Big Picture: No Change
Stable Vix Pattern (Bullish):
Recent Developments:
Bill Gross is out with another prediction that the bull market is dead. The End of Days has finally arrived when investors finally realize that central bankers are the proverbial emperors with no clothes. "The goods times are over". Gross seems to be in agreement with Jeff Gundlach, another bond manager, that he only asset class likely to generate positive returns will be bonds. So I suppose that everyone needs to see their money to funds manage by those two gentleman in order to avoid "minus signs".
ADP reported that the private sector added 241,000 jobs in December. ADP revised its November estimate to 227,000 from 208,000.
Inflation in the Eurozone declined .2% for the 12 month period ending in December. Eurostat
Eurostat reported that the November unemployment rate was 11.5% in the Euro area.
MarketWatch has a good article summarizing the potential negative impacts flowing from deflation and high unemployment.
******************
1. Sold 100 MRGE at $3.54 (Lottery Ticket Basket Strategy)(see Disclaimer):
Snapshot of Trade:
Snapshot of Profit:
Total Return Percentage= 35.26%
Bought: 100 MRGE at $2.48 (11/25/13 Post)
For most of my ownership period, the return was either slightly positive or negative. MRGE Interactive Stock Chart The stock recently experienced a strong percentage up move after reporting better then expected earnings for the 2014 third quarter. Merge Reports Third Quarter Financial Results
I am attempting to improve my cash flow some without drawing down my cash allocation which is currently near 25% of investable assets. I will consequently sell some low yielding or non-income producing securities and then use the proceeds to buy higher yielding ones. Merge Healthcare does not pay a dividend.
I am allowing the cash flow to mostly build up based on what I perceive to be an overall lack of desirable investments.
2. Bought Back 100 JDD at $11.65 (see Disclaimer):
Snapshot of Trade:
Security Description: The Nuveen Diversified Dividend & Income Fund (JDD) is a leveraged closed end fund that invests relatively equal amounts in 4 asset classes: (1) U.S. and foreign dividend paying stocks; (2) REITs; (3) emerging market sovereign debt and (4) adjustable rate senior loans. That last category will consist of junk rated securities.
During my periods of ownership, I have found that one or two of those four asset classes will be a drag during a calendar year. In 2014, REITs would have been the primary driver of total returns, with assists from dividend paying stocks and probably emerging market sovereign bonds.
I can not measure the performance of the fund's EM sovereign bond holdings. The foregoing statement about 2014 is based on the 9.14% total return of PowerShares Emerging Markets Sovereign Debt ETF ETF.
The fund's overall 2014 performance was probably dragged some by the senior loan component. The PowerShares Senior Loan ETF (BKLN) had a 2014 total return of .7% based on net asset value, which means that a share price decline offset most of the dividend income.
I would not hazard a guess which asset classes will contribute to or detract from total returns in 2015. That unpredictability is one reason for diversification, where the overall performance of the asset allocation is more important than any single component.
Oppenheimer provides quarterly a digital chart presentation of how various asset categories perform over time, along with other helpful information. The last report was dated 9/30/14: Capital Markets Chart Book Q4 2014 Several of those charts are relevant to JDD's asset allocation.
The taxable fixed income chart at page 25 shows that emerging market bonds had a bad year in 2013, falling 8.98%. That was due to the interest rate spurt in U.S. rates that year that caused declines in emerging market currencies and bonds. However, emerging market bonds were the best performing bond category for 4 years straight starting in 2004 and in 2010 and 2012. So these performance numbers come and go over time and are frequently unpredictable ahead of time. Who predicted that the price of crude oil would collapse in 2014 in 2013?
Another relevant chart for emerging market debt can be found at page 34. The chart shows that emerging market debt yields are higher than developed markets, which is not hard to do at the current time, even though their public debt levels as a percentage of their respective GDPs are more sustainable.
The chart at page 31 shows how senior junk loans and junk bonds fare in a rising rate environment.
