Elevated Magic Software to Flyer's Basket-Added 100 at $5.91/Sold 50 KRE at $41.35/Added 50 of AINV at $7.4-Roth IRA

Big Picture: No Change

Stable Vix Pattern (Bullish):

Vix Asset Allocation Model - South Gent | Seeking Alpha

Vix Asset Allocation Model Explained Simply

Use of the VIX as a Timing Model

Trading Strategy Under The Vix Asset Allocation Model: Part 1 - South Gent | Seeking Alpha

Trading Strategy Vix Asset Allocation Model Part 2: Hedging In An Unstable Vix Pattern - South Gent | Seeking Alpha

Recent Developments: 

In the following discussion, I will be linking Morningstar's 2014 total return calculations based on net asset value per share. 

For 2014, the DJIA rose 7.52%, while the S & P performed better with an 11.39% increase (+13.68% with dividends reinvested).

Overall, it was a tough year for income investors in several categories. BDCs had a terrible year even as interest rates declined, and the discounts for several externally managed ones reached historically high levels.

UBS ETRACS Wells Fargo Business Development Co.  ETN (BDCS)= -8.27% total return based on NAV per share

Foreign bonds own by U.S. funds were down in value primarily due to the parabolic rise in the USD, as reflected in the U.S. Dollar Index (DXY) and the Bloomberg Dollar Spot Index. The rise in the USD was also a powerful headwind for foreign stocks.

SPDR Barclays International Treasury Bond ETF (BWX)= -2.49% total return based on NAV
SPDR Barclays International Corporate Bond ETF (IBND)= -4.82% total return based on NAV

The U.S. dollar had its best year since 2005. The U.S. Dollar Index (DXY) rose 12.8% during 2014.

Junk bond ETFs finished the year near break-even on a total return basis.

SPDR Barclays High Yield Bond ETF (JNK)= +.67% total return based on NAV

Long term treasuries performed much better than most investors believed possible at the start of 2014.

iShares 20+ Year Treasury Bond (TLT)=27.35% total return based on NAV

Several emerging market bond funds were hit due to credit exposure to countries like Russia, Venezuela and Argentina. Currency losses aggravated those losses caused by credit concerns.

WisdomTree Emerging Markets Local Debt ETF (ELD)= -5.45% total return based on NAV
MS Emerging Market Domestic CEF (EDD)= -14.8% total return based on NAV

MLPs started out the year in good form, but lost their price gains during the 4th quarter when crude oil went into the crapper. MLP ETNs ended the year with positive total returns due to their dividends.

JPMorgan Alerian MLP ETN (AMJ)= +3.16% total return based on NAV

Utility and REIT stocks had an excellent year, as one would expect with interest rates trending down.

Vanguard REIT ETF (VNQ)= +32.45% total return based on NAV
Vanguard Utilities ETF (VPU)= +29.26% total return based on NAV


Brent crude and gasoline futures declined 48% in 2014.  WSJ

Natural gas prices fell 32%: WSJ

Energy stocks had a down year.

Energy Select Sector SPDR ETF (XLE)= -8.61% total return based on NAV
First Trust ISE-Revere Natural Gas ETF (FCG)= -41.74% total return
SPDR S&P Oil & Gas Equipment and Services ETF (XES)= -34.66% total return

The healthcare sector had another good year:

Vanguard Health Care ETF (VHT)= +26.52%

Novartis, one of my stocks, had a 18.66% total return vs. 10.96% for the major drug index.

Coca Cola underperformed Pepsico (both owned):

KO     +5.16%
PEP  +17.06%

GE declined during the 4th quarter and ended the year down -6.67%.

INTC was one of my better large cap holdings, rising 43.29%.

*********************************

1. Elevated Magic Software (MGIC) to Flyer's Basket Strategy Based on Valuation: Added 100 at $5.91 ($500 to $1,000 Flyer's Basket Strategy With Snapshots of Round Trip Trades)(see Disclaimer)

Snapshot of Trade: 

Closing Price Day of Trade Tuesday 12/30/14: MGIC: $5.94 -0.11 (-1.82%)

MGIC Historical Prices

Closing Price Day of Trade in Tel Aviv: MGIC.TA: 2,347.00 -104.00 (-4.24%)

Tel-Aviv Stock Exchange: TASE

I believe the 2,347 price is in Israeli agora. The New Israeli Shekel is divided into 100 agorot. The price in Shekels would be 23.47.

Prior Trades: I originally bought Magic Software as part of my Lottery Ticket Basket Strategy: Bought 30 MGIC at $7.9 (5/26/14 Post) The stock price had declined after Magic had sold 6.9M shares at $8.5. SEC Filing; Prospectus The price after the underwriters' discount was $7.99.

I mentioned in that May 2014 post an important caveat. There is nothing in my background that would enable me to evaluate Magic's products or services.

Based on a decline in the price, I later elevated MGIC to the Flyer's Basket Strategy based on valuation that allowed for an investment up to $1,000. I bought 100 shares at $6.8 and sold that lot at $7.61 before I had a chance to write it up here. I based that purchase primarily on statistical data and limited my exposure to a risk category that sits just above the Lottery Ticket Basket Strategy. 

2014 Sold 100 MGIC +$66.38

Selling the shares at $7.61 proved to be fortunate, since my last purchase, which is being discussed now, was at $5.91.

My interest in the stock was rejuvenated after reading a SA "Pro" article discussing Magic Software that was published earlier in December. I had not read the article until 12/30 which led me to read the last earnings report and ultimately to buy the stock later that day.

Company Description: Magic Software Enterprises Ltd. (MGIC) is a technology company based in Israel that develops, markets, sells and supports an application platform as well as business and information integration solutions. The company also offers information technology services. 

Magic Software Enterprises Profile Page at Reuters

It would not be helpful for me to describe further Magic's products and services since I have no background in technology. I would simply be parroting the descriptions provided by the company. The last SEC filed Annual Report contains a detailed description of those products and services (pages 20-28, SEC Form 20-F)

I like the progression in revenues and income shown in the following tables.

Historical Income Statements 2009-2013:

This purchase was also made on statistical data. As of 12/30/14, the consensus E.P.S. estimate for 2015 was $.56. MGIC Analyst Estimates At a $5.91 price, the forward P/E is 10.55.

The MGIC Key Statistics page at Yahoo Finance shows the following, using MGIC's financial data through 9/30/14, and based on the $5.94 closing price from 12/30/14:

P.E.G. (5 year expected): 1.73
P/S Ratio: 1.61
P/B Ratio: 1.42
Profit Margin (TTM): 10.6%
Total Cash Per Share: $84.92M
Total Debt: $2.68M
Trailing Annual Dividend Yield: 3.6%
Payout Ratio: 51%


E.P.S. growth is being restrained by the issuance of 6.9M shares during the 2014 first quarter. As far as I can tell, those funds have not been put to use. Cash and available for sale securities stood at $87.858M as of 3/31/14, SEC Filed 1st Quarter Earnings Press Release. That number was at $84.92M as of 9/30/14.

