

And, NKSH did not participate in the TARP program.

There is one detailed article about this bank, published by Seeking Alpha in December 2012. I left some comments to that article.

Saturday, June 28, 2014

DPG, RMT,CVO/Sold ROTH IRA: 50 EPRPRF at $24.65, 50 BPFHP at $24.7/Bought 50 DGRO at $24.82/Sold 50 AGIIL at $24.21-Roth IRA/Sold Taxable Accounts: 50 LARK at $23.5, 222+ Shares of VWITX at $14.11, 50 EVERPRA at $24.9


Stocks:
Stable Vix Pattern (Bullish)
Use of the VIX as a Timing Model
Short Term: Market Needs to Correct
Intermediate Term: Slightly Bullish
Long Term: Bullish

I am continuing to pare my stock allocation. The reduction is aimed at eliminating the net additions since February 2014.

I am doing some ETF paired trades, where I am not increasing my stock allocation, but simply shifting it a tad. I call that kind of movement nip and tuck. I will be discussing those paired trades in subsequent posts. I am currently running about two weeks behind in discussing my trades.

Green Street Advisors recently noted that REITs are selling at about 18 times adjusted funds from operations, compared with a twenty year average of 15. The MSCI REIT Index was yielding only 3.8% at the end of May. WSJ I profitably sold my small position in the Vanguard REIT ETF (VNQ) which can be bought and sold commission free in my Vanguard brokerage account. 

Bonds:
Short to Long Term: Slightly Bearish Based on Interest Rate Normalization

I am continuing to pare my bond allocation.

The preceding bond forecast assumes an average annual inflation rate of 2.25% over the next ten years. That would be within the current range forecast made by the market when pricing the 10 year TIP.

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Recent Developments:

Real GDP for the first quarter was revised down to a -2.9% annualized rate. This was the third and final estimate. News Release: Gross Domestic Product Excluding recessions, that -2.9% number was the worst GDP report going back to WWII. Even with that bad number, nominal GDP was still up 2.9% from a year ago. I do not attribute all of that decline to the weather.

The personal consumption price index (PCE) increased by .02% in May. Core PCE rose .2%. PCE rose 1.8% Y-O-Y (the rate was .8% Y-O-Y in February) Core PCE rose 1.5%. Real disposable income increased .2% in May. The personal savings rate for May was reported at 4.8%. Personal income rose .4%. Private sector wages increased by .05% and were up 4.3% Y-O-Y. On the negative side, consumer spending rose only .2% and was slightly negative adjusted for inflation. News Release: Personal Income and Outlays

The inflation and GDP numbers, taken together, raise the odds slightly of a Stagflation Scenario, which I do not view as likely.

HSBC's "flash" manufacturing PMI for China rose to 50.8 in June, better than expected and at a seven month high. markiteconomics.com

Markit's flash manufacturing PMI for the U.S. rose to 57.5 in June, "the strongest upturn in overall business conditions since June 2010". markiteconomics.com

A research report published under the auspices of the Russell Sage Foundation highlights the growing wealth disparity in the U.S. stanford.edu/pdf The 50th percentile went from a net worth of $87,992 in 2003 to $56,335. The 25th mean percentile went from $10,129 to $3,200. The 95th percentile went from $1,192,639 to $1,364,834. The 90th percentile increased from $736,853 to $763,099. Most Americans have their net worth tied up in their homes, and home prices have been much slower to recover than stocks.

Wage increases have barely kept up with inflation for most wage earners. Doug Short has a chart showing the growing spread in real incomes between the top quintile and the four others. That spread started to widen around 1985. A 45-Year Perspective Wealth created by increases in productivity has not been captured in comparable increases in wages. CNN Money Workers don't share in companies' productivity gains - Mar. 7, 2013A Decade of Flat Wages | Economic Policy Institute

Figure 2 at page 2 shows the disparities since 1984. The median household net worth has declined over that thirty year period.

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Duff & Phelps Global Utility Income Fund (DPG) 

This leveraged stock CEF has done well since I purchased shares. I first bought a 100 share lot after this Morningstar article published in November 2012. Item # 1 Bought 100 of the CEF DPG at $17.3 (11/29/2012 Post) I later added 100 shares in a Roth IRA, where I am reinvesting the quarterly dividend. Item # 3 Bought 100 DPG at $17.31 (December 2012)

My last add was earlier this year in a taxable account. Item # 7 Added 100 DPG at $18.58 (2/3/14 Post)

Sponsor's website: Duff & Phelps Global Utility Income Fund — Home

This leveraged stock ETF invests globally in electric, gas and water utilities, telecommunication companies and MLPs. CEFConnect Page for DPGDPG Page at Morningstar Those kind of stocks are viewed as bond substitutes by many investors. Consequently, this fund struggled in 2013 when interest rates started to spike up, but has performed well this year when rates started to move back down.

The fund is currently paying a $.35 quarterly dividend per share. Unadjusted for that dividend, the net asset value was reported at $21.46 on 12/31/13. The closing market price that day was $19.08, creating a discount at that time of -11.09%. By 6/20/14, the unadjusted net asset value had grown to $24.28, an increase of 13.14%, with a closing market price that day of $21.54 which created a discount of -11.29%. The discount has remained fairly constant YTD as the unadjusted net asset value increased significantly.

