Portfolio Management for 2018:
Over the past 15 years or so, my portfolio management goal has been to generate an average annual return of 10%+ recognizing that some years would exceed or fall below that bogey.
Stocks, Bonds & Politics: Portfolio Management Goals-Snapshots of Performance Numbers YTD, 3 and 5 Years Cumulative (4/18/14 Post)
The goal now is to assume far less risk for annual average returns of 5%+. Those numbers are on a total at risk portfolio. Some accounts will be higher or lower.
In 2017, my best performing account was my T. Rowe Price mutual funds. With a meaningful cash allocation parked in the low yielding T. Rowe Price Treasury MM fund (PRTXX), the overall account was up 19.8% last year.
As of 12/28/17
The largest position in this grouping is the T. Rowe Price Capital Appreciation Fund (PRWCX), which is a balanced mutual fund. The second largest holding is the low yielding treasury money market fund. The 5 largest percentage gainers last year were in order of appreciation amounts:
1. T. Rowe Price Emerging Markets (PRMSX)
2. T. Rowe Price New Asia Fund (PRASX)
3. T. Rowe Price Spectrum International Fund (PSILX)(a fund of funds)
4. T. Rowe Price Health Sciences Fund (PRHSX)
5. T. Rowe Price Spectrum Growth Fund (PRSGX)(a fund of funds)
The Health Science and Emerging Market funds are relatively recent purchases. New fund purchases can be financed out of year end capital distributions taken in cash.
International funds have been a drag on my portfolio performance over the past several years, but performed better than most U.S. centric stock funds in 2017.
I have quit reinvesting the dividends paid by all of these funds, except for the treasury money market fund.
I will not be selling any shares in the at risk mutual funds this year.
Late last month, I redeployed into stock funds $500 out of the $8,500+ in dividends paid during December and may add another $500 this year.
Outside of the T. Rowe Price and Vanguard mutual fund accounts, I will be emphasizing capital preservation this year more than last year.
I am done paring my positions in the Vanguard Health Care Fund Investor Shares (VGHCX) and the Vanguard Capital Opportunity Fund Investor Shares (VHCOX).
I will continue selling $1K in my Vanguard Equity Income Fund Admiral Shares (VEIRX) when I notice that the value exceeds $51K.
Among my major taxable broker accounts, my Interactive Brokers account probably had the best total return last year at 10.5%. During the year, I went from a $4K bond allocation as of 12/31/2016 to over $60K by year end. Most of the bonds mature in less than 2 years. The cash went up over 100% during the year and is presently at 30+% of the portfolio. Some of that cash is in Australian and Canadian Dollars.
During the year I sold over C$15K when the CAD/USD went over .8, converting the proceeds back into USDs.
Possibly the most profitable asset category in my IB account last year was Canadian reset equity preferred stocks. I significantly trimmed my exposure to that category during 2017. Trading gains in USDs totaled $10K+ in this account.
In 2018, I will continue to pare my individual stock allocation into rallies and to persistently buy small positions for trades. The goal is to generate between $15K to $25K in net short term trading gains as a supplement to my dividend and interest income.
I will continue to sacrifice some current income for more safety.
Safety in bonds involves both interest rate and credit risks.
I have moved up the bond quality ladder since junk bonds no longer provide IMO yields commensurate with their risks. I am also emphasizing short term, FDIC insured CDs that pay monthly interest. I have shortened the weighted average duration by selling in the 2017 second half over $100K in intermediate term corporate bonds.
I have created a constant flow of dividend and interest income in my major accounts.
Fidelity: Income Received 1/2/18:
KTN, referenced in the previous snapshot, is my last remaining fixed coupon Trust Certificate. Structured Products Corp. 8.205% Credit-Enhanced CorTS (KTN). This one pays 8.205% on a $25 par value. My total cost per share is $13.26. The interest yield is about 15.47% at that TC number. The underlying bond is investment grade.
The underlying security is an AON junior bond which matures in 2027. Bond Detail This one does not have a call warrant attached to it. I have harvested some profits in this one. Stocks, Bonds & Politics: Trust Certificates (total realized gains now at $30,142.43 in this exchange traded bond niche.)
Schwab Account:
There is also a constant flow of bond and CD maturities.
I am playing the long end of the yield curve with Tennessee Municipal Bonds which will be held until maturity. I will stop buying when my annual tax free income exceeds $10K.
I have eliminated all leverage bond CEFs since I anticipate that short term borrowing costs will continue to rise, causing dividend cuts.
The potential for a Triple Whammy ("TW") is also present. The TW is what happens when the discount to net asset value expands as borrowing costs increase and the value of the bonds go down, including those bought with borrowed money, which serves only to accelerate net asset value per share declines compared to funds that do not use leverage.
By selling those leveraged bond CEF positions, I lose some current income, but decrease my risks and further my capital preservation objective. It is important to note that the additional income is not necessary to meet my financial goals. The first question for me has always been to define what I need financially and then work from that point in my asset allocations.
I anticipate the short term bonds and CDs will trend up in yield throughout 2018, and I intend to roll over most short term maturities into more of the same.
When BBB+ or higher rated investment grade bonds maturing in 2024-2027 provide current yields in excess of 4%, with some capital appreciation potential, I will start to redeploy proceeds from maturing short term securities into those bonds. Generally, I want less time to maturity plus more yield than currently available from those bonds.
I will continue to trade small lots, averaging down using commission free trades and selling the highest cost lot on pop. This is a conservative and cautious approach in that I am only investing small amounts of money, buying in several small lots, and selling at a profit my highest cost lots when and if the price pops.