Magic Software is effectively controlled by the Israeli company Formula Systems which owns 45% of Magic's stock (page F-74, Formula Systems 20-F) Formula is in turn controlled by the Polish company Asseco who owns 50%+ of Formula's stock.

About Us | Formula Systems

An entity known as the "Denver Investment Investment Advisors, LLC" reported that it owned 10.05% of the outstanding MGIC stock as of 7/14/14.

MGIC Filings with the SEC

Last SEC Filed MGIC Annual Report: SEC Form 20-F 

Chart: MGIC was selling below its 50, 100 and 200 SMA lines when I bought stock and was showing no signs yet that it had hit a bottom. MGIC Interactive Stock Chart

One Year Comparison Chart: Brown Line is USD priced MGIC

Looking at a five year chart of the ordinary shares priced in Shekels, the price traded as low as 6 Shekels in 2010, and zoomed up to 34+ Shekels early in 2011 and then crashed to 14 Shekels later that year. The stock then made another run up to around 28 Shekels in 2012 and then fell back into a channel trading range largely between 16 and 20 Shekels for about a year. The stock then broke out of that trading range midway through 2013 and made another burst up to 34 Shekels which was killed in the 2014 first quarter when the company sold more shares in a public offering. Over the past several months, the ordinary shares have been trading mostly between 23 and 28 Shekels.

A 100 share lot will provide me with all of the excitement that my heart can withstand.

Dividends: Magic is paying a semi-annual dividend. The last dividend was U.S. $.095 per share that was paid in September 2014. Magic Press Release

MGIC also paid a $.12 per share dividend earlier in 2014. Based on the 2014 total ($.215 per share) and assuming further a total cost per share of $5.91, the dividend yield would be about 3.64%.

Magic Software Enterprises  Dividend Date & History-NASDAQ.com

Israel's has been withholding a 25% tax on dividends paid by Israeli companies.

Israeli Withholding Taxes on Dividends

I would not own any foreign stock subject to a withholding tax in an IRA since the tax is not recoverable, as explained in this Schwab article.

Recent Earnings Report: For the 2014 third quarter, MGIC reported a 13% Y-O-Y increase in revenues to $40.2M. Net income was reported at $4.2M or $.10 per share, down from $.11 in the 2013 third quarter. "Net income for the quarter was negatively impacted by devaluation of cash balances denominated in Euros and New Israeli Shekels following devaluation of foreign currencies versus the Dollar". Magic reports in USDs, and has significant operations in Europe and Israel (38% of revenues). There was also a 7.047M increase in the number of diluted shares Y-O-Y.  

Magic Reports Third Quarter Results; SEC Filed Third Quarter Earnings Release

SEC Filed Earnings Press Release for the 2014 Second Quarter

Earnings Call Transcript-Seeking Alpha ("for Q4 we definitely see some good signs in terms of demand, in terms of revenues and in terms of profitability", comment by CEO at page 3)

Rationale and Risks: This selection was a value selection based on statistical criteria. Based on those current financial metrics, the stock appears undervalued based on its anticipated growth rates. The company currently has a solid financial position, but that may change based on unexpected events including the frequent lawsuits that are a part of doing business today.

The USD priced shares have been negatively impacted by the substantial decline in the Shekel and the large stock offering that increased the share count without producing earnings. The last earnings report was okay but fell flat judging from the market's reaction. The share price closed at $7.2 on 11/24/14 and ended the year at $5.95, a 17.36% decline in a little over a month.

The company summarizes risks starting at page 2 of its last SEC filed Annual Report: 20-F My concerns are expressed in that long risk disclosure.

Currency risk is material, as shown in a one year USD-ILS Interactive Chart. A USD bought about 3.41 Shekels in early August and 3.9 Shekels by year end. That 14.37% decline in the Shekel will flow through into the USD priced MGIC shares. If the decline continues, that will have a negative impact on the MGIC price and will cause the U.S. shares to underperform the ordinary shares priced in Shekels. The worst scenario, appropriately called the Double Whammy, is for the Shekel to continue its decline and for the ordinary shares priced in Shekels to fall also.

If I take the currency conversion chart out 10 years, I see wide variations in the currency exchange rates. The Shekel was relatively strong in 2008 with 1 USD buying about 3.2 Shekels in late April 2008. The Shekel then weakened to about 4.21 in March 2009 and then gain strength again to around 3.4 in March 2011.

Generally, my major concern with a small software company is that its competitors are much larger with considerably more financial and talent resources. Change can occur rapidly rendering a once popular product obsolete. Companies are required to run fast just to stay even. It is easy to fall behind as some other company leapfrogs ahead with the latest program that has more bells and whistles and costs less.  

2. Sold 50 KRE at $41.35 (REGIONAL BANK BASKET STRATEGY)(see Disclaimer): This ETF turned into a profit clip. I will invest the proceeds at some point in a higher yielding regional bank stock. 

Snapshot of Trade:

2014 Sold 50 KRE at $41.35

Snapshot of Profit:  

2014 KRE 50 Shares +$75.95

Item # 1 Bought 50 KRE at $39.55 (9/20/14)

Security Description: The SPDR S&P Regional Banking ETF (KRE) is a regional bank ETF.

KRE is currently rated 4 stars by Morningstar.

Sponsor's Website: KRE - SPDR S&P Regional Banking ETF

The expense ratio is .35%. 

Rationale: I decided to harvest the profit and to use the proceeds to buy higher yielding regional bank stocks. The SEC yield, based on the 12/31/14 closing price, is 1.59%. Many of the larger regional banks slashed their dividends during the last recession and have been very slow in increasing the payouts. I do not own any of those in my regional bank basket.

Regional banks are facing tailwinds and headwinds now. Headwinds include a compression in net interest margins, due largely to the FED's abnormal monetary policies, and an increase in regulatory costs. The tailwinds include an improving economy that results in fewer loan losses and more demand for loans. A rise in intermediate and longer term rates will relieve the net interest margin compression pressure, assuming short term rates remain near zero and the banks are able to pay almost nothing to their depositors in interest. A rise in longer term rates is not a free lunch, however, and will have several negative effects that will vary among banking institutions, including a possible slowdown in mortgage originations and lower profits or even losses on investment securities.

I already have positions in a number of banks that are owned by this ETF, including UBSI, VLY, FNB, FNFG, ONB, BPFH, FMER, FFBC, NBTB, and CBU. I also own FHN, RF and FCF as Lottos, with the later worthy of an upgrade on risk, but I am not interested in buying at the current price. Two of my Lottos are among this ETFs top ten holdings:

FNB and ONB are in my regional bank basket. Regional Bank Basket as of 12/2/14

Closing Price 12/31/14: KRE: $40.70 -0.44 (-1.07%) 

3. Added 50 AINV at $7.4-Roth IRA (see Disclaimer): I am playing a possible rebound in this stock that will hopefully start during the 2015 first quarter. Tax loss selling in BDCs is now in the rear view mirror. In a world without yield, perhaps a few investors will become hungry again for the dividends paid by pass through entities like BDCs and MLPs.  