Page 36 has a map showing sovereign "real yields". Since that chart has been compiled, the real yield numbers for developed countries has shrunk even more.
The box chart at page 45 shows the relative performance since 2004 of alternative asset classes including REITs, MLPs, gold and commodities. When I look at that kind of historical performance chart, I recognize right away that it is impossible to predict the performance order from year to year. Gold may be at the top or the bottom or somewhere near the middle. REITs have been the best and worst performing alternative asset category and so on.
Fund Data as of 11/28/14:
Leverage: 29.56%
Average Leverage Cost (annualized based on latest month): .84%
Expense Ratio: 1.45%
With Interest Costs: 1.84%
Holdings: 421
Foreign Holdings: 34.8%
Effective Maturity: 5.7 years
Credit Quality: 31.4% in BBB; 31% in BB; 21.8% in B
Sourced from the Sponsor's Website: JDD-Nuveen Diversified Dividend and Income Fund
Last SEC Filed Shareholder Report (period ending 6/30/14)
Data on Date of Trade 1/6/15:
Closing Net Asset Value Per Share: $13.51
Closing Market Price: $11.67
Discount: -13.62%
Average Discounts:
1 Year: -11.46%
3 Years: -7.36%
5 Years: -8.24%
Sourced from CEFConnect
JDD is currently rated 4 stars by Morningstar (1 year Z-statistic=-2.85%)
Morningstar calculates the 3 and 5 year annualized total returns at 12.74% and 12.97% respectively. The 2014 total return based on net asset value was 13.96%.
JDD Quarterly Fact Sheet
SEC Filings for JDD
Last SEC Filed Form N-Q (holdings as of 9/30/14; cost $340+M vs. value of $384+M)
Prior Trades: I also own 100 shares in a Roth IRA, where my total return consists of the quarterly dividends based on the current market price: Bought 100 JDD at $11.64 in Roth IRA (4/12/14 Post)
I have bought and sold this fund several times.
Item # 4 Sold 150 JDD at $12.25 (7/19/14 Post)(profit snapshot=$66.25 + one quarterly dividend)-Item # 3 Bought 150 JDD at $11.7 in Taxable Account (4/12/14 Post)(contains snapshots of prior trading gains of $430.98)
Item # 4 Sold CEF JDD at $11.28 (July 22, 2011 Post)-Item # 6 Bought 100 JDD in Roth at $8.4 (August 2009 )and Item # 5 Added to CEF JDD at $9.45 (October 23, 2009 Post)
Item # 4 Sold 70 of 170 of JDD-Roth IRA (2/26/2010 Post)(part of 100 share lot bought at $8.4 August 2009)-Item # 6 Bought 100 JDD in Roth at $8.4
Sold 300 JDD at $11.44 (December 6, 2010 Post)-Bought 300 JDD at $10.95 (September 10, 2010 Post)
Total Trading Gains: $497.23
Dividends: The fund is currently paying a quarterly dividend of $.26 per share. JDD Dividend History
Assuming a continuation of that rate, which is in no way assured, the dividend yield would be about 8.93%.
The quarterly dividend is only partially funded with ordinary income, with recent trends being close to 50%. The other major support has recently been long term capital gains and slightly over $.07 per share in return of capital for the dividends paid in 2014.
To earn the current payout, the fund will need to generate capital gains equal to about 1/2 of the payout.
Rationale: This security gives me diversification into four asset classes which is important since only those suffering from delusions believe that they can actually predict the categories with the best future returns from year to year.
I will engage in this foolish exercise and will now predict the future. In 2015, I predict REITs will be the leader again, followed by dividend stocks, emerging market sovereign debt and leveraged senior loans. My second prediction is that dividend stocks will lead, followed by emerging market sovereign debt, REIT and leveraged loans. My third prediction is that emerging market sovereign debt will be in the pole position, followed by REITs, dividend stocks and leveraged loans. My other predictions include every other possible permutation, adopting the sage advice from a Mr. Edgar Fiedler that it is important to predict often when predicting the future since that will improve one's chances of being right once.