Regional bank stocks have been a profitable sector for me-so far. Last year, I had a realized gain of $8,279.45 in a series of 50 and 100 lot trades. Stocks, Bonds & Politics: REGIONAL BANK BASKET STRATEGY GATEWAY POST
My first "small ball" harvest in 2018 was to sell 10 ENB shares at $40.14, my highest cost lot with a cost basis of $39.52, realizing a meager $6.21 profit:
That leaves me with 30+ shares with an average cost per share of $35.98. The following snapshot highlights my small ball approach with stocks declining in price when I have commission free trades:
Over the past 15 years or so, my portfolio management goal has been to generate an average annual return of 10%+ recognizing that some years would exceed or fall below that bogey.
Stocks, Bonds & Politics: Portfolio Management Goals-Snapshots of Performance Numbers YTD, 3 and 5 Years Cumulative (4/18/14 Post)
The goal now is to assume far less risk for annual average returns of 5%+. Those numbers are on a total at risk portfolio. Some accounts will be higher or lower.
In 2017, my best performing account was my T. Rowe Price mutual funds. With a meaningful cash allocation parked in the low yielding T. Rowe Price Treasury MM fund (PRTXX), the overall account was up 19.8% last year.
As of 12/28/17
1. T. Rowe Price Emerging Markets (PRMSX)
2. T. Rowe Price New Asia Fund (PRASX)
3. T. Rowe Price Spectrum International Fund (PSILX)(a fund of funds)
4. T. Rowe Price Health Sciences Fund (PRHSX)
5. T. Rowe Price Spectrum Growth Fund (PRSGX)(a fund of funds)
The Health Science and Emerging Market funds are relatively recent purchases. New fund purchases can be financed out of year end capital distributions taken in cash.
International funds have been a drag on my portfolio performance over the past several years, but performed better than most U.S. centric stock funds in 2017.
I have quit reinvesting the dividends paid by all of these funds, except for the treasury money market fund.
I will not be selling any shares in the at risk mutual funds this year.
Late last month, I redeployed into stock funds $500 out of the $8,500+ in dividends paid during December and may add another $500 this year.
Outside of the T. Rowe Price and Vanguard mutual fund accounts, I will be emphasizing capital preservation this year more than last year.
I am done paring my positions in the Vanguard Health Care Fund Investor Shares (VGHCX) and the Vanguard Capital Opportunity Fund Investor Shares (VHCOX).
I will continue selling $1K in my Vanguard Equity Income Fund Admiral Shares (VEIRX) when I notice that the value exceeds $51K.
Among my major taxable broker accounts, my Interactive Brokers account probably had the best total return last year at 10.5%. During the year, I went from a $4K bond allocation as of 12/31/2016 to over $60K by year end. Most of the bonds mature in less than 2 years. The cash went up over 100% during the year and is presently at 30+% of the portfolio. Some of that cash is in Australian and Canadian Dollars.
During the year I sold over C$15K when the CAD/USD went over .8, converting the proceeds back into USDs.
Possibly the most profitable asset category in my IB account last year was Canadian reset equity preferred stocks. I significantly trimmed my exposure to that category during 2017. Trading gains in USDs totaled $10K+ in this account.
In 2018, I will continue to pare my individual stock allocation into rallies and to persistently buy small positions for trades. The goal is to generate between $15K to $25K in net short term trading gains as a supplement to my dividend and interest income.
I will continue to sacrifice some current income for more safety.
Safety in bonds involves both interest rate and credit risks.
I have moved up the bond quality ladder since junk bonds no longer provide IMO yields commensurate with their risks. I am also emphasizing short term, FDIC insured CDs that pay monthly interest. I have shortened the weighted average duration by selling in the 2017 second half over $100K in intermediate term corporate bonds.
I have created a constant flow of dividend and interest income in my major accounts.
Fidelity: Income Received 1/2/18:
KTN, referenced in the previous snapshot, is my last remaining fixed coupon Trust Certificate. Structured Products Corp. 8.205% Credit-Enhanced CorTS (KTN). This one pays 8.205% on a $25 par value. My total cost per share is $13.26. The interest yield is about 15.47% at that TC number. The underlying bond is investment grade.
The underlying security is an AON junior bond which matures in 2027. Bond Detail This one does not have a call warrant attached to it. I have harvested some profits in this one. Stocks, Bonds & Politics: Trust Certificates (total realized gains now at $30,142.43 in this exchange traded bond niche.)
Schwab Account:
There is also a constant flow of bond and CD maturities.
I am playing the long end of the yield curve with Tennessee Municipal Bonds which will be held until maturity. I will stop buying when my annual tax free income exceeds $10K.
I have eliminated all leverage bond CEFs since I anticipate that short term borrowing costs will continue to rise, causing dividend cuts.
The potential for a Triple Whammy ("TW") is also present. The TW is what happens when the discount to net asset value expands as borrowing costs increase and the value of the bonds go down, including those bought with borrowed money, which serves only to accelerate net asset value per share declines compared to funds that do not use leverage.
By selling those leveraged bond CEF positions, I lose some current income, but decrease my risks and further my capital preservation objective. It is important to note that the additional income is not necessary to meet my financial goals. The first question for me has always been to define what I need financially and then work from that point in my asset allocations.
I anticipate the short term bonds and CDs will trend up in yield throughout 2018, and I intend to roll over most short term maturities into more of the same.
When BBB+ or higher rated investment grade bonds maturing in 2024-2027 provide current yields in excess of 4%, with some capital appreciation potential, I will start to redeploy proceeds from maturing short term securities into those bonds. Generally, I want less time to maturity plus more yield than currently available from those bonds.
I will continue to trade small lots, averaging down using commission free trades and selling the highest cost lot on pop. This is a conservative and cautious approach in that I am only investing small amounts of money, buying in several small lots, and selling at a profit my highest cost lots when and if the price pops.