DPG has gone ex dividend twice YTD for its $.35 per share quarterly dividend. DPG Historical Prices

Besides the tailwind created by a decline in interest rates, which could easily reverse and turn into a headwind, this fund has benefited from merger and acquisition activity in the electric utility sector. The fund had, as of 1/31/14, significant positions in Pepco ((POM) and Integrys Energy Group (TEG), both of whom have received and accepted acquisition offers this year:



SEC Form N-Q Duff & Phelps Global Utility Income Fund (period ending 1/30/14)

Shortly before posting this blog, I noticed that DPG had filed its shareholder report, so I made a snapshot of the relevant portion showing that the fund still owned Pepco and Integrys as of 4/30/14:


Duff & Phelps Global Utility Income Fund Semi-Annual Report

Integrys rose last Monday after accepting an acquisition offer from Wisconsin Energy. Wisconsin Energy to acquire Integrys Energy Group for $9.1 billion in cash, stock and assumed debt Pepco agreed to be acquired by Exelon.

Closing Price Last Friday: DPG: $21.93 +0.10 (+0.46%)

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RMT Dividend: 

For about a year now, I have elected to receive RMT's dividends in cash which was ignored by the broker. I received 54.797 shares bought with a $673.45 distribution late last year. (snapshot in introduction to RMT; average cost per share for that reinvestment was $12.28)


Finally, the instruction was followed, and I received the last quarterly dividend in cash:


I am very concerned about small cap valuations and recently lightened my exposure to this stock CEF by selling my highest cost shares. Item # 9 Sold: 200 RMT at $12.8-Lowers Average Cost Per Share to $8.61 (snapshot of remaining 549+ shares).

According to Birinyi and Associates, the TTM P/E on the Russell 2000 is 84.41 which is calculated using "as reported" numbers. P/Es & Yields on Major Indexes - WSJ.com The forward estimated P/E, which is based on "operating earnings", is 19.6. The later excludes items that companies want investors to ignore.

Friday's Closing Price: Royce Micro Cap Trust (RMT) $12.54 +0.04 (+0.32%)

CEFConnect Page for RMT

I am likely, at some point this year, to sell my remaining highest cost shares, all purchased with dividends including the December 2013 distribution, provided I can do so profitably. I could do so now. This will enhance the value of those dividends and lower my average cost below the current $8.61 per share.

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Cenveo Second Lien Note:

Last week, I received a notice that my Cenveo second lien bond was being called by the issuer. That note has a 8.875% coupon and matures in 2018. Bought 1 Cenveo 2nd Lien at 92.499 An optional redemption requires a premium payment of 104.44 ($1,044.38 for 1 bond), plus accrued interest.

The proceeds for this redemption were raised last week. Cenveo Closes New Secured Notes Offering

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1. Bought 50 DGRO at $24.82 (see Disclaimer): This was a chicken buy. 

Snapshot of Trade:


Security Description: The iShares Core Dividend Growth ETF (DGRO) is a new and low cost ETF that focuses on dividend growth. 

One of the reasons for nibbling at this stock ETF was the .12% expense ratio. That simply means that the owner of this ETF will receive most of the dividends paid by the stocks owned by this fund (including, importantly for any long term holder, their dividend increases)  


Top Ten Positions as of 6/13/15:


As of 6/13/14, this ETF owned 269 stocks. DGRO Holdings 

The methodology for dividend increases is not as strict as some dividend growth funds. The increases in dividends only have to occur for five years. The payout ratio has to be less than 75%. A stock can remain in the index without an increase in the dividend provided it reduces its shares outstanding by stock buybacks and does not decrease the dividend. In my dividend growth strategy, I would prefer for my initial purchase a payout ratio of less than 50% and at least 10 years of consecutive dividend increases. 

Prior Trades: None. This is a new ETF. 

Rationale/Future Buys and Sells: Given the robust rally in stocks since March 2009 and particularly the move since August 2011 without a correction, I am hesitant to buy stock funds and that is reflected in my 50 share nibble. I would like to see at least a 15% correction, sooner rather than later, that will make stocks slightly more attractive than now.

Consequently, I would average down with another 50 share purchase, but will not average up. Instead, if this ETF went up in price by 10% or so without the market correcting, I would more likely than not sell this odd lot.

Closing Price Last Friday: DGRO: $25.07 +0.14 (+0.56%)

The remaining trades involve the downsizing of my fixed income portfolio and reflect my small ball and hyper trading approaches for this asset class. 

2. Sold 50 AGIIL at $24.21-Roth IRA (see Disclaimer):

Snapshot of Trade:




Snapshot of Roth IRA History:




Snapshot of Profit: 


2014 AGIIL 50 Shares +$186.48

Total Return= $227.1 or 22.33% in about 6 months

Item # 6 Bought 50 AGIIL at $20.2 (December 2013 Post)

Prior Trade: Item # 2 Sold: 50 AGIIL at $24.48 (6/7/14 Post)(snapshot realized gain=$152.58; total return $193.2 or 18.17% in about 7 months)-Item # 3 Bought:  50 AGIIL at $21.11 (October 2013 Post)

Total Return 100 Shares (two 50 share lots, different accounts)=$420.30 

Security Description: The Argo Group International Holdings Ltd. 6.5% Senior Notes Due 2042 (AGIIL) is a senior unsecured bond issued by the Argo Group, a U.S. subsidiary of the Argo Group International Holdings Ltd.  (AGII). This note makes quarterly interest payments at the fixed coupon rate of 6.5% per annum on a $25 par value. The issuer has the option to redeem at par plus accrued interest on or after 9/15/2017. If not redeemed early by the issuer, the notes matures in 2042. (asymmetric interest rate risk favoring the issuer)

Final Prospectus Supplement

Rationale: Bond yields are not properly reflecting current inflation and inflation expectations. That is just a huge understatement in my opinion.