In addition to the diversification, the dividend yield will take me almost all the way to my 10% annualized total return bogey. I will simply need to harvest that dividend plus slightly more than 1% per year appreciation in the shares.
I improve my odds of capital appreciation by buying at a significantly greater discount than the three year average.
Risks: The sponsor discusses risks at it website.
The market price and net asset per share declines between 5/1/2013 and 12/31/13 highlights what can go wrong when investors flee bond CEFs. JDD suffered a mild decline in net asset value when interest rates spiked in 2013. The ten year treasury went from 1.66% on 5/1/13 to 3.04% on 12/31/13. Daily Treasury Yield Curve Rates
The net asset decline in JDD was more than offset by its three quarterly dividend payments made during that period, producing a positive total return when computed on net asset value. The market price total return was deeply into negative territory.
Unadjusted for Dividends
May 1, 2013
Net Asset Value Per Share: $13.38
Market Price: $13.73
Premium to Net Asset Value +2.62%
December 31, 2013:
Net Asset Value Per Share: $12.84
Market Price: $11.27
Discount to Net Asset Value Per share: -12.23%
Unadjusted for the dividend payments, the net asset value per share declined by 4% while the market price declined by 17.92%. Rational or irrational?
It is what it is.
From my perspective, this security needed to be sold when it was trading at a premium and bought back when it was selling at a significantly larger discount than the historical average.
Future Buys and Sells: I may average down, but will not average up. Generally, I would be looking for about a 5%+ lower price and a larger discount to net asset value per share.
The next purchase would be in the Roth IRA where I in effect turn the dividend into a tax free one. Most of the dividends paid by this fund will not be classified as qualified.
Dividends from pass through entities like REITs and interest payments made by bonds and loans will not classified as qualified and would consequently be taxed at an individual's highest marginal tax rate when paid into a taxable account. Since I am retired, with no earned income or private pension, I am less concerned with that tax nit. I am actually trying to generate income from a variety of sources in my taxable accounts to pay expenses.
Bill Gross is out with another prediction that the bull market is dead. The End of Days has finally arrived when investors finally realize that central bankers are the proverbial emperors with no clothes. "The goods times are over". Gross seems to be in agreement with Jeff Gundlach, another bond manager, that he only asset class likely to generate positive returns will be bonds. So I suppose that everyone needs to see their money to funds manage by those two gentleman in order to avoid "minus signs".
ADP reported that the private sector added 241,000 jobs in December. ADP revised its November estimate to 227,000 from 208,000.
Inflation in the Eurozone declined .2% for the 12 month period ending in December. Eurostat
Eurostat reported that the November unemployment rate was 11.5% in the Euro area.
MarketWatch has a good article summarizing the potential negative impacts flowing from deflation and high unemployment.
******************
1. Sold 100 MRGE at $3.54 (Lottery Ticket Basket Strategy)(see Disclaimer):
Snapshot of Trade:
 |
| 2015 Sold 100 MRGE at $3.54+ |
Snapshot of Profit:
 |
| 2015 MRGE 100 Shares +$90.24 |
Bought: 100 MRGE at $2.48 (11/25/13 Post)
For most of my ownership period, the return was either slightly positive or negative. MRGE Interactive Stock Chart The stock recently experienced a strong percentage up move after reporting better then expected earnings for the 2014 third quarter. Merge Reports Third Quarter Financial Results
I am attempting to improve my cash flow some without drawing down my cash allocation which is currently near 25% of investable assets. I will consequently sell some low yielding or non-income producing securities and then use the proceeds to buy higher yielding ones. Merge Healthcare does not pay a dividend.
I am allowing the cash flow to mostly build up based on what I perceive to be an overall lack of desirable investments.
2. Bought Back 100 JDD at $11.65 (see Disclaimer):
Snapshot of Trade:
Security Description: The Nuveen Diversified Dividend & Income Fund (JDD) is a leveraged closed end fund that invests relatively equal amounts in 4 asset classes: (1) U.S. and foreign dividend paying stocks; (2) REITs; (3) emerging market sovereign debt and (4) adjustable rate senior loans. That last category will consist of junk rated securities.