Regional bank stocks have been a profitable sector for me-so far. Last year, I had a realized gain of $8,279.45 in a series of 50 and 100 lot trades. Stocks, Bonds & Politics: REGIONAL BANK BASKET STRATEGY GATEWAY POST
My first "small ball" harvest in 2018 was to sell 10 ENB shares at $40.14, my highest cost lot with a cost basis of $39.52, realizing a meager $6.21 profit:
That leaves me with 30+ shares with an average cost per share of $35.98. The following snapshot highlights my small ball approach with stocks declining in price when I have commission free trades:
Enbridge's Growth Portfolio Is Underappreciated: Morningstar
Why Enbridge Inc Is a Retiree's Dream Stock -- The Motley Fool
I sold late last year 50 ENB shares at $39.03. Item # 3 (12/21/17 Post)
I also sold yesterday, as a short term trade, 100 of 160 shares of First Hawaiian:
There will be a large number of these small trades throughout the year, and most of them will not be discussed here. I did discuss the purchase of 60 FHB shares here: Item # 1.A.
Closing Price 1/2/18: ENB $40.14 +$1.03 +2.63%
Closing Price 1/3/18: ENB $40.41 +$0.27 0.67%
ENB closed at $34.5 on 11/16/17.
I also own both the CAD priced Enbride Income Fund Holdings (ENF:CA) and the USD priced Enbridge Income Fund Holdings (EBGUF).
I trade EBGUF, partly based on the movement of the CAD/USD, and hold ENF:CA. I bought back 100 EBGUF at US$23.43. Item # 1 (11/13/17 Post) My tendency is to sell at over $25 after collecting several monthly dividends.
++++
Why Enbridge Inc Is a Retiree's Dream Stock -- The Motley Fool
I sold late last year 50 ENB shares at $39.03. Item # 3 (12/21/17 Post)
I also sold yesterday, as a short term trade, 100 of 160 shares of First Hawaiian:
There will be a large number of these small trades throughout the year, and most of them will not be discussed here. I did discuss the purchase of 60 FHB shares here: Item # 1.A.
Closing Price 1/2/18: ENB $40.14 +$1.03 +2.63%
Closing Price 1/3/18: ENB $40.41 +$0.27 0.67%
ENB closed at $34.5 on 11/16/17.
I also own both the CAD priced Enbride Income Fund Holdings (ENF:CA) and the USD priced Enbridge Income Fund Holdings (EBGUF).
I trade EBGUF, partly based on the movement of the CAD/USD, and hold ENF:CA. I bought back 100 EBGUF at US$23.43. Item # 1 (11/13/17 Post) My tendency is to sell at over $25 after collecting several monthly dividends.
++++
Market Commentary and Markets:
This article contains a summary of how the recently passed tax legislation will impact the large banks: Tax Bill Will Deliver a Corporate Earnings Gusher - Bloomberg
Citigroup CFO Sees $20 Billion Hit If Senate Tax Bill Signed - Bloomberg (non-cash charge driven by revaluation of deferred tax asset)
Understanding Deferred-Tax Assets -- The Motley Fool; FDIC 2012 Slide Presentation
As discussed in a comment to my last post, a provision in the new tax law may contribute to bankruptcy filings by highly leveraged junk debtors: Conference Report Limits on Interest Deductions - Tax Foundation
GMO’s Jeremy Grantham Says Stocks Could Be Heading for a ‘Melt-Up’ - Bloomberg
If there is a melt-up, I will be moving into my cocoon, and just wait patiently for the inevitable before coming out my stock hibernation. Winter will follow a melt up from current levels. At the moment, I still have a meaningful stock allocation. I last went deep into my bunker in 1999, dumping all stocks.
Inflation Risk May Shake Global Markets - Bloomberg
As discussed in a comment to my last post, a provision in the new tax law may contribute to bankruptcy filings by highly leveraged junk debtors: Conference Report Limits on Interest Deductions - Tax Foundation
GMO’s Jeremy Grantham Says Stocks Could Be Heading for a ‘Melt-Up’ - Bloomberg
If there is a melt-up, I will be moving into my cocoon, and just wait patiently for the inevitable before coming out my stock hibernation. Winter will follow a melt up from current levels. At the moment, I still have a meaningful stock allocation. I last went deep into my bunker in 1999, dumping all stocks.
Inflation Risk May Shake Global Markets - Bloomberg
++++++
Trump, the Russian Investigation and the FBI:
Papadopoulos brag to Australian diplomat was key factor in FBI's Russia probe-NBC News ("An Australian diplomat's tip appears to have helped persuade the FBI to investigate Russian meddling in the U.S. election and possible coordination with the Trump campaign. Trump campaign adviser George Papadopoulos told the diplomat, Alexander Downer, during a meeting in London in May 2016 that Russia had thousands of emails that would embarrass Democratic candidate Hillary Clinton, the report said. Downer, a former foreign minister, is Australia's top diplomat in Britain.")
Whenever Donald makes any affirmative statement, it is impossible for me to even fathom why anyone would rely on the statement as being truthful.
Any statement made by him is most likely a lie intended to manipulate Trump supporters who are easily manipulated with demonstrably false statements.
The rest of the nation has already come to the the correct conclusion that Donald is a pathological liar and can never be trusted to tell the truth.
In my last post, I reproduced some statements made by Donald about the Deputy Director of the FBI. Fact checkers concluded that Donald was engaged, once again, in making false and misleading statements in those tweets. PolitiFact; Trump Wrong About Campaign Donations - FactCheck.org
Trump is attacking the FBI and the Deputy Director in an effort to discredit the FBI's Russian investigation. The specific reason for attacking the Deputy Director is summarized in this article: Top FBI official grilled on Comey, Clinton - CNN
++++
Trump, His Former Good Buddy Steve Bannon and Michael Wolff's New Book:
I thought that Bannon and Trump remained on good terms after Bannon was shown the door by General Kelly.