The benchmark yields, which are established by the "risk free" treasuries, have been manipulated to artificially low levels. I simply do not view the current yield at my sale's price to be worth the risks inherent in this potentially long term bond, whose interest rate risk is asymmetric between the issuer and its owner.

When selling a bond in the Vanguard Roth IRA, I have been reinvesting the profit in a low cost Vanguard stock ETF, usually buying between 5 to 10 shares commission free. The profit from AGIIL was used to buy 5 more VWO shares. Vanguard FTSE Emerging Markets ETF (expense ratio .15%; 959 stocks as of 5/31/14)

Future Buys: I will want an 8% current yield before I would consider repurchasing this exchange traded bond.

Closing Price Last Friday: AGIIL: $24.64 +0.22 (+0.90%)

3. Sold 50 EVERPRA at $24.9 (see disclaimer):

Snapshot of Trade:

2014 Sold 50 EVERPRA at $24.9

Snapshot of History:



Snapshot of Profit:

2014 EVERPRA 50 Shares +$128.47
Item # 5 Bought: 50 EVERPRA at $22.05 (10/31/13 Post)

Total Return=$170.65 or 15.38% 

Security Description: The EverBank Financial Corp. 6.75% Non-Cumulative Perpetual Preferred Series A  (EVER.PA) is an equity preferred stock issued by the bank holding company EverBank Financial  (EVER) that pays non-cumulative and qualified dividends at the fixed coupon rate of 6.75% on a $25 par value. Final Prospectus Everbank has the option to redeem this security at its par value on or after 1/5/2018.

Rationale: Under the current trading rules, I will consider selling a fixed coupon equity preferred stock when the current yield falls to 7% or lower based on the market price. The yield is about 6.78% at a total cost of $24.9 per share.

I am in a hyper trading mode for equity preferred securities. If I can capture a 10% to 15% annualized return in a few months, I am more than willing to harvest that gain and then simply wait for a better buying opportunity.

Looked at another way, the profit of $170.65 is equivalent to more than two years of quarterly dividend payments captured in advance.

At their current prices and yields, interest rate and volatility risks to the price tilt the risk/reward balance toward disposition based on my opinions and goals (preservation of capital is more important to me than income generation).

Future Buys: Before considering a repurchase of even a 50 share odd lot, I would want a yield greater than 7.5%, preferably over 8%. The yield was about 7.65% at a $22.05 total cost per share.

Closing Price Last Friday: EVER-PA: $24.85 +0.07 (+0.29%)

4. Sold 50 LARK at $23.5 (REGIONAL BANK BASKET STRATEGY)(see Disclaimer):

Snapshot of Trade:

2014 Sold 50 LARK at $23.5
Snapshot of Profit:

2014 LARK 50 Shares +$174.07
Item # 3 Bought  50 LARK at $19.7 (1/13/14 Post)

I owned the shares long enough to receive two quarterly dividend payments, totaling $19:


Total Return: $193.07 or 19.44% (holding period 5+ months)

Company Description: Landmark Bancorp Inc. (LARK) is a bank holding company that owns Landmark National Bank which currently has 30 branches located in 23 communities across Kansas. Landmark National Bank Locations

Last Earnings Report: Q/E 3/31/14

Quarterly Dividend= $.19 per share Landmark Bancorp Inc. (LARK) Dividend History

Prior Trade: SOLD 52 LARK at $18.75 (1/9/12 Post)(snapshot realized gain=$91.89)-Bought 50 LARK @ 16.6 (5/2/11 Post)

Total Trading Gains=$265.96

Rationale: For some reason, this stock popped from a $19.8 close on 6/11/14 to a $23.59 close on 6/17/14, hitting a high intra-day of $23.98 on June 17th. I noticed that pop and elected to sell my shares on the 18th, thinking correctly as it turned out that the stock would quickly reverse gears and turn back down. LARK Historical Prices

Future Buys: I will consider buying this one back below my last purchase price.

Closing Price Last Friday: LARK: $19.91 -0.03 (-0.14%)

5. Sold Entire Position in VWITX (see Disclaimer)

Snapshot of Recent History:




Snapshot of Profit:


2014 VWITX +$74.91
Bought Back VWITX at $13.77 (10/7/13 Post)

Closing Price 6/19/14: VWITX: $14.11 +0.01 (+0.07%)

Rationale: This fund was a temporary repository for funds earning .01% in a Vanguard MM fund. The SEC yield of this fund, as of 6/18/14, was 1.79%, providing me with a negative real rate of return based on both the current and reasonably anticipated CPI numbers.

I would just as soon receive zero percent without risk as 1.79% with interest rate and credit risks. The average duration of this fund, as of 5/31/14, was 4.8 years. Vanguard - Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares A 1% rise in rates would cause about a 4.8% decline in net asset value or well over two years of dividends.

Future Buys: I have reached the point where I have no interest whatsoever in bond funds that have yields anywhere near this one.

6. Sold 50 BPFHP at $24.7-Roth IRA (see Disclaimer): Prior to this sell, I owned 150 shares, with 50 shares held in three separate accounts. I somehow came to the erroneous conclusion that I owned 100 shares which is what I reflected in the last relevant table: Stocks, Bonds & Politics: Update on Exchange Traded Bonds and Preferred Stock Table as of 5/16/2014 This kind of mistake would not have happened a few years ago, but is occurring now. Forgetting how many shares are owned would not happen if I only had accounts at one brokerage company or bought a security only in one brokerage account.