Snapshot of Trade: 

2014 Roth IRA Added 50 AINV at $7.4

Recent Roth IRA History for AINV: 

The preceding snapshot basically summarizes what I am attempting to do with AINV. When the shares popped slightly over the net asset value per share, I liquidated my position: Item # 3 Sold 155+ AINV at $8.81 (9/20/14 Post) I harvested the dividends and escaped with a $31.27 profit. Given my disdain for externally managed BDCs, I am content to harvest their dividends and to escape with whatever profit is possible.

I then bought back 50 of those 155+ shares at $7.94. The last add at $7.4 brings me up to 100 shares. AINV went ex dividend for its quarterly distribution in between those two 50 share purchases.  

Security Description: Apollo Investment Corp.   (AINV) is one of the oldest and largest BDCs.

Prior to the Near Depression, AINV stock traded over $23 in 2007 and then made a swan dive into the low single digits which simply highlights the risks. Since August 2011, the stock has moved mostly in a narrow channel between $6.5-$9. AINV Interactive Stock Chart

The stock was trading below its 50, 100 and 200 day SMAs lines when I made this last purchase.

200 Day SMA at $8.28
100 Day SMA at $8.21
  50 Day SMA at $7.95
Chart

Net Asset Value Per Share Destruction:
Sourced 10-Q Filings
3/31/2013: $8.27
9/30/2012: $8.46
3/31/2011: $10.03
3/31/2007: $17.87

Where can I find competence and talent in those numbers? Some cynics might argue that the Masters of Disaster are at their best incinerating other people's money by the truckload.

I would emphasize that these Masters of the Universe are being paid 2% of total assets plus an incentive fees for this performance. (page 79, AINV-2014.3.31-10K;

AINV SEC Filings

Apollo Investment has a history of cutting its quarterly dividend. The first slash occurred in 2008 with the quarterly dividend reduced to $.26 from $.52 per share. AINV thereafter raised the rate to $.28 per share before slashing it again to the current quarterly rate of $.2 per share which has remained unchanged since the 2012 first quarter. In short, AINV has what I would call an ignominious dividend history. It is small comfort to AINV's long suffering shareholders that other companies have worse dividend histories (e.g. Bank of America)

Rationale and Risks: The only reason to invest in a BDC is to harvest the dividend. AINV is currently paying a quarterly dividend of $.2 per share. At at total cost of $7.4 per share, that rate generates about a 10.81% yield. I would be most satisfied to harvest that yield for a year and to sell the 100 shares currently owned in the Roth IRA for a 1 cent profit.

It does not help to receive a 10% dividend and then for the BDC to lose 10% in value over a one year period.

My goal with all BDC purchases is to harvest the dividend and to escape with any share profit. That is far easier said than done when the managers are taking the net asset value per share slowly to the ground floor. Most of the time, the market price for an externally managed BDC will hug the net asset value per share within a few percent, up or down, so a continuous downdraft in net asset value is a prescription for inevitable share losses.

To improve my chances for a profitable escape, I will generally buy when the market price is below the net asset value per share and then consider selling when the market price exceeds NAV per share by 5% or more. I have been modifying that plan recently, requiring in most cases a greater than 10% discount before considering a purchase and selling as soon as I note a cross above the last reported net asset value per share.

AINV's last reported NAV per share was $8.72. AINV-2014.9.30-10-Q The purchase at $7.4 was a 15.14% discount to that last reported number.

I have already discussed several of the important risks, including the history of net asset value per share destruction and the dividend cuts. The company discusses risks starting at page 8 of its last SEC filed Annual Report. AINV-2014.3.31-10-K

I have also recently highlighted risks in a SA Article: The Market Is Clearly Making A Distinction Between Internally And Externally Managed BDCs - Apollo Investment (NASDAQ:AINV) | Seeking Alpha

The last filed 10-Q for the Q/E 9/30/14 shows at page 21 a 13.2% exposure to oil and gas companies. AINV-2014.9.30-10Q Most of that exposure appears to be first lien secured debt, pages 8-9.

Based on the history of net asset value per share destruction, this security has to be traded in order to achieve an acceptable total return. The total annualized return is only 5.67% since 5/5/2004. Calculator While some reinvested dividends have generated positive total returns, primarily those paid during the Near Depression period when this stock cratered into the low single digits, most of the reinvested dividends have lost some of their value since the shares have depreciated in value.  I have bought AINV shares as low as $2.35.

Future Buys: I may buy 50 more share when and if the price sinks below $7. I will likely sell my highest cost lot when the market price approaches the net asset value per share.

Closing Price 12/31/14: AINV: $7.42 -0.04 (-0.54%) 

Bought Taxable Accounts: 50 KRE at $39.55, 200 SWZ at $13.97, 50 PBF at $25.61, 20 IEUR at $48.24/Sold 155+ AINV at $8.81, Sold Highest Cost NMFC Lot at $15.37; Bought 50 KKR at $22.59 and Added 100 BTZ at $13.47-ROTH IRA

I have noticed that access to my blog has been slow over the past few days. Today, Google Crome will simply not connect to the blog's web address. Instead, it will simply note that the site is unavailable.

If you click "blogger help" in that message, it will take you to my blog with a message that the page, http://www.tennesseeindependent.blogspot.com, does not exist. Yes, it does exist. The problem is Google.

To the right of that message, there is a list of the posts and the newest one can be accessed from that list. Also, links to individual posts will work just find when Google is unable to find its URL for my blog published at its website.

It is just amazing to me how many mistakes are made by Google in operating this blog site, and the frequent problems encountered in its Google search box.

These kind of routine type problems may even have some relevance for Google's ability to maintain its position against competitors in the coming years. It just strikes me as incompetent for a company in this kind of business. After all, Google Crome is the Google Browser and Blogger is the Google blog website. It might not be incompetent for a site run by amateurs who are just learning about the internet.

While I was having trouble connecting to the main URL using Safari, Firefox and Internet Explorer earlier today, the URL link to the blog was working late in the day, but was easily the slowest connection to any website that I have visited today. I have probably been to several hundred today.

In any event, a link to an individual blog rather than the blog's URL has been the main way that I have gained access to the blog today.

Big Picture Synopsis: 

Stocks:

Stable Vix Pattern: Bullish

Vix Asset Allocation Model Explained Simply
Use of the VIX as a Timing Model
Vix Charts from 2004 2005 2006 Stable VIX Patterns Phase 1 and Phase 2
VIX and S & P Compared 1990 to 1997

Short Term: Market Needs a 15% Correction

Intermediate Term: Slightly Bullish (2013 to Date Gains Borrow from the Future)

Long Term: Bullish

Bonds:

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

The Difficult Path to Interest Rate Normalization

This forecast assumes that the market is correctly forecasting the average annual CPI rate over the next ten years.