Bannon says Trump Jr.’s meeting with Russians was ‘treasonous’ - MarketWatch;
This and other revelations are contained in a new book written by Michael Wolff, who spent months in the Trump White House, frequently in Bannon's office.
Excerpt: Michael Wolff’s ‘Fire and Fury’: Inside Trump’s White House
While Wolff is not an author that I would trust, more books will follow written by Trump insiders that reveal Trump's obvious unfitness to be President.
Wolff has a tendency to embellish, but he probably has a considerable amount of accurate information in the book.
Fire and Fury: Inside the Trump White House - Kindle edition by Michael Wolff. Politics & Social Sciences Kindle eBooks @ Amazon.com.
I have ordered the book.
“He Lost His Mind”: Trump Hits Back After Bannon Accuses His Son of Treason | Vanity Fair
Book details explosive claims about White House dysfunction, Trump's "ignorance" - CBS News
+++++
Trump's Desire To Charge, Try and Convict Political Opponents:
Apparently based on a report published by The Daily Caller, co-founded by Tucker Carlson who now has been rewarded for his reactionary and non-fact based beliefs with a show on Fox, Donald wants to put Hillary Clinton's former aide, Huma Abedin, in jail and requested that the Justice Department "act" on Comey.
Donald would like to use the Justice Department as a tool to harass and to punish political opponents.
The Despot's Apprentice: Donald Trump's Attack on Democracy - Kindle edition by Brian Klaas, David Talbot. Politics & Social Sciences Kindle eBooks @ Amazon.com.
Donald's efforts to publicly request that the Justice Department file criminal charges against his political opponents is welcomed by many Trump supporters, who need a refresher course in 9th grade Civics, but is clearly inconsistent with the role and power of a U.S. President under the U.S. Constitution and long standing precedents. Donald's actions would be consistent with Putin's role in Russia, though Putin would not make his efforts to arrest and imprison political opponents public on a tweeter feed.
++++++
1. Equity REIT Common and Preferred Stock Basket Strategy:
A. Bought 100 LXP at $9.98:
Company Website: Welcome to Lexington Realty Trust
Portfolio | Lexington Realty Trust
Two Year History in Schwab Account:
Closing Price Day of Trade (12/15/17): LXP $9.97 Unchanged
I bought this lot shortly before the 12/28/17 ex dividend date.
Chart: Using a 1 Year Yahoo Finance chart, the shares were then trading at below the 50, 100 and 200 day SMA lines. LXP Chart A five year chart suggests that this REIT needs to be traded to enhance total returns. A longer term chart shows an all time high near $25 back in 2005 and a crash and burn during the Near Depression.
Historical Problems:
I did not own the common until 2014, but did nibble successfully on a now called equity preferred stock that was torched during the Near Depression into the single digits. One problem back then was LXP's debt and balloon payments coming due at the wrong time as I recall.
The problem with this REIT over the past several years is its failure to grow Funds Available for Distribution (FAD) per share.
FFO and AFFO numbers has been much higher for this REIT due to non-cash revenues being counted as part of both FFO AFFO. There was nothing criminally wrong with that fantasy since it is mandated by the accounting profession and goes under the heading straight line rent.
However, since LXP includes non-cash revenues in both its FFO and AFFO calculations, I ignore both numbers and focus instead on its FAD number that is at least close to being real cash flow rather than real cash flow plus pretend cash. LXP does provide a separate FAD calculation that excludes that item. IMO, individual investors focus on AFFO when the focus needs to be on FAD.
AFFO is supposed to exclude those non-cash revenues. Glossary of REIT Terms | Nareit - REIT.com
Brad Thomas explains how the straight line rent convention distorts FFO in this Forbes article: REIT Investors Should Get To Know 'AFFO'
Revenues that are created by the accountant profession are not cash flow.
A significant part of the non-cash revenue originated from LXP's NYC ground leases that have been sold.
Just look at the "straight line" adjustments to AFFO in the following snapshot that removes non-cash revenues created by the accounting profession.
Last Earnings Report: Lexington Realty Trust Reports Third Quarter 2017 Results and Announces Dividend Increase
CEO Will Eglin on Q3 2017 Results - Earnings Call Transcript | Seeking Alpha
LXP provides a FAD dollar amount but not the FAD per share. Using the data provided, I calculated the FAD per share for the Q/E 9/30/17 at $22.67 which is a decline from the $.22745 for the Q/E 9/30/16. That fractional decline is not as important as the failure to grow Y-O-Y. Remember that the FAD number in both quarters does not include the non-cash revenues which declined significantly compared to the third quarter and nine month numbers from 2016.
The portfolio was 97.9% leased as of 9/30/17. LXP narrowed its AFFO guidance for 2017 to a range between $.95 to $.97.
Transaction Activity: This REIT is actively engaged in build-to-suit single tenant properties.
Build-To-Suit Transactions | Lexington Realty Trust
Dividends: The current quarterly rate is $.1775 per share. The dividend increase reference in the earning release headline is immaterial. The penny rate went from $.175 to $.1775 or $.71 per share annually. At the new rate, the dividend yield is about 7.11% at a total cost of $9.98 per share.
The quarterly rate was $.375 per share in 2007 and was reduced first to $.33 and then to $.18 per share in 2008. The total amount paid in 2010 was $.415 which was the low point. The quarterly rate stabilized at $.1 per share in 2010 and then started to gradually move up to the current rate.