I consequently decided to sell my highest cost lot held in a Fidelity Roth IRA account. Snapshots of the other two 50 share lots can be found below in the "Prior Trades" section.

Snapshot of Trade:

2014 Roth IRA Sold 50 BPFHP at $24.7

Snapshot of Profit: 


2014 Roth IRA 50 BPFHP +$51.58

Bought Roth IRA: 50 BPFHP at $23.35 (5/10/14 Post)

I did hold this security long enough to receive one quarterly dividend payment:


Total Return: $73.3 or 6.24% (holding period about 2 months)

Security Description: The Boston Private Financial Holdings Inc. Non-Cumulative Perpetual Preferred Series D (BPFHP) is an equity preferred stock that pays qualified and non-cumulative dividends at the fixed coupon rate of 6.95% on a $25 par value. Prospectus

Prior Trade: For the remaining 100 shares, I purchased 50 shares in my main taxable account at Fidelity:

BPFHP Main Taxable Account as of 6/27/14/Purchased 12/6/13
Item # 2 Bought: 50 BPFHP at $22 (12/10/13 Post)

The other 50 share lot was bought in a satellite taxable account and was apparently not discussed in this blog:



Related Trade: I also own the common stock in my Regional Bank Basket strategy. Bought: 50 BPFH at $12.35 (5/10/14 Post)

Rationale: The current yield at a total cost of $24.7 per share was 7%. I am selling fixed coupon equity preferred stocks when the yield at the market price falls to 7% or less. That marker is based on a judgment that the balance between interest rate risk and income generation tilts toward disposition at a profit.

Future Buys/Sells: I will want  a 7.5% to 8% yield to buy back these shares. I am currently leaning toward keeping 50 of the remaining 100 shares until I can sell them above the $25 par value. The other 50 shares could be sold at anytime.

Closing Price Last Friday: BPFHP: $24.75 +0.05 (+0.20%)

7. Sold 50 EPRPRF at $24.66-Roth IRA (see Disclaimer): 

Snapshot of Trade:

2014 Roth IRA Sold 50 EPRPRF at $24.66

Snapshot of History:



Item # 1 Bought Roth IRA: 50 EPRPRF at $22.5 (3/17/14 Post)

Snapshot of Profit:


2014 Roth IRA $0 EPRPRF +$93.98

Total Return: $114.68 or 10.13%

Security Description: EPR Properties 6.625% Series F Cumulative Preferred (EPR.PF) is an equity preferred stock that pays cumulative and non-qualified dividends at the fixed coupon rate of 6.625% on a $25 par value. The issuer has the right to redeem on or after 10/12/2007: Prospectus

Related Trade: Bought  30 EPR at $53.3

Rationale: The yield at $24.66 is about 6.72%. The same rationale for selling this equity preferred discussed above applies to this transaction.

Future Buys: I will want a current yield of at least 7.5%, and preferably over 8%, before considering the purchase of this potentially perpetual equity preferred stock. I will take into consideration the current interest rate environment when and if the minimum yield bogey is hit as wells as the then existing credit risk issue.

Closing Price Last Friday: EPR-PF: $24.35 -0.21 (-0.86%)

***********

This post is long enough.

I will discuss more pares in the bond segment of my portfolio in the next post.

I lump equity preferred stocks with bonds since their bond characteristics are more dominant than their equity features. Many of their equity features are undesirable including their potential perpetual terms without actually having an equity interest in the business and with interest rate risk being asymmetric with the issuer. I view equity preferred stocks as a disfavored asset class and will consequently attempt to trade them opportunistically.

I discuss the many disadvantages of REIT equity preferred stocks in this Gateway Post: REIT Cumulative Preferred Stocks: Advantages & Disadvantages

At least REIT preferred stocks pay cumulative dividends which is not the case for bank holding companies.

Saturday, June 21, 2014

MDT, LXP/Added to PRPFX/SOLD Taxable Accounts: 100 CSX at $30.4, 100 FULL at $8.3, 200 XDV:CA at C$25.51, 100 MSF at $16.2, 50 WARFY at $14.82/Added 100 D_UN:CA at C$28.8


Stocks:

Stable Vix Pattern (bullish):
Short Term: Markets Needs a 15% Correction
Intermediate Term: Slightly Bullish (gain since August 2011 borrows from the future)
Long Term: Bullish

After computing that I had unintentionally increased my stock allocation by a net $31,000+ between February 2014 and early June, I am now embarked on reducing that allocation by an equivalent amount. Stock and Stock Fund Update 6/6/14  

Since I am no longer in an asset accumulation phase, preservation of capital and income generation have become paramount considerations. It is not necessary for me to squeeze every last dollar out of bull move. 

Bonds: 
Short to Long Term: Slightly Bearish Based on Interest Rate Normalization 

The bond forecast assumes an average annual CPI rate between 2% to 2.25%, consistent with the range predicted in the 10 year treasury TIP pricing.

There was a slight uptick in the break-even spread for the 10 year TIP last week. The break-even closed last Friday at 2.28%, the average annual CPI rate over the next 10 years for the 10 year TIP to break-even with the buyer of the non-inflation protected security. The close on the prior Friday (6/13/14) was at 2.19%.