That forecast is known as the break-even spread, the average annual rate of inflation for the owner of the 10 year TIP to break even with the owner of the non-inflation protected treasury.

The break-even spread is calculated by subtracting the yield of the TIP
Daily Treasury Real Yield Curve Rates

From the Yield of the Non-inflation protected treasury
Daily Treasury Yield Curve Rates 

Bonds rallied last Thursday and Friday after the Fed's monetary policy announcement last Wednesday.

Last Friday's Closing Prices:

TLT: $114.60 +1.44 (+1.27%) : iShares 20 Year Treasury Bond ETF
IEF: $102.95 +0.39 (+0.38%) : iShares 7-10 Year Treasury Bond ETF
LQD: $117.99 +0.46 (+0.39%) : iShares Investment Grade Corporate Bond ETF
BABS: $60.72 +0.30 (+0.49%) : SPDR Nuveen Barclays Build America Bond ETF

Leverage bond CEFs have performed poorly over the past several weeks, as the ten year treasury rose in yield from 2.34% (8/28/14) to 2.63% (9/18/14). The bond funds that own foreign securities also suffered some losses due to the strength of the USD. Whenever there is a quick upward spurt in yields, the market price for leveraged bond CEFs will generally go down faster than the decline in net asset value per share which results in some expansion of the discount to net asset value per share.

My bond CEFs were a drag on my 2013 total return and have contributed to positive total returns in 2014 until a few weeks ago when their market prices started to decline in response to the rise in rates.

My largest bond CEF positions are in ERC and GDO. Both pay monthly dividends and have some foreign bond exposure denominated in local currencies.

Quote: Wells Fargo Advantage Multi-Sector Income Fund (ERC)(yield 8.43% at the $14.23 close)

Quote: Western Asset Global Corp Defined Opportunity Fund (GDO)(yield 7.52% at the $18.11 close)

The USD has been strong over the past few weeks, as shown in the Dollar Index chart: U.S. Dollar Index (DXY) Interactive Index Chart An upward movement in this index indicates USD strength against a basket of 6 currencies weighted in the Euro.

*****************
Recent Developments:  

The Fed continued to state that "it will likely be appropriate to continue its current target range for FF (that is ZIRP) "for a considerable period of time". The continuation of that abnormally low rate will be dependent on the progress made toward "maximum employment" and 2 per cent inflation.  Federal Reserve issues FOMC statement--September 17, 2014 The FED reduced its asset purchases by $10B to $15B per month starting in October, with $10B of that amount devoted to treasury purchases.

The FED's projections for real GDP growth for both 2014 and 2015 were slightly lowered from the previous forecast made in June:

FRB: September 17, 2014: FOMC Projections materials, accessible version PCE price inflation projections remain subdued, with the 2015 range changed slightly to 1.6%-1.9% from June's forecasted range of 1.5% to 2%. If those projections for PCE inflation prove accurate for 2014 through 2017, I would view that result as a long term supporting factor for stocks.

Although the FED kept the "considerable time" language, I do not view that phrase as consistent with the projections made by FED members on the likely FF rates in 2015. Fifteen FED members, an overwhelming majority, believe that the first FF increase will occur in 2015. Of those 15 members, 11 believe the FF rate will end 2015 at over 1%.

CPI declined .02% in August on a seasonally adjusted basis. Over the past 12 months, CPI rose 1.7% on a non-seasonally adjusted basis. Consumer Price Index Summary Core CPI was unchanged which was the first time this index showed no increase since October 2010.

The N.Y. Fed's Empire manufacturing survey for September was reported at 27.5, with the consensus estimate at 15.9. The new orders component rose to 16.9 from 14.1. Empire State Manufacturing Survey (overview) - Federal Reserve Bank of New York

Some recent China data evidenced a mild economic growth slowdown, as investment led growth fueled by housing and infrastructure development lose some steam. The Y-O-Y growth in industrial production slowed to 6.9% in August from July's 9% rate. Retail sales slowed to 11.9% from 12.2% and housing sales declined 10.9% in the first 8 months of 2014.

The OECD cut its 2014 growth forecast for the eurozone to .8% from 1.2% and its 2015 forecast to 1.1% from 1.7%. Economics Department - OECD Their forecast for the U.S. is for 2.1% this year and 3.1% in 2015. GDP growth in China is currently estimated at 7.4% in 2014 and 7.3% in 2015.

******************

1. Bought 50 KRE at $39.55 (see Disclaimer):

Snapshot of Trade: 

Security Description: The SPDR S&P Regional Banking ETF  (KRE) is a regional bank ETF.

Sponsor's webpage: KRE-SPDR S&P Regional Banking ETF (expense ratio .35%; holdings 82)

KRE was rated 4 stars by Morningstar when I bought this lot.

While I have zero training in technical analysis, the stock appeared to have formed a triple bottom in choppy trading this year after gaining 47.5% in 2013: KRE Total Returns

Snapshot of Some of the Top Holdings: 

This snapshot had to be taken of an XLS download which is why it looks funky.

I already have positions in a number of banks that are owned by this ETF. In the preceding snapshot, I own in the regional bank basket HBAN and UBSI, two banks in the top 10, and SUSQ, VLY, FNB, FNFG, TRMK near the bottom of that list. Other owned positions, further down in the weightings, are ONB, BPFH, FMER, FFBC, NBTB, and CBU. I also own FHN and FCF as Lottos, with the later worthy of an upgrade on risk, but I am not interested in buying at the current price.

Prior Trade: None. I am active in the selection of regional bank stocks. REGIONAL BANK BASKET STRATEGY GATEWAY POST I update my regional bank basket once a month. The last update was on 8/25/14: Update for Regional Bank, REIT and Lottery Ticket Basket Strategies

Rationale: Although there is a fair amount of overlap with my regional bank basket, and a significantly lower yield with KRE compared to my basket, I do pick up some diversity in a relatively low cost ETF. I will sell this one when and if it pops due to the overlap however.

This is nothing more or less than a trade, with a goal of harvesting a 10% annualized total return when and if that goal is hit.

Risks: After enjoying a robust year in 2013, KRE has been churning in price this year, going nowhere.

The long term chart highlights some potential risks. The share price was over $50 in early 2007 and cascaded down to $15 before stabilizing in March 2009. SPDR S&P Regional Banking ETF Chart

Regional banks are facing tailwinds and headwinds now. Headwinds include a compression in net interest margins, due largely to the FED's abnormal monetary policies, and an increase in regulatory costs. The tailwinds include an improving economy that results in fewer loan losses and more demand for loans. A rise in intermediate and longer term rates will relieve the net interest margin compression pressure, assuming short term rates remain near zero and the banks are able to pay almost nothing to their depositors in interest. A rise in longer term rates is not a free lunch, however, and will have several negative effects that will vary among banking institutions, including a possible slowdown in mortgage originations and lower profits or even losses on investment securities.