For 2016, $.664075 of the total dividend amount of $.685 per share was classified as ordinary income with $.020925 classified as return of capital. The qualified dividend amount was imperceptible at $.001485.
The ROC component did go down from 2015. Lexington Realty Trust Final Dividend Allocation for 2015 NYSE
Recent News: Lexington Realty Trust Acquires Three-Property Industrial Portfolio for $200 Million (10/2/17)
LXP Trading Profits to Date: $800.94 (hard to come by)
Last Discussed: Items 1.A. and 1.B. Sold 50 LXP at $10.38 ((10/3/17) and Sold 50 LXP at $10.46 (10/9/17)
Most Recent Purchase Decisions: Item # 2.A. Bought 50 LXP at $9.45 (6/11/17 Post)
Bond Ownership: I own 1 LXP 4.4% SU bond maturing in 2024: Item # 1.D. (3/25/17 Post); Bond Detail
Lowest Prices Paid for the Common Shares: My lowest purchase prices were made in January 2016: Item # 4 Update For Equity REIT Basket Strategy As Of 1/21/16 - South Gent | Seeking Alpha (50 shares at $6.95 and 100 shares at $7.38); Item # 2 Update For Equity REIT Basket Strategy As Of 1/11/16 - South Gent | Seeking Alpha (50 shares in Roth IRA at $7.89-still owned; and 50 shares and 100 shares in IB account at $7.8 which have been sold)
Prior to this last purchase, I only own shares in two Roth IRA accounts. In my Vanguard Roth IRA account, I own a 50 share lot bought at $7.6 on 1/11/16, where I am not reinvesting the dividend. Another 50 share lot was purchased at a TC of $7.89 (1/8/16) in my Fidelity Roth IRA, where I have reinvested most of the dividends and have also harvested profits in some shares bought with those dividends. I subsequently bought 10 LXP shares using a Fidelity commission free trade, see Item # 4 below.
Any LXP share purchase in a taxable account is a trade. I do not view it likely that I will sell the remaining shares owned in Roth IRA accounts unless there is a dividend cut.
2. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Sold 2 AT & T 2.85% SU Bonds Maturing on 2/14/2023:
I am backtracking some by selling recently purchased and low yielding intermediate term bonds. I am anticipating that it is more likely than not that this bond can be bought back at less than 97 within six months.
Profit Snapshot: +$3.98
FINRA Page: Bond Detail
Sold at 100
YTM Then at 2.85%
Current Yield at 2.85%
Bought at a TC of 99.701
Item # 3.A. (10/26/17 Post)
YTM at TC Then at 2.91%
Current Yield at TC = 2.86%
B. Sold 1 AvalonBay 2.85% SU Bond Maturing on 3/15/23:
Profit Snapshot: +$21.88
Finra Page: Bond Detail (prospectus linked)
Issuer: Avalonbay Communities Inc. (AVB)
Credit Ratings:
Sold at 100
YTM Then at 2.85%
Current Yield at 2.85%
Bought at a Total Cost of 97.712
Item # 1.E.
YTM at TC Then at 3.273%
Current Yield at 2.917%
I am picking up about 2% with investment grade bonds maturing about four years or so sooner than this AVB 2023 bond. I am betting a small amount of lost interest, representing the current yield spread between this bond and one maturing in 2019, that I will be able to buy this bond back at a lower price within six months, preferably somewhere below 96. The idea is to move closer to maturity and acquire a higher YTM and current yield than my purchase at a 97.712 TC per bond.
1. Equity REIT Common and Preferred Stock Basket Strategy:
A. Bought 100 LXP at $9.98:
Company Website: Welcome to Lexington Realty Trust
Portfolio | Lexington Realty Trust
Two Year History in Schwab Account:
Closing Price Day of Trade (12/15/17): LXP $9.97 Unchanged
I bought this lot shortly before the 12/28/17 ex dividend date.
Chart: Using a 1 Year Yahoo Finance chart, the shares were then trading at below the 50, 100 and 200 day SMA lines. LXP Chart A five year chart suggests that this REIT needs to be traded to enhance total returns. A longer term chart shows an all time high near $25 back in 2005 and a crash and burn during the Near Depression.
Historical Problems:
I did not own the common until 2014, but did nibble successfully on a now called equity preferred stock that was torched during the Near Depression into the single digits. One problem back then was LXP's debt and balloon payments coming due at the wrong time as I recall.
The problem with this REIT over the past several years is its failure to grow Funds Available for Distribution (FAD) per share.
FFO and AFFO numbers has been much higher for this REIT due to non-cash revenues being counted as part of both FFO AFFO. There was nothing criminally wrong with that fantasy since it is mandated by the accounting profession and goes under the heading straight line rent.
However, since LXP includes non-cash revenues in both its FFO and AFFO calculations, I ignore both numbers and focus instead on its FAD number that is at least close to being real cash flow rather than real cash flow plus pretend cash. LXP does provide a separate FAD calculation that excludes that item. IMO, individual investors focus on AFFO when the focus needs to be on FAD.
AFFO is supposed to exclude those non-cash revenues. Glossary of REIT Terms | Nareit - REIT.com
Brad Thomas explains how the straight line rent convention distorts FFO in this Forbes article: REIT Investors Should Get To Know 'AFFO'
Revenues that are created by the accountant profession are not cash flow.
A significant part of the non-cash revenue originated from LXP's NYC ground leases that have been sold.
Just look at the "straight line" adjustments to AFFO in the following snapshot that removes non-cash revenues created by the accounting profession.