The break-even spread is calculated by subtracting the real current yield, Daily Treasury Real Yield Curve Rates, from the nominal non-inflation protected yields for each maturity, Daily Treasury Yield Curve Rates.

Bill Gross believes that the new "neutral" federal funds rate will be 2% rather than the historic 4%. If that is the case, and assuming inflation remains around a long term 2% average going forward, then this would have material impacts on the relative prices and valuations of both bonds and stocks.

The Fed's lack of concern about inflation makes me even more nervous about my bond and equity preferred stock allocation. I am consequently reducing that allocation, virtually on a daily basis, and increasing my cash allocation. Some investors may want to wait until the worm clearly turns again against bonds, as it did in a mild way starting in May 2013. I am not one of those investors. I do not find the current yields to be sufficiently appetizing or enticing for the actual and potential risks. Sure, I would prefer to earn 4% in a MM fund rather than .01%, but I also place an emphasis on capital preservation ahead of income generation. That balance is shifting toward capital preservation for the bond/preferred stock side of the portfolio.
*************************

Recent Developments:

CPI increased .4% in May on a seasonally adjusted basis. Over the last 12 months ending in May, CPI increased 2.1% before seasonal adjustment. Core CPI increased .3%, the largest increase since August 2011. Over the past three months, CPI has risen at a 3.3% annual rate. Core CPI has risen at a 2.8% annual rate over the last three months. Consumer Price Index Summary

The Atlanta Fed's flexible CPI, a weighted index of prices that frequently change, rose at a 7.5% annualized pace in May and was up 2.2% Y-O-Y in May. The sticky CPI, a weighted index of items that change price relatively slowly, increased at a 2.9% annualized rate in May. Sticky Price CPI - Federal Reserve Bank of Atlanta

As expected, the FED reduced its asset buying spree by another $10 billion per month starting in July. The new limits will be $20B in treasuries and $15B in mortgage backed securities. FRB: Press Release--Federal Reserve issues FOMC statement--June 18, 2014

Economic projections are released each quarter by the FED. The most recent projections decreased real GDP growth in 2014 and the ranges for unemployment in 2014-2016. The FED continues to forecast very subdued inflation:


federalreserve.gov.pdf 

In my opinion, the FEDs forecasts for PCE price inflation-ranging between 1.5% to 2% for the next 2 1/2 years-will probably be too low.

As noted by the Deutsche Bank economics team, the FED is basically saying that the inflation adjusted FF rate will be negative when the U.S. attains full employment. That is just bizarre. I would agree with the statement made by those economists that it "is highly unlikely that inflation will be as quiescent as the current FOMC forecasts suggests". Those economists believe, as I do, that there is a cyclical upswing in pricing power and inflation and that the vast improvements in consumer balance sheets is a "powerful tailwind" for consumer spending going forward. Barrons.com That balance sheet improvement is highlighted in stark terms by the FED's DSR Ratio: Household Debt Service Payments as a Percent of Disposable Personal Income- St. Louis Fed

Eleven FED members now anticipate that the FF rate will be 1% or higher by the end of 2015, and a clear majority expect the FF rate to end 2016 at 2% or higher:



Those consensus forecasts are particularly important for leveraged bond funds and Mortgage REITs, both of whom buy longer dated securities with short term borrowings.

The current FED prefers to use the PCE price index rather than CPI. The PCE price index has been running lower than CPI for several years now, as noted by the St. Louis FED President Bullard.  CPI vs. PCE Inflation: Choosing a Standard Measure The PCE price index number is released once a month as part of the "Personal Income and Outlays", with the next release scheduled for 6/26.

As I noted previously, the PCE price index has a about a 20.6% weighting in medical costs, compared to about 7.1% in the CPI Index. CPI and the PCE Giving Different Estimates of Inflation? -Federal Reserve Bank of Cleveland

Medical costs have started to accelerate.

A WSJ published last week noted that premiums for health plans offered by major insurers were going to rise anywhere from 8.5% to over 22% later this year.

The FED did not acknowledge the uptick in inflation when announcing its recent monetary policy decision. Yellen stated in the press conference last Wednesday that the recent rise in inflations is noise. WSJ

In last week's Barron's 2014 Midyear Roundtable, Abby Cohen noted that GS is predicting a 3.25% ten treasury yield by year-end with the S & P 500 at 1900. If the ten year treasury yield prediction proves to be accurate, there will be some pain endured by bond investors later this year. The ten year closed yesterday at 2.63% yield. Daily Treasury Yield Curve Rates

Industrial production rose .6% in May. Total capacity utilization increased .2% to 79.1%, one percentage below it long run average. Industrial Production and Capacity Utilization

***************************
Medtronic (own):

In another proposed tax inversion merger, MDT announced last Monday an agreement to acquire Covidien PLC (COV), a company based in Ireland.

MDT expressly conditioned the consummation of this merger on no change in the IRS code provision that makes tax inversion deals possible. NYT

In addition to potentially securing Ireland's lower tax rate, MDT can use its overseas cash to fund the cash component of the deal, at least in part, and would acquire a diversified portfolio of medical supplies and devices that do not overlap with its own products. I would generally agree with the positive take given in this Barron's article.

It serves no useful purpose to discuss my personal opinions about U.S. corporations reducing their U.S. tax payments in this fashion. I would just note that MDT's recent effective tax rate was close to 18%, less than a large number of individual taxpayers.