There are several other ETFs that focus on this sector including the following:

Powershares KBW Regional Bank ETF (KBWR)(expense ratio .35%; 50 holdings)

iShares U.S. Regional Banks ETF | IAT (expense ratio .43%; 57 holdings; holds some larger banks that have substantially lower weightings in KRE, including IAT's weighting in USB at 19.81% (not owned by KRE); 11.88% in PNC (1.36% in KRE); and 7.07% in BBT (1.37% in KRE) as of 9/12/14, all of which are too large for my regional bank basket)

Powershares S & P SmallCap Financials (PSCF)(expense ratio .5%, including acquired fund fees of .21%; 117 holdings and is not a pure regional bank fund, includes REITs and MREITs)

First Trust ABA Community Bank Index Fund (QABA)(net expense ratio=.6%; only Nasdaq listed stocks, which I view as a silly limitation)

Closing Price Last Friday: KRE: $39.67 -0.37 (-0.92%)

2. Added 100 BTZ at $13.47 Roth IRA (see Disclaimer): BTZ went ex dividend for its monthly distribution shortly after this last purchase.

Closed end bond funds have had a difficult several weeks. The funds that own foreign bonds have been hit the hardest due largely to the strength in the dollar.

Snapshot of Trade: 

2014 Roth IRA Added 100 BTZ at $13.47

I recently added 100 shares of BTZ. Item # 8 Bought 100 BTZ at $13.7-Roth IRA (7/26/14 Post) Before the end of this year, I intend to profitably sell the BTZ position in a taxable account, leaving me with only the shares owned in the Roth IRA. I prefer to own a taxable bond CEF in the ROTH since the non-tax favored dividends become tax free when paid into that IRA and will also be tax free under current law (unlike a regular IRA distribution), when and if I withdraw those funds.

Sponsor's Website: Credit Allocation Income Trust | BTZ (number of holdings as of 6/30/14=573; effective duration shown at 5.64 years-Get to know your bond fund: Duration| Vanguard)

Last SEC Filed Shareholder Repot: BLACKROCK CREDIT ALLOCATION INCOME TRUST

I have nothing further to add to the 7/26/14 blog discussion other than the data from the last trade:

Data as of Date of Trade 9/8/14
Closing Net Asset Value Per Share: $15.5
Closing Market Price: $13.46
Discount: -13.16%

CEFConnect Page for BTZ

Under the "Portfolio Characteristics" tab at CEFConnect, the fund is weighted in investment grade bonds but has a significant allocation to junk rated securities (as of 4/30/14: BB=21.7%; B=13.8%; CCC=2.7%)

Yield at a Total Cost of $13.47 (assumes no change in rate)= 7.17% 

The current monthly dividend rate is $.085 per share or $.966 annually. BlackRock Credit Allocation Income Trust (BTZ) Dividend Date & History - NASDAQ.com

Closing Price Last Friday: BTZ: $13.29 +0.05 (+0.38%)
9/19/14: NAV=$15.36; Discount at -13.48%

3.  Liquidated AINV in Roth IRA-Sold 155+ at $8.81 (see Disclaimer):

Snapshot of Trade:

2014 ROTH IRA Sold 155+ AINV at $8.8136

Snapshot of Roth IRA History:

Dividends Reinvested: $50.58

Snapshot of Profit: 

2014 AINV 155+ Shares +$31.27

 Item # 5 Bought Roth IRA: 100 AINV at $8.68

Total Return: $81.65 with 2 quarterly dividend payments

Security Description: Apollo Investment (AINV) is one of the largest and oldest BDCs.

Sponsor's website: Apollo Investment Corporation

Apollo Investment Corporation Portfolio

This BDC was discussed in a Seeking Alpha published last April. I do not share that author's positive views of this BDC.

Back in February, AINV sold 12M shares, plus an over allotment option, to underwriters at $8.69 per share. Prospectus So it would not be surprising to see another offering at anytime now.

Prior Trades: I currently own 100 shares in a taxable account. Bought:  100 AINV at $7.95 (5/10/14 Post)

Related Trade: I still own 50 shares of Apollo's exchange traded senior bond:  Bought Roth IRA: 50 AIY at $24 (4/5/14 Post)

Quote: Apollo Investment Corp. 6.875% Senior Notes due 2043 (AIY)

Rationale: The first 100 shares of this 150 share lot was probably bought at too high a price, even though it was under the then current net asset value per share. By liquidating the position, including the highest cost lot bought at $8.68, I can simply wait for another dip in the price and possibly re-establish a position at a lower average cost per share.

I averaged down with a 50 lot purchase at $8.06 soon after the first purchase which was apparently not discussed in the blog. I then bought a 100 share lot in a taxable account at an even lower price ($7.95), as noted above.

In prior discussions, I have highlighted why this one is kept on a short leash and will simply drag and drop some of those earlier highlights:

Prior to the Near Depression, AINV stock traded over $23 in 2007 and then made a swan dive into the low single digits which simply highlights the risks. AINV Interactive Chart Since August 2011, the stock has moved mostly in a narrow channel between $6.5-$9.

AINV was paying a quarterly dividend of $.52 per share in 2008 and then slashed it $.26 effective for the 2009 first quarter. The dividend was slashed again to $.2 in the 2012 first quarter and has thereafter remained at that level. Apollo Investment Corporation (AINV) Dividend History Needless to say, I view that dividend history most unfavorably.

Let me emphasize the potential loss by summarizing some historical net asset values per share data.

3/31/2013: $8.27
3/31/2011: $10.03
3/31/2007: $17.87

Talent? Competence? Incentive Fees-for what exactly?

I would emphasize that these Masters of the Universe are being paid 2% of total assets plus an incentive fees for this performance. (page 79, AINV-2014.3.31-10K; BDC Fees: Seeking Alpha)

Given my disdain for externally managed BDCs, which I view as amply supported by their history, I am content to harvest their dividends and to escape with whatever profit is possible.

Future Buys/Sells: I will consider unloading the other 100 share lot at over $9. I may buy back some of the 155 shares sold when and if the market price is at a greater than 5% discount to net asset value per share. The last reported net asset value per share was $8.74 as of 6/30/14: Page 3 AINV 10-Q

BDCs have been weak over the past several weeks. Many of the externally managed ones are now selling below their last reported net asset values per share.

Closing Price Last Friday: AINV: $8.55 +0.02 (+0.18%)

4. Bought 20 IEUR at $48.24-Commission Free at Fidelity Starter Position (see Disclaimer):

Snapshot of Trade:

Security Description: IEUR is a new ETF that attempts to track an index composed of large, mid and small capitalization European equities.