During my periods of ownership, I have found that one or two of those four asset classes will be a drag during a calendar year. In 2014, REITs would have been the primary driver of total returns, with assists from dividend paying stocks and probably emerging market sovereign bonds.
I can not measure the performance of the fund's EM sovereign bond holdings. The foregoing statement about 2014 is based on the 9.14% total return of PowerShares Emerging Markets Sovereign Debt ETF ETF.
The fund's overall 2014 performance was probably dragged some by the senior loan component. The PowerShares Senior Loan ETF (BKLN) had a 2014 total return of .7% based on net asset value, which means that a share price decline offset most of the dividend income.
I would not hazard a guess which asset classes will contribute to or detract from total returns in 2015. That unpredictability is one reason for diversification, where the overall performance of the asset allocation is more important than any single component.
Oppenheimer provides quarterly a digital chart presentation of how various asset categories perform over time, along with other helpful information. The last report was dated 9/30/14: Capital Markets Chart Book Q4 2014 Several of those charts are relevant to JDD's asset allocation.
The taxable fixed income chart at page 25 shows that emerging market bonds had a bad year in 2013, falling 8.98%. That was due to the interest rate spurt in U.S. rates that year that caused declines in emerging market currencies and bonds. However, emerging market bonds were the best performing bond category for 4 years straight starting in 2004 and in 2010 and 2012. So these performance numbers come and go over time and are frequently unpredictable ahead of time. Who predicted that the price of crude oil would collapse in 2014 in 2013?
Another relevant chart for emerging market debt can be found at page 34. The chart shows that emerging market debt yields are higher than developed markets, which is not hard to do at the current time, even though their public debt levels as a percentage of their respective GDPs are more sustainable.
The chart at page 31 shows how senior junk loans and junk bonds fare in a rising rate environment.
Page 36 has a map showing sovereign "real yields". Since that chart has been compiled, the real yield numbers for developed countries has shrunk even more.
The box chart at page 45 shows the relative performance since 2004 of alternative asset classes including REITs, MLPs, gold and commodities. When I look at that kind of historical performance chart, I recognize right away that it is impossible to predict the performance order from year to year. Gold may be at the top or the bottom or somewhere near the middle. REITs have been the best and worst performing alternative asset category and so on.
Fund Data as of 11/28/14:
Leverage: 29.56%
Average Leverage Cost (annualized based on latest month): .84%
Expense Ratio: 1.45%
With Interest Costs: 1.84%
Holdings: 421
Foreign Holdings: 34.8%
Effective Maturity: 5.7 years
Credit Quality: 31.4% in BBB; 31% in BB; 21.8% in B
Sourced from the Sponsor's Website: JDD-Nuveen Diversified Dividend and Income Fund
Last SEC Filed Shareholder Report (period ending 6/30/14)
Data on Date of Trade 1/6/15:
Closing Net Asset Value Per Share: $13.51
Closing Market Price: $11.67
Discount: -13.62%
Average Discounts:
1 Year: -11.46%
3 Years: -7.36%
5 Years: -8.24%
Sourced from CEFConnect
JDD is currently rated 4 stars by Morningstar (1 year Z-statistic=-2.85%)
Morningstar calculates the 3 and 5 year annualized total returns at 12.74% and 12.97% respectively. The 2014 total return based on net asset value was 13.96%.
JDD Quarterly Fact Sheet
SEC Filings for JDD
Last SEC Filed Form N-Q (holdings as of 9/30/14; cost $340+M vs. value of $384+M)
Prior Trades: I also own 100 shares in a Roth IRA, where my total return consists of the quarterly dividends based on the current market price: Bought 100 JDD at $11.64 in Roth IRA (4/12/14 Post)
I have bought and sold this fund several times.