And, the EU has launched an investigation into whether Ireland's tax code constitutes illegal state aid. Reuters; WSJ The abnormally low tax rates and favorable tax provisions offered by small countries like Ireland and Luxembourg slash corporate tax bills throughout the developed world, as corporations devise various shell games to eliminate or substantially reduce profits in any higher tax jurisdiction, even those with much lower marginal tax rates than the U.S.

A recent article in the International Business Times highlights how Amazon reduces its U.K. tax obligation to virtually nil by routing orders from its U.K. customers electronically through a Luxembourg corporation who then charges a fee to Amazon's U.K. to deliver the product.

These tax legerdemains are really quite elaborate, as shown in a Senate report from 2013 that focused just on some of Apple's maneuverings. (40 page report on Apple can be downloaded at Hearings| Homeland Security & Governmental Affairs Committee, exhibit 1A left side of page)

As I noted in a recent SA comment, my opinions on the wisdom of these tax dodges are irrelevant. The reality of those tax avoidance schemes, and any change in them, are simply factors to consider when making investment decisions.

As an owner of MDT stock, and focusing just on that ownership interest, I would like to see a lower effective tax rate.

MDT stock did gain over $3 per share last week:

Closing Price Last Friday : MDT: $63.86 -0.81 (-1.25%)
Closing Price 6/13/14: $60.7 MDT Historical Prices

***********************
Lexington Realty (own):

Most REITs do not qualify for purchase under my dividend growth strategy. The dividend history of LXP illustrates some of the reasons.

Lexington Realty increased its quarterly dividend from $.165 to $.17 per share. That is about a 3% raise. While that is better than no increase, a dividend growth rate of 3% will take about 23.45 to double the dividend rate. Inflation has historically increased in the U.S. at about a 3% rate. While the future inflation rate may average 2.25% to 2.5% over the next 20 years, the real value of a 3% annual increase is minimal under either long term scenario.

Many REITs slashed their dividends in response to the last recession. LXP reduced its quarterly dividend rate in stages, going from a $.375 quarterly rate in 2007 to $.1 in 2010. Lexington Realty Trust (LXP) Dividend History

That kind of history is an automatic disqualification under a dividend growth strategy. Instead, I bought LXP shares based on valuation and current income considerations.

Since 2010, LXP has gradually been raising the quarterly rate. The last raise has not even returned the rate to 50% of its 2007 level. At a 3% annualized rate, it is unlikely, though conceivable, that I will live to see the dividend restored to its 2007 quarterly rate.

How does one measure a dividend increase? I would not call a rise from $.165 to $.17 a dividend increase when the firm was paying$.375 per share a few years ago.

When and if LXP returns to the $.375 rate, and assuming I am still among the living, I will call a raise above that amount a dividend raise, the first since LXP increased its rate from $.365 to $.375 back in the 2007 first quarter.

My first foray in an LXP security was during the Near Depression when I bought its equity preferred stocks. My first purchase of its common shares occurred late last year.

Bought:  100 LXP at $10.33 (12/3/13 Post)

Added 50 LXP at $9.95-ROTH IRA (1/31/14 Post)

So, I can be forgiving of LXP's past, as a new owner who did suffer financially for what happened to this REIT during the last recession. Both the share price and the dividend have a long, long way to go before being restored to their respective highs prior to 2008. LXP Interactive Chart

Given its dividend history, I will mostly likely be in a trading mode for this 150 share position.

Closing Price Last Friday: LXP: $11.50 +0.09 (+0.79%)

**************
Canadian Dollar Rising Against the USD:  

A higher than expected reading for inflation sent the CAD up in value yesterday. Bloomberg CPI rose 2.3% in May Y-O-Y. Yesterday, the CAD rose slightly above its 200 day SMA against the USD.

The recent rise in the CAD/USD provides a tailwind for Canadian securities that are traded in the U.S. and priced in USDs. That rise has given my Canadian energy stocks priced in USDs an added boost in price:

CNQ: $45.21 +1.05 (+2.38%) : Canadian Natural Resources

SU: $42.92 +0.49 (+1.15%) : Suncor Energy

When I last took a snapshot comparing the prices of CNQ and CA:CNQ, the ordinary shares were outperforming the U.S. listed shares by about 10%. That underperformance has shrunk to about 5% after the recent rise in the CAD:

One Year Chart Through 6/20/14
CNQ.TO: C$48.57 +0.76 (+1.59%)
SU.TO: C$46.07 +0.13 (+0.28%)
***************************************

1. Sold 100 CSX at $30.4 (see Disclaimer):

Snapshot of Trade:


Snapshot of Profit:

2014 CSX 100 Shares +$390.78

Company Description: CSX (CSX) has approximately 21,000 miles of track and access to 70 ports and nationwide transloading and warehouse services. Welcome to CSX.com - CSX One of those rail lines runs near my home in route from Nashville to Birmingham. I can affirm without any doubt that the conductor touts a very loud horn when a train approaches a nearby intersection. 



Rationale: As noted when I bought this stock, which has a snapshot of the intersection near my home, I wanted to earn some compensation for that horn honking waking me up at 3:00 A.M. in the morning. Since I was most unlikely to receive compensation from CSX for this public nuisance, even with a most persuasive letter written by our LB with many citations to appropriate authorities, I elected to receive compensation in a more indirect fashion by owning the stock With this $390 gain, I believe that I have been adequately compensated for the past three months of having my peace and solitude disrupted by that horn. 