Index Fact Sheet From MSCI: msci.pdf (as of 8/29/14: index Dividend Yield=3.15%, P/E 17.7, Forward P/E 14.06, P/B 1.84)

The fact sheet shows that the three large Swiss firms are in the 1-3 largest weighted positions, with Nestle being the largest weighting at 2.51%. Since this index has a large number of holdings, the top ten positions represent only 16.88% of the index weighting. Others in the top 10 include Novartis at 2.07%, Roche, SNY, GSK, SAN, HSBC, BP, TOT, and RDS.

Sponsor's webpage: iShares Core MSCI Europe ETF | IEUR (expense ratio .14%; 919 holdings)

Rationale and Risks: There are a number of reasons to go easy on a European stock ETF priced in USDs. I will just briefly discuss the risks first. Best to look down before engaging in star gazing, imagining what I will do with all of the riches bestowed upon me by an investment before I even achieve my first dollar in unrealized gains.

1. Currency Risk Is Front and Center Now: The European Central Bank has adopted monetary policies intended to drive the Euro down in value against the USD and other major currencies. So far, that campaign has been successful. EUR/USD Currency Conversion Chart A European stock ETF will also have securities priced in British Pounds, which has also been losing ground recently to the USD. GBP/USD Currency Conversion Chart Hopefully, the Scottish vote against independence may help the GBP to stabilize and rise some. There will also be some exposure to other European currencies including Norway's Krone and the Swiss Franc. The Swiss Central Bank has been selling Francs since the 2011 summer in a successful effort to weaken that currency. CHF/USD Currency Conversion Chart So there are two potential currency headwinds (Swiss Franc and the Euro) that are not likely to improve soon and may even become stronger over the next year or two as the U.S. interest rates start to climb with the ECB still stuck in its version of ZIRP.

In attempting to deal with this kind of risk, I chop my potential 200 share position into multiple small lots and will add to the position during price dips.

The decline in the Euro is a two edge sword. There are benefits to European companies that may offset the currency caused stock decline that will happen to a USD priced security that owns European securities priced in depreciating currencies. The currency decline will give many European exporters a price advantage compared to their competitors located in stronger currency nations and could consequently improve their revenues and profits.

2. Sluggish Growth Even During Recoveries/Increasing Odds of More Frequent Recessions: Most developed nations have a slew of long term structural problems. Europe has more than the U.S. and probably less than Japan. I would anticipate sluggish growth during the best of times and more frequent slippages into recession than in the past.

While growth in European markets will remain challenged, many of the large European companies are multinationals and derive an increasing percentage of their revenues and profits from faster growing markets.

The Prospectus contains the usual discussion of the "principal" risks starting at page S-3. Country risks are rising (moves toward country break-ups, increasing regulation, socialist tendencies). A break-up of the EU and the abandonment of the EURO as a common currency are also a risks.

The rationale for buying this security is primarily diversification, which is achieved at a very low cost given the negligible expense ratio and the ability to buy shares commission free at Fidelity.

Over the long term, I would expect that multinationals in Europe and the U.S. to benefit from growth opportunities in emerging markets, so I want some exposure to those large European multinationals, going beyond Unilever, Nestle and Norvartis which I already own. The dividend yield is higher than SPY too.

Future Buys: With a small starter position, I will simply be looking for an opportunity to average down in small lots, assuming that I can buy those lots commission free. I am currently substantially underweight Europe and small adds to this ETF will not change that positioning.

In my Vanguard Roth IRA, I will be adding 5 share lots in their low cost European stock ETF, using cash flow and profits from my bonds as funding sources. I can buy Vanguard ETFs commission free in my Vanguard brokerage accounts.

I will be buying small lots (5 or 10 shares) of these Vanguard ETFs in my Roth IRA:

International:
Vanguard FTSE Europe (VGK)(expense ratio .12%)
Vanguard FTSE World ex-US (VEU)(expense ratio .15%)
Vanguard FTSE Emerging Markets ETF (VWO)(expense ratio .15%)

I have bought and sold VWO several times. The EM stocks have been tough over the past four or so years. Vanguard FTSE Emerging Markets ETF Chart I sold a 100 share lot at a significantly higher price in 2011than the current price. Sold: 100 of the Stock ETFs VWO at $50.22 (4/12/11 Post)

Closing Price 9/19/14: VWO: $43.97 -0.33 (-0.74%)

I then bought some back at $39.73 (January 2012 Post) I sold that lot, along with another 15 shares, at $41.75. I have not lost any money-yet, but I am not exactly making much progress advancing my net worth in that stock sector either over the past four years.

The primary vehicle for international stock exposure will be VEU with increased regional weightings established with VGK and VWO. For the most part, I will not be discussing these small incremental trades in the blog.

Domestic:
Vanguard Mega Cap-ETF (expense ratio .11%)
MGC Quote

I currently own one other domestic stock Vanguard ETF and another international fund in a Vanguard taxable account. The domestic stock ETF, the Vanguard High Dividend Yield ETF (VYM), was bought at $47.61 back in March 2012: Bought 50 of the Stock ETF VYM at $47.61 (3/6/12 Post).

I have just started to buy small lots in Vanguard FTSE Developed Markets ETF (VEA) in that taxable account.

VYM Quote
VEA Quote

While I am substantially underweight in European stocks, I am overweighted in Switzerland.

Closing Price Last Friday: IEUR: $47.58 -0.17 (-0.36%)

5. Added 200 SWZ at $13.97 (see Disclaimer): With this purchase, I am now over 900 SWZ shares. 

Snapshot of Trade:

2014 Added 200 SWZ at $13.97

Closing Price Day of Trade: SWZ: $14.01 +0.04 (+0.29%)

This last purchase brings my position to over 900 shares.

Security Description: The Swiss Helvetia Fund (SWZ) is an unleveraged stock CEF that invests in companies based in Switzerland. Slightly more than 30% of net assets are invested in Roche, Novartis and Nestle.

Closing Data Date of Trade:
Closing Net Asset Value Per Share: $15.79
Closing Market Price: $14.01
Discount: -11.27%
Average Discounts:
1 Yr. = 11%

CEFConnect Page for SWZ

Fund Sponsor's Website: Swiss Helvetia Fund

Last SEC Filed Shareholder Report: The Swiss Helvetia Fund, Inc. (period ending 6/30/14)

SWZ Page at Morningstar

Top 10 Holdings as of 8/31/14:

During my ownership period, which dates back to 2008, I have received a number of long and short term capital gain distributions: Swiss Helvetia Fund Dividend History Dividends are not supported by a ROC.

Of the top 10 holdings, I currently own Nestle and Novartis.

Prior Trades: I last added to this position in April and July 2014: Item # 4 Added 50 SWZ at $14.32 (4/12/14 Post); Item # 6 Added 100 SWZ at $14.49 The net asset value per share was then $16.25 and the discount was -11.94% based on the closing price of $14.31 on 4/3/14. Other purchases, made in 2012 and 2013, are discussed in these posts: Item # 1 Added 50 SWZ at $12.22 April 2013; Item # 3 Added 50 SWZ at $10.64 November 2012

Rationale and Risks:  With this fund, I gain exposure to a number of Swiss blue chips and exposure to assets priced in Swiss Francs.