Last Earnings Report: Lexington Realty Trust Reports Third Quarter 2017 Results and Announces Dividend Increase
CEO Will Eglin on Q3 2017 Results - Earnings Call Transcript | Seeking Alpha
LXP provides a FAD dollar amount but not the FAD per share. Using the data provided, I calculated the FAD per share for the Q/E 9/30/17 at $22.67 which is a decline from the $.22745 for the Q/E 9/30/16. That fractional decline is not as important as the failure to grow Y-O-Y. Remember that the FAD number in both quarters does not include the non-cash revenues which declined significantly compared to the third quarter and nine month numbers from 2016.
The portfolio was 97.9% leased as of 9/30/17. LXP narrowed its AFFO guidance for 2017 to a range between $.95 to $.97.
Transaction Activity: This REIT is actively engaged in build-to-suit single tenant properties.
Dividends: The current quarterly rate is $.1775 per share. The dividend increase reference in the earning release headline is immaterial. The penny rate went from $.175 to $.1775 or $.71 per share annually. At the new rate, the dividend yield is about 7.11% at a total cost of $9.98 per share.
The quarterly rate was $.375 per share in 2007 and was reduced first to $.33 and then to $.18 per share in 2008. The total amount paid in 2010 was $.415 which was the low point. The quarterly rate stabilized at $.1 per share in 2010 and then started to gradually move up to the current rate.
For 2016, $.664075 of the total dividend amount of $.685 per share was classified as ordinary income with $.020925 classified as return of capital. The qualified dividend amount was imperceptible at $.001485.
The ROC component did go down from 2015. Lexington Realty Trust Final Dividend Allocation for 2015 NYSE
Recent News: Lexington Realty Trust Acquires Three-Property Industrial Portfolio for $200 Million (10/2/17)
LXP Trading Profits to Date: $800.94 (hard to come by)
Last Discussed: Items 1.A. and 1.B. Sold 50 LXP at $10.38 ((10/3/17) and Sold 50 LXP at $10.46 (10/9/17)
Most Recent Purchase Decisions: Item # 2.A. Bought 50 LXP at $9.45 (6/11/17 Post)
Bond Ownership: I own 1 LXP 4.4% SU bond maturing in 2024: Item # 1.D. (3/25/17 Post); Bond Detail
Lowest Prices Paid for the Common Shares: My lowest purchase prices were made in January 2016: Item # 4 Update For Equity REIT Basket Strategy As Of 1/21/16 - South Gent | Seeking Alpha (50 shares at $6.95 and 100 shares at $7.38); Item # 2 Update For Equity REIT Basket Strategy As Of 1/11/16 - South Gent | Seeking Alpha (50 shares in Roth IRA at $7.89-still owned; and 50 shares and 100 shares in IB account at $7.8 which have been sold)
Prior to this last purchase, I only own shares in two Roth IRA accounts. In my Vanguard Roth IRA account, I own a 50 share lot bought at $7.6 on 1/11/16, where I am not reinvesting the dividend. Another 50 share lot was purchased at a TC of $7.89 (1/8/16) in my Fidelity Roth IRA, where I have reinvested most of the dividends and have also harvested profits in some shares bought with those dividends. I subsequently bought 10 LXP shares using a Fidelity commission free trade, see Item # 4 below.
Any LXP share purchase in a taxable account is a trade. I do not view it likely that I will sell the remaining shares owned in Roth IRA accounts unless there is a dividend cut.
2. Intermediate Term Bond/CD Ladder Basket Strategy:
A. Sold 2 AT & T 2.85% SU Bonds Maturing on 2/14/2023:
I am backtracking some by selling recently purchased and low yielding intermediate term bonds. I am anticipating that it is more likely than not that this bond can be bought back at less than 97 within six months.
Profit Snapshot: +$3.98
FINRA Page: Bond Detail
Sold at 100
YTM Then at 2.85%
Current Yield at 2.85%
Bought at a TC of 99.701
Item # 3.A. (10/26/17 Post)
YTM at TC Then at 2.91%
Current Yield at TC = 2.86%
B. Sold 1 AvalonBay 2.85% SU Bond Maturing on 3/15/23:
Profit Snapshot: +$21.88
Finra Page: Bond Detail (prospectus linked)
Issuer: Avalonbay Communities Inc. (AVB)
Credit Ratings:
Sold at 100
YTM Then at 2.85%
Current Yield at 2.85%
Bought at a Total Cost of 97.712
Item # 1.E.
YTM at TC Then at 3.273%
Current Yield at 2.917%
I am picking up about 2% with investment grade bonds maturing about four years or so sooner than this AVB 2023 bond. I am betting a small amount of lost interest, representing the current yield spread between this bond and one maturing in 2019, that I will be able to buy this bond back at a lower price within six months, preferably somewhere below 96. The idea is to move closer to maturity and acquire a higher YTM and current yield than my purchase at a 97.712 TC per bond.
3. Short Term Bond/CD Ladder Strategy:
Some of these purchases are fillers in the ladder. Most of the time, I am just filling in a vacant day of the week with fillers. The following highlights my reallocation into short term fixed income instruments.
A. Bought 1 Citizens Bank 1.45% CD Maturing on 6/13/18 (6 month CD):
B. Bought 1 Bank of China 1.4% CD Maturing on 3/20/18 (3 month CD):
C. Bought 1 Wex Bank 1.6% CD Maturing on 9/21/18 (9 month CD):
Wex Bank has a 5 star rating from Bankrate: WEX Bank Bank Reviews and Ratings - Bankrate.com
D. Bought 2 Monsanto 1.85% SU Bonds Maturing on 11/15/18:
Finra Page: Bond Detail
Issuer: Monsanto Co.