The TTM P/E at my sale's price was over 17 which is high for a cyclical name struggling with earnings growth at the moment. 

Other more mundane reasons include valuation, a small dividend yield and the fact that I am reducing my stock allocation to erase the total additions made earlier this year. Something has to be sold to bring myself back into compliance with Headknocker's strong admonition that there shall be no stock net add additions under the current market conditions (LB has calculated that $55,000 has been added to the stock allocation since October 2013 notwithstanding HK's clear warning) 

Future buys: Depending on my big picture opinions, including the sustainability and acceleration of economic growth, I may come back to this name at or near the last buy price. I have no interest in CSX at the current market price.

Closing Price Last Friday: CSX: $31.00 +0.17 (+0.55%) 

2. Sold 100 FULL at $8.3 (see Disclaimer): 

Snapshot of Trade:



Snapshot of Profit:

2014 FULL 100 Shares +$34.6

Bought: 100 FULL at $7.8 (3/3/14 Post)

Company Description: Full Circle Capital Corp.  (FULL) is a small BDC.

Full Circle Capital Profile Page at Reuters

Rationale: This purchase was in part made due to the potential speculative appeal of FULL's investment in Advanced Cannabis Solutions (CANN). That investment does not appear likely to provide much upside to FULL's net asset value per share.

The net asset value per share was reported at $7.2 as of 3/31/14, down from $8.01 on 6/30/12, page 1 10-Q

This BDC's managers, like all others who are externally managed, do not deserve their generous pay in my opinion.

When discussing the purchase, I highlighted some negatives including a recent dividend cut and losses associated with two investments.

Given the many negatives and the only positive being the dividend yield, I elected to sell the position as part of my stock allocation pare.

Future Buys: Not likely. I view this BDC with more disfavor than the normal disfavor reserved for BDCs.

Closing Price Last Friday: FULL: $7.62 -0.11 (-1.42%)

3. Sold 200 shares of the Canadian Stock ETF XDV:CA at C$25.51 (Canadian Dollar (CAD) Strategy)(see Disclaimer):

Snapshot of Trade: 

2014 Sold 200 XDV:CA at C$25.51


Snapshot of Original Purchase:

2013 Bought 200 XDV:CA at C$22.21

I received in proceeds C$622 more than I used to buy this security. Since I am a U.S. taxpayer, my profit is calculated by converting CADs into USDs. Since the CAD declined against the USD after my purchase, my taxable profit was not C$622,  but USD$190.78.  

This security was purchased pursuant to my Canadian Dollar Strategy. I increased my Canadian Dollar stash by C$622 plus dividends paid by this ETF.

Snapshot of Profit In USDs:

2014 XDV:CA 200 Shares +USD$190.78
Bought 200 XDV at C$22.21

Security Description: The iShares Dow Jones Canada Select Dividend Index Fund (TOR: XDV) is a Canadian stock ETF that owns the 30 stocks with the highest dividend yields in the Dow Jones Canada Total Stock Market Index. XDV Holdings - iShares ETFs

Distributions are paid monthly: iShares ETFs

Rationale: This security served its purpose in increasing my CAD stash. I still own another general Canadian stock ETF: iShares S&P/TSX Canadian Dividend Aristocrats Index (CDZ:TOR). I also own 200 shares of a Canadian stock CEF Canadian General Investments, and two other stock Canadian stock ETFs. So I have some duplication here, and I reduce my stock allocation some too.

The expense ratio is high at .55% for this kind of ETF. XDV Overview - iShares ETFs

Also, it is undesirable for to have a Canadian security priced in CADs remain constant in price, while the value of the CAD rises against the USD, assuming I want to sell the position for a profit. In that kind of scenario, I would be increasing my tax liability without receiving more CADs when I elected to sell the security.

Future Buys: I may buy this one back but only after a significant correction that takes the price at least 15% below C$25.

Closing Price Last Friday: XDV.TO: C$25.50 -0.04 (-0.16%)

4. Sold 100 MSF at $16.2 (see Disclaimer):

Snapshot of Trade:


Snapshot of Profit:

2014 MSF 100 Shares +$86.07
Bought: 100 MSF at $15.18 (12/3/13 Post)

Total Realized Gains: $630.95 ($86.07 plus prior gains noted below)

Prior Trades: Sold 201+ MSF at $15.62 (snapshot of profit: $109.64). In the preceding linked post, I also included a snapshot of two trades made in 2011 that netted $403.14 in profits. Sold 100 MSF at $17.02 (November 2010)-Added 100 MSF at $13.57 (July 2010)


Sold 100 of 200 MSF at 16.2 (April 2011)(realized gain $32.1)- Bought 100 MSF at $15.68 (January 2011)

2011 MSF 100 Shares +$32.1
Security Description: The Morgan Stanley Emerging Markets Fund (MSF) is a relatively high cost stock CEF that invests in EM stocks.

CEFConnect Page for MSF

Last SEC Filed Form N-Q (holdings as of 3/31/14)

Rationale: This fund was not producing any income. The last dividend payment was $.0526 per share paid on 7/15/13.

At the current time, I am in a stock allocation pare mode. A stock fund that fails to generate income is a candidate for disposition.

I will continue to add low cost EM ETFs that can be bought commission free in my brokerage accounts.

In my Vanguard brokerage account, I can buy VWO commission free which has a .15% expense ration: Vanguard - Vanguard FTSE Emerging Markets ETF I have bought and sold that one and currently have a small number of shares.