I discuss other potential benefits and risks in my Item # 4 Added 50 SWZ at $14.32.

The Swiss Central Bank has successfully lowered the value of the Swiss Franc through interventions starting in the 2011 summer. Generally speaking, the owner of SWZ would want the CHF to rise against the USD after buying this CEF priced in USDs, but the Swiss Central Bank is not going to allow that to happen anytime soon.

Without such intervention, I would expect the CHF to be over time a stronger currency than the USD.
CHF/USD Currency Conversion Chart

I am comfortable with this fund's top holdings and investment style.

Future Buys/Sells: Before year end, I may sell my highest cost 200 shares, but only before the ex dividend date for the annual distribution. The decision will be based on a number of factors, including the size of the distribution and the then existing discount to net asset value per share. I will not sell the shares if the discount is over 12%.

As of 6/30/2014, the fund had an unrealized gain of $165.389+M on net assets of $438.387+M. The then existing realized gain was $49.277+M. (page 14,  The Swiss Helvetia Fund, Inc.) Morningstar has the share count at 26.56M, so it looks like another large capital gain distribution is coming later this year. Normally, the year end distribution goes ex dividend in December but is not paid until January. Last year, the LT and ST capital gain distributions amounted to $.983 per share. There was also an income distribution of $.033 per share. I received $515.46 that was used to buy 36.403 shares at $14.1598 (snapshot in introduction-Stocks, Bonds & Politics:  SWZ)

Closing Price Last Friday: SWZ: $13.90 -0.04 (-0.29%)

6. Bought 50 PBF at $25.61 (see Disclaimer): The chart of this oil refiner clearly manifests what is commonly referred to as a falling knife, so I divided a 100 share possible purchase into two 50 share lots, just one risk mitigation technique that is frequently used to deal with that kind of situation. I will consider buying the second lot somewhere in the $22 to $22.5 range.

This is another contrarian value play. When making this kind of investment, it may take awhile before it works out, assuming it works out. The price has already declined by a $1.12 per share since I bought this 50 share lot, and that is after a $.42 per share rally last Friday.

I did note that "Baupost Group" owned 6.38% of the outstanding shares as of 6/30/14. PBF Major Holders

Baupost Group is Seth Klaman's hedge fund.

Snapshot of Trade:

Closing Price Day of Trade: 9/10/14: PBF: $25.82 -0.73 (-2.75%)

All of the refiners were hit on 9/10/14 after the EIA reported a 2.4M increase in gasoline supplies. (third paragraph at ir.eia.gov.pdf)

Security Description: PBF Energy Inc (PBF:NYSE) is a new company that owns refineries and has an interest, described below, in a publicly traded LP known as PBF Logistics.

Refinery specific information can be found at page 48-49 of the 2013 Annual Report, PBF-2013.12.31.10-K.

PBF Energy Profile Page at Reuters
PBF Energy Key Developments Page at Reuters
PBF Key Statistics Page at Yahoo Finance
PBF Analyst Estimates Page at Yahoo Finance

PBF-Bloomberg Data as of Date of Trade:
Based on $25.82 Closing Price and Then Current Estimates
Current TTM P/E 10.81
Estimated P/E 2014: 9.68
P/B: 1.46
P/S: .064

PBF Energy recently announced that its Board approved the purchase of up to $200M in shares.

PBF Energy has an interest in another firm known as PBF Logistics that was recently spun out from PBF: PBF Logistics L.P. (PBFX) Announces Second Quarter 2014 Earnings Results and Declares Initial Quarterly Distribution

PBF Energy owns indirectly the PBFX general partner and 50.2% of the limited partnership units as of 6/30/14. PBFX currently owns some infrastructure assets associated with the refineries owned by PBF Energy, including a Delaware City rail terminal and a truck terminal at the Toledo refinery. Apparently, the intention is to expand into terminals, pipelines, storage facilities and similar logistic assets.  PBF Logistics LP Website The PBFX second quarter earnings release refers to owning "modest" amount of infrastructure assets. Some would quibble with the use of the word "modest".

PBF Logistics LP Announces Closing of Initial Public Offering

PBFX Quote

Prior Trades: None

Recent Earnings Report: For the 2014 second quarter, PBF Energy reported Operating Income of $87.4M, down from $133M in the year ago quarter. Adjusted Pro Forma Net Income decreased to $.35 per share from $.73 per share. A $46.2M or $.28 per share LIFO (Last in First Out) charge is included in the 2014 second quarter results reflecting a "rising commodity price environment during the quarter". For the east coast refineries (Delaware City, Delaware and Paulsboro, N.J.), the throughput averaged 470,400 barrels per day and 146,600 for the Toledo refinery.

Rationale and Risks: Currently, the company is paying a quarterly dividend of $.3 per share. I would not view a dividend paid by a refiner as anything close to safe due to the volatility in earnings and high leverage. At the moment, the dividend yield at a total cost of $25.61 is about 4.69%. 

While I view predicted earnings of a refinery to be highly unreliable, I would note that the consensus E.P.S. forecast was, at the time of my purchase, $2.6 in 2014 and $3.19 in 2015. That number in 2015 might be too low or the company could conceivably report a loss. That is just a hypothetical consistent with the wild historical swings in profits common in this type of business.

An investor can see that volatility by looking at the historical results of Valero. I just pulled up the 2010 VLO Annual Report showing net income of $4.866B in 2006, a loss of $1.154B in 2008, a loss of $373M in 2009 and a profit of $923M in 2010, Page 22 10-K. That kind of earnings volatility creates risks as well as significant problems in establishing a fair value for the company.

Refining is an inherently volatile business subject to massive swings in profitability. I would note that there is no rush to build large new refineries built in the U.S. anytime soon. The Energy Department shows 150 U.S. refineries in 2009 and 142 now. U.S. Number and Capacity of Petroleum Refineries The existing ones are running near their capacity limits. U.S. Percent Utilization of Refinery Operable Capacity (Percent)

The explosion in shale based production is resulting in some expansion in existing facilities and small new processing plants. The last major refinery built in the U.S. was in 1976. U.S. Oil-Refineries Bulk Up - WSJ

As noted in a recent CNBC article, the east coast refiners are better suited for the light sweet crude produced from shale than the refineries operating on the Gulf coast who are more suited to refine heavy crude coming from Mexico, Venezuela and Canada. The PBF east coast refineries process mostly medium to heavy and sour crude, with some allocation to sweet crude and other blends. Page 49

Oil production in the U.S. has been rapidly expanding since 2005: U.S. Energy Information Administration (EIA).