Monsanto is in the process of being acquired by Bayer. An Update on the Monsanto-Bayer Proposed Merger-Market Realist; CFIUS Completes Review of Proposed Merger of Bayer and Monsanto
Bought at a Total Cost of 99.983
YTM Then at 1.868%
Current Yield at 1.85%
E. Bought 2 American Honda 1.7% SU Bonds Maturing on 2/22/19:
Finra Page: Bond Detail
Bought at a Total Cost of 99.804
YTM at TC = 1.864%
Current Yield at TC = 1.7033%
Finra Page: Bond Detail
Issuer: Monsanto Co.
Monsanto is in the process of being acquired by Bayer. An Update on the Monsanto-Bayer Proposed Merger-Market Realist; CFIUS Completes Review of Proposed Merger of Bayer and Monsanto
Bought at a Total Cost of 99.983
YTM Then at 1.868%
Current Yield at 1.85%
E. Bought 2 American Honda 1.7% SU Bonds Maturing on 2/22/19:
Finra Page: Bond Detail
Bought at a Total Cost of 99.804
YTM at TC = 1.864%
Current Yield at TC = 1.7033%
F. Bought 2 EnerBank 1.6% CDs (monthly interest) Maturing on 11/13/18 (11 month CDs):
This bank has a five star rating from Bankrate: EnerBank USA Bank Reviews and Ratings - Bankrate.com
G. Added 1 BP Capital 1.375% SU Bond Maturing on 5/10/18:
FINRA PAGE: Bond Detail
Bought at a Total Cost of 99.957
YTM AT TC = 1.476%
Current Yield = 1.376%
Moodys at A1
H. Added 1 More BP Capital 1.375% SU Bond Maturing on 5/10/18:
See Item G above
Bought at a TC of 99.951
YTM Then at 1.515%
Current Yield at 1.3757%
I now own 3 bonds.
I. Bought Back 1 Shell International Finance 1.375% SU Bond Maturing on 5/10/19:
I sold this bond at a total cost of 99.4 on 5/25/17. The YTM at the net price (99.3) then was 1.743%. Item 1.A.
With this last buy, I pick up a higher YTM for a slither better all-in price since I am closer to maturity.
FINRA Page: Bond Detail
Moody's at Aa2
Bought a TC of 99.291
YTM Then at TC = 1.882%
Current Yield at TC = 1.3848%
J. Bought 1 New York Community Bank 1.6% CD Maturing on 10/12/18 (10 month CD):
K. Bought 1 Wells Fargo 1.75% CD (monthly interest) Maturing on 1/22/19:
Southern National Bancorp of Virginia Inc. announces results for the three and nine months ended 9/30/17
Southern National Bancorp of Virginia, Inc. and Eastern Virginia Bankshares, Inc. Announce Closing of Merger
I have owned the common shares in the past but no longer have a position. I sold my last 50 SONA shares at $15.05, having bought that lot at $11.91on 6/1/16 (briefly mentioned in the introduction of this post: Update For Regional Bank Basket Strategy As Of 6/22/16 - South Gent | Seeking Alpha)
M. Bought 2 Sonabank 1.65% CDs (monthly interest) Maturing on 12/14/18 (1 year CDs):
4. Small Ball in the Equity REIT Basket Strategy:
I discussed buying 100 LXP shares in my Schwab account in Item 1.A. above.
In my Fidelity taxable account, I have started to buy 10 shares at lower prices. My first buy was at $9.79 using a commission free trade. This purchase was also made before the quarterly ex dividend date.
I will not average down in my Schwab account, but will reinvest as long as the reinvestment price is below $10.
I will buy at lower levels in my Fidelity account where I still have an abundance of free trades, but will not reinvest the dividends.
I have not owned LXP in this account since I sold 101+ shares (10/28/14) at $10.65. I will buy 20 shares below $9.5 and another 20 shares near $9.
5. Small Biotech Lottery Ticket Basket Strategy:
A. Added 50 FBIO at $3.33-Used Commission Free Trade:
This is an average down: Item # 3.B. Bought 50 FBIO at $4.55
Website: Fortress Biotech-Specializing in Acquiring, Developing and Commercializing Novel Pharmaceutical and Biotechnology Products
In that post, I called FBIO a small biotech incubator company: Portfolio Companies
Sourced: SEC Filed December 2017 Investor Presentation
I have no idea whether any of the clinical compounds in development will be successful. Avenue Therapeutics is focused on one compound, Tramadol, for the management of postoperative pain. Avenue Therapeutics Announces Dosing of First Patient in Phase 3 Safety Trial of Intravenous Tramadol for the Management of Postoperative Pain; Avenue Therapeutics
The number of products indicates to me a lack of focus which is important in clinical stage biotech companies given the cash burn rates.
Three of the subsidiary companies have sold stock to the public. The last two in this list are selling in the low single digits. MBIO is holding above $10 for now.
Mustang Bio Inc. (MBIO)
Checkpoint Therapeutics Inc. (U.S.: Nasdaq)-MarketWatch
Avenue Therapeutics Inc. (ATXI)
In November, FBIO raised some cash by selling an equity preferred stock: Fortress Biotech Inc. 9.375% Cumulative Preferred Series A (FBIO); Prospectus. I would view that issue to be extremely risky. The price has trended down since the IPO. Dividends are not sourced from profits but from available cash. There is no common stock dividend so FBIO could defer the preferred dividend payments whenever it chose to do so. When it needs to preserve cash, deferring the preferred dividend is certainly one option.
Last "Earnings" Report: SEC Filed Press Release Q/E 9/30/17 ($.67 per share loss) That report summarizes recent developments for FBIO's portfolio companies.