Fidelity currently offers a few on a commission free basis, including IEMG, EEMV, DVYE, EEMS, and EEME.  Of those, I currently own IEMG and EEMV:

iShares Core MSCI Emerging Markets ETF (IEMG)(expense ratio at .18% after a .02% waiver through 12/31/14)

iShares MSCI Emerging Markets Minimum Volatility ETF | EEMV (expense ratio at .25% after .42% waiver through 12/31/14)

I may dump EEMV when the waiver expires.

MSF: $16.03 -0.06 (-0.37%)

5. Sold 50 WARFY at $14.822 (The $500 to $1,000 Flyers Basket Strategy)(see Disclaimer): This is my third round trip for a 50 share lot. I did stick around long enough this time to collect a dividend.

Snapshot of Trade:

2014 Sold 50 WARFY at $14.822

Snapshot of Profit: 

2014 WARFY 50 Shares +$71.18
Bought:  50 WARFY at $13.08 (5/24/14 Post)

The foregoing snapshot includes two prior transactions, including one that was not discussed in this blog.

Total Realized Gain 2014: $187.94

Prior Trades: Item # 6 Sold 50 WARFY at $14.51 (4/26/14 Post)-Bought 50 Wharf Holdings at $12.2 (4/1/14 Post)

Security Description: Wharf (Holdings) Ltd. (4:HKG) is a Hong Kong conglomerate operating in three business segments (1) property development in China, (2) investment properties and (3) logistics, hotels, communications, media and entertainment. The Wharf (Holdings) Limited

WARFY is an ADR traded on the U.S. pink sheet exchange (1 ADR=2 ordinary shares)

Rationale: I simply used this position as a source of funds in my ongoing stock allocation reduction.

Future Buys: I am apparently in a trading mode for this security. If the price falls back to where I have been nibbling, I will consider doing the same flip a fourth time.

Closing Price Last Friday: WARFY: $14.56 +0.08 (+0.55%)

6. Added 100  D_UN:CA at C$28.8 (Canadian Dollar (CAD) Strategy)(see Disclaimer): With this add to an existing position, I pick up about a 7.78% yield on my Canadian Dollars earning nothing otherwise.

Snapshot of Trade: 



Security Description: Dream Office Real Estate Investment Trust (D.UN:TOR) is a Canadian REIT that owns "high quality" office buildings in "key markets" across Canada with approximately 24.6M square feet of leasable space Dundee REIT - Portfolio - Portfolio Overview

Dream Office is currently paying a monthly dividend of C$.1866 per unit. Distribution History At that rate, the dividend yield at a total cost of C$28.8 per unit is about 7.78%. 

List of Properties in PDF Format:  Property List-12-31-2014.pdf

Major Tenants:



Prior Trade: This REIT was called Dundee REIT and recently changed its name to Dream Office REIT. Bought: 100 Dundee REIT at C$29.35 (3/3/14 Post)

Last Earnings Report: For the 2014 first quarter, Dream Office  reported AFFO per unit at C$.62 Diluted FFO increased C$.72. NOI from comparative properties increased .6%. Occupancy, included future commitments on vacant space, stood at 94.2%. Net debt-to-gross book value was 47.6%. The weighted average interest rate was 4.23%. The dividend payout ratio was 90% based on AFFO and 77% based on FFO. Q1-2014.pdf

The calculations of both FFO and AFFO can be found at page 30.

The company made C$4.9M in building improvements during the quarter, "substantially all of which are recoverable from tenants". (page 15)

Rationale and Risks: I discussed these items in the earlier post Bought: 100 Dundee REIT at C$29.35 The company discusses risks incident to its operations starting at page 43 of its 2012 Annual Report.pdf.

On the downside, recent same store NOI growth has been lackluster.

The AFFO payout ratio is at or near 90%. Unless that payout ratio falls significantly, I would not expect a dividend raise, or any raise would be insignificant (e.g. a fraction of a Canadian penny)

Closing Price Last Friday: D-UN.TO: 29.49 +0.15 (+0.51%)

7. Added $250 to PRPFX Last Thursday (see Disclaimer): 

PRPFX Position as of 6/19/14:

Unrealized Gain= $2,213.53 as of 6/19/14

I will add varying amounts to this fund annually, which I have owned since 2005 without selling any shares.  

This "moderate allocation" fund will maintain a relatively constant allocation among several asset classes. The fund will maintain a large position in gold and silver bullion which helped the fund between 2002 to about September 2011, but caused the fund to underperform over the past three years. Gold and silver prices perked up some last week.

Top 25 Holdings- MSN Money

PRPFX Page at Morningstar (currently rated 3 stars)

Last SEC Filed Shareholder Report: SEC Form N-CSR (holdings start at page 6; gold and silver bullion then at 25.73%; Swiss Government Bonds at 9.45%; REITs and Natural Resource Stocks at 16.76%; Growth Stocks at 16.95%; short term investment grade corporate bonds at 10.3%; U.S. treasuries at 20.39%)

I view this portfolio design as one tilted toward a disaster kind of scenario.

Normally, this fund pays only a small annual distribution. Last year was an exception with a $4.6 per share dividend, mostly sourced from long term capital gains.

I last discussed this fund when making another small add on 12/31/2013: Item # 6 Added to Vanguard Wellington (VWELX) and the Permanent Portfolio at $43.06 (PRPFX) That post has the snapshot of the shares purchased with the 2013 year end distribution: 20.849 shares at $43.07.