In 2013, domestic production satisfied 84% of the total U.S. energy needs: Domestic production-U.S. Energy Information Administration (EIA)

Refiners face numerous risks, as described by PBF in its last SEC filed Annual Report, PBF-2013.12.31.10K, starting at page 19 and continuing to page 35. I would highlight the environmental and regulatory risks (e.g. pages 26-29).

Closing Price Last Friday: PBF: $24.49 +0.42 (+1.74%)

7. Bought 50 KKR at $22.59 Roth IRA (see Disclaimer):

Snapshot of Trade:

Closing Price Day of Trade 9/10/14: KKR: $22.56 +0.02 (+0.09%)

Security Description: KKR & Co. L.P (KKR) is a publicly traded limited partnership that offers a broad range of investment management services. I would generally classify this company in what I call the opportunistic alternative asset management category, same as Apollo (APO) that I discussed last week.

When reading an in depth description of KKR's many businesses found in an Annual Report, 10-K , I did not complete reading the long and boring discussion before I had an irresistible urge to take a nap.

KKR Interactive Chart

KKR & Co LP Profile at Reuters

KKR & Co LP Key Developments

KKR- Bloomberg Data as of Date of Trade:
Based on Closing Price of $22.56

Estimated P/E 2014: 8.84
P/B: 3.26
P/S: .58

KKR Key Statistics

Over the past three years through September 10, 2014, Morningstar calculated KKR's annual total return at 34.93%, compared to the S & P 500 at 22.67%. KKR Those numbers are updated after each market close.

KKR Dividend History - NASDAQ.com (variable dividend)
Last 4 Quarters: $.67, $.43, $.48 and $.23= $1.81 per unit

The distribution policy is set out in the last earnings press release:

KKR was rated 4 stars by Morningstar at the time of my purchase, with a fair value estimate of $30 and a consider to buy at $18.

S & P rated KKR at 3 stars with a $26 target price. I would be pleased with a $26 exit price after harvesting a year's worth of distributions.

Prior Trades: None

Related Trades: I have bought and sold a preferred stock that is now a KKR obligation after KKR acquired KKR Financial Holdings LLC, formerly traded under the KFN symbol. Roth IRA: Bought 50 KFNP at $24 (November 2013 Post) Added 50 KFN/Pr at $23-ROTH IRA (December 2013 Post)

KKR Financial Holdings LLC Pfd. 7.375% Series A (KFN.P)

Prospectus (optional redemption on or after 1/15/2018; optional redemption after "change of control event")

The preferred stock received an upgrade to investment grade after KKR's acquisition. Fitch Upgrades KKR Financial to 'A-' Following Acquisition by KKR (KFN's equity preferred raised to BBB from BB+)

Recent Earnings Report: For the 2014 second quarter, KKR reported GAAP net income of $178.2M and total distributable earnings of $701M. Economic net income (ENI) was $501.6M or $.62 per unit after taxes. ENI after taxes and "equity-based charges" was $.57 per unit. Return on equity was at 28.7%. Assets under management was reported at $98B. Fee paying assets under management totaled $79.7B. EC Filed Press Release For the 2nd quarter, the company declared a $.67 per unit distribution which included a $.41 of "realized cash carry". The other components of that distribution can be found listed under "distribution" in the press release.

It is best to simply read the press release, which contains a definition of terms near the end. I took a snapshot of KKR's definition of two phrases used in the press release:

Fee Related Earnings and Economic Net Income

10-Q

Rationale and Risks: With a small 50 "unit" position, I am taking only a slight risk. The potential upside is offered by a combination of price appreciation and distributions. Over the past three years, KKR has given its investors both. The past may or may not be prologue.

The company discusses risk factors incident to its business starting at page 36 of its last SEC filed Annual Report. SEC Form 10-K

Future Buys/Sells: I am not likely to buy more and will consider selling this lot when and if I hit a 10% annualized total return. I will not buy LPs in a taxable account for as long as I prepare my own tax return, since I do not want or need the headaches associated with the K-1s.  When and if I hire an accountant to perform that task, which is possible within the next ten years, I will consider buying some publicly traded limited partnership units. For now, I will buy LPs only in very small amounts in an IRA, recognizing the UBTI issue and the loss of all tax advantages flowing from ownership in a taxable account.

Closing Price Last Friday: KKR: $22.55 +0.03 (+0.13%)

8. Pared NMFC Roth IRA Sold 50 Highest Cost Shares at $15.37 (see Disclaimer): New Mountain Finance Corp. (NMFC) is a BDC that focuses on "acyclical defensive growth" companies. A list of the portfolio investments can be found starting at page 106 of the 2013 Annual Report, 10-k.

I made a mistake in buying this 50 share lot. The purchase was made in May 2013 at a premium to its then existing net asset value per share, a clear trading rule violation for externally managed BDCs. Bought 50 NMFC at $15.03 in the Roth IRA (5/29/13 Post)  The net asset value per share was reported at $14.32 per share as of 6/30/13.

I still own 150 shares after that 50 share lot disposition.

I own 50 shares in another Roth IRA account that was bought on the day New Mountain closed an underwritten public offering of 3.5M shares at $14.57. Item # 3 Added 50 NMFC at $14.2-Roth IRA (4/26/14 Post) The net asset value per share was $14.65 as of 6/30/14, page 3 SEC Form 10-Q The buy at $14.2 was at a 3% discount to the $14.65 net asset value per share as of 6/30/14.

A 100 share lot was purchased in June 2013. Item # 5 Bought 100 NMFC at $14.28-Taxable Account (6/22/13 Post) That purchase was at a slight discount to the $14.32 NAV per share as of 6/30/13.

NMFC Interactive Chart

EDGAR Filings for NMFC

Snapshot of Trade:

2014 Roth IRA Sold 50 NMFC at $15.37

Snapshot of ROTH IRA History:

Roth IRA History 50 Share Lot

All of the dividends were taken in cash. The last dividend shown in the preceding snapshot was a special dividend. I sold the 50 share lot the day before the regular $.34 per share quarterly ex dividend date (9/12/14): NMFC Dividend Date

Dividends=$ 97 or a 12.79% total return since 5/23/13 purchase

I escaped with a $2.99 profit on the shares. For an externally managed BDC, escaping with any profit is viewed as a victory. The idea is always to capture the generous dividends without losing money on the shares, which is easier said than done.

Future Buys and Sells: I am likely to sell the remaining shares when the market price exceeds net asset value by 5%, or close to it, provided I have harvested dividends for at least one year. Since the taxable account 100 share lot was bought in June 2013, I may opt to sell that lot at anytime. I will probably wait for the next quarter's earnings report and/or a price over $15.3. The last report showed an increase in NAV per share to $14.65, as of 6/30/14, from $14.38 as of 12/31/13. Another consideration is that I am well over my standard 20% cash allocation in the main taxable account, and I really do not need or want more cash earning zilch.

Closing Price Last Friday: NMFC: $14.75 -0.06 (-0.41%)