2016 Annual Report (risk factors discussed starting at page 15)
In my prior post, I discussed FBIO's majority interest (51.4% on a fully diluted basis) in the brokerage and tax service company National Holdings Corporation (NHLD) which is used to launch IPOs of FBIO's portfolio companies and to obtain financing.
I would not view the F/Y ending on 9/30/17, when NHLD reported diluted E.P.S. of $1, to be repeatable in 2018. The company reported a loss in the 2016 F/Y. If an annual E.P.S. of $1 was repeatable with minor variations year-after-year, then the P/E would be about 3. It is near 3 on a TTM GAAP basis.
The company is debt free and has about $27.9M in cash:
NHLD 10-K (effective tax rate discussed in note 20 at pages F-19 and F-20)
Closing Prices 1/3/18:
FBIO $4.05 -$0.02 -0.49%: Fortress Biotech, Inc.
NHLD $3.10 -$0.27 -8.01% : National Holdings Corporation
6. Small Ball in the REGIONAL BANK BASKET STRATEGY:
In my last post, I discussed buying 50 TRST at $9.2 Item 2.A.
Yesterday, I bought another 50 shares at $8.9 using a commission free trade. I have over 300 commission free trades left in this particular account which expire this August:
Disclaimer: I am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members.
https://www.bloomberg.com/news/articles/2018-01-04/ap-newsbreak-us-to-end-policy-that-let-legal-pot-flourish
ReplyDeletere:repatriation$ https://www.theinstitutionalriskanalyst.com/single-post/2018/01/02/Tax-Cuts-Offshore-Cash-Jobs
ReplyDeleteThe CAD is rising this morning based on a better than expected jobs report. The Canadian economy added 60K jobs last month compared to the consensus estimate of 9K.
ReplyDeleteThe much larger U.S. economy added a less than expected 148K. The consensus forecast for the U.S. was +195K according to Marketwatch:
https://www.marketwatch.com/economy-politics/calendars/economic?link=MW_Nav_EP
The ISM services PMI fell to 55.9 from 57.4 in the prior month. The consensus estimate was for 57.7.
The rise in the CAD/USD means that my USD priced Canadian stocks like TD will perform better today than the ordinary shares priced in CADs.
Toronto-Dominion Bank (TD)
$60.41 +$ 0.58 +0.95%
Last Updated: Jan 5, 2018 at 10:41 a.m. EST
https://www.marketwatch.com/investing/stock/td
Toronto-Dominion Bank (TD:CA)
C$74.81 +C$0.02 +0.03%
Last Updated: Jan 5, 2018 at 10:27 a.m. EST
https://www.marketwatch.com/investing/stock/td?countrycode=ca
South Gent,
ReplyDeleteMy overall portfolio trailed S&P in 2017, but my small cap biotech lottery ticket basket beat S&P: RSDX is a 6 bagger, DVAX a 4 bagger, and MRTX a 3 bagger. However, AVGR is down 92%, MACK down 70%, TRVN down 65%, XENE down 51% ....
I did not build another small cap biotech lottery ticket basket as I realized that it has too little an impact relative to the required efforts. Instead I had been buying high yielding stocks in the MLP sector. Do you have a view if the energy midstream sector is a value trap in light of EV, renewable/alternative energy ....etc.?
Y: I am only certain that the energy infrastructure stocks have been in a bear market since the 2014 summer. I do not see any indication, based on their price movements, that indicates anything more than stability at current levels.
DeleteI do not fool with buying any MLP stock individually, having a fervent desire to avoid all K-1s. I do currently own ENB (a "C" corporation) and two ETNs (AMJ and AMU).
Taking AMJ as a proxy for the sector, the five year average annual total return through last Friday was at -1.01% and -7.9% over the past three years. YTD is at at +4.37%, which at least suggests the "possibility" of a bottom.
What concerns me as a trader is that energy prices have perked up significantly but this sector remains in the doldrums. The bear market started when energy prices started to crater in the 2014 summer. Those who favor this sector, and I am not one, ridiculed that price decline since most of these companies do not have significant exposure to commodity prices. However, they do have exposure to volumes and lower prices cause curtailments in marginal production areas and wells.
Shale production is increasing again but the stocks are not responding. Field production is currently over peak the prior level and was reported at 9.782 million barrels per day for the W/E 12/29/17:
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=WCRFPUS2&f=W
Maybe there is simply a delay factor and the positive stock response will soon follow. Or, since investors were burned badly in this sector, with major price declines and distribution cuts, they are reluctant to buy again, suspecting that any bullish trend in energy prices will not last.
Since there is at least a disconnect between current reality and stock prices, I will nibble in this sector by buying non-MLP infrastructure stocks and the ETNs. I do not view them as suitable long term investments.
I am not sure off hand how many shares of AMJ and AMU that I own, but 200 shares of each is probably close.
I discussed a 10 share purchase of AMU at $15.98, using a commission free trade here:
Item # 2
https://tennesseeindependent.blogspot.com/2017/12/observations-and-sample-of-recent_11.html
Tax Reform and MLP's:
http://www.bakerbotts.com/ideas/publications/2017/12/tax-reform-act---mlp
I do not view energy infrastructure companies to be a value trap now based on the increasing usage of solar and wind generation. The more immediate problem is that the sector has high fixed costs and is highly dependent on U.S. and Canadian production volumes.
South Gent,
ReplyDeleteThank you for the quick reply. Last quarter's MLP buying has significantly enhanced my portfolio yielding. I might hold the MLPs for a while and switch to REIT's when the REIT sector stabilizes. Stores are closing everywhere and many REIT sub-sectors are facing headwinds. There are several attractive REIT's now, but the yield might get better in 2018.
I have published a new post:
ReplyDeletehttps://tennesseeindependent.blogspot.com/2018/01/observations-and-sample-of-recent_8.html