Item # 4 Sold 150 JDD at $12.25 (7/19/14 Post)(profit snapshot=$66.25 + one quarterly dividend)-Item # 3 Bought 150 JDD at $11.7 in Taxable Account (4/12/14 Post)(contains snapshots of prior trading gains of $430.98)
Item # 4 Sold CEF JDD at $11.28 (July 22, 2011 Post)-Item # 6 Bought 100 JDD in Roth at $8.4 (August 2009 )and Item # 5 Added to CEF JDD at $9.45 (October 23, 2009 Post)
Item # 4 Sold 70 of 170 of JDD-Roth IRA (2/26/2010 Post)(part of 100 share lot bought at $8.4 August 2009)-Item # 6 Bought 100 JDD in Roth at $8.4
Sold 300 JDD at $11.44 (December 6, 2010 Post)-Bought 300 JDD at $10.95 (September 10, 2010 Post)
Total Trading Gains: $497.23
Dividends: The fund is currently paying a quarterly dividend of $.26 per share. JDD Dividend History
Assuming a continuation of that rate, which is in no way assured, the dividend yield would be about 8.93%.
The quarterly dividend is only partially funded with ordinary income, with recent trends being close to 50%. The other major support has recently been long term capital gains and slightly over $.07 per share in return of capital for the dividends paid in 2014.
To earn the current payout, the fund will need to generate capital gains equal to about 1/2 of the payout.
Rationale: This security gives me diversification into four asset classes which is important since only those suffering from delusions believe that they can actually predict the categories with the best future returns from year to year.
I will engage in this foolish exercise and will now predict the future. In 2015, I predict REITs will be the leader again, followed by dividend stocks, emerging market sovereign debt and leveraged senior loans. My second prediction is that dividend stocks will lead, followed by emerging market sovereign debt, REIT and leveraged loans. My third prediction is that emerging market sovereign debt will be in the pole position, followed by REITs, dividend stocks and leveraged loans. My other predictions include every other possible permutation, adopting the sage advice from a Mr. Edgar Fiedler that it is important to predict often when predicting the future since that will improve one's chances of being right once.
In addition to the diversification, the dividend yield will take me almost all the way to my 10% annualized total return bogey. I will simply need to harvest that dividend plus slightly more than 1% per year appreciation in the shares.
I improve my odds of capital appreciation by buying at a significantly greater discount than the three year average.
Risks: The sponsor discusses risks at it website.
The market price and net asset per share declines between 5/1/2013 and 12/31/13 highlights what can go wrong when investors flee bond CEFs. JDD suffered a mild decline in net asset value when interest rates spiked in 2013. The ten year treasury went from 1.66% on 5/1/13 to 3.04% on 12/31/13. Daily Treasury Yield Curve Rates
The net asset decline in JDD was more than offset by its three quarterly dividend payments made during that period, producing a positive total return when computed on net asset value. The market price total return was deeply into negative territory.
Unadjusted for Dividends
May 1, 2013
Net Asset Value Per Share: $13.38
Market Price: $13.73
Premium to Net Asset Value +2.62%
December 31, 2013:
Net Asset Value Per Share: $12.84
Market Price: $11.27
Discount to Net Asset Value Per share: -12.23%
Unadjusted for the dividend payments, the net asset value per share declined by 4% while the market price declined by 17.92%. Rational or irrational?
It is what it is.
From my perspective, this security needed to be sold when it was trading at a premium and bought back when it was selling at a significantly larger discount than the historical average.
Future Buys and Sells: I may average down, but will not average up. Generally, I would be looking for about a 5%+ lower price and a larger discount to net asset value per share.
The next purchase would be in the Roth IRA where I in effect turn the dividend into a tax free one. Most of the dividends paid by this fund will not be classified as qualified.
Dividends from pass through entities like REITs and interest payments made by bonds and loans will not classified as qualified and would consequently be taxed at an individual's highest marginal tax rate when paid into a taxable account. Since I am retired, with no earned income or private pension, I am less concerned with that tax nit. I am actually trying to generate income from a variety of sources in my taxable accounts to pay expenses.
