Author Topic: Closed-end bond funds  (Read 4385 times)

cheapguy

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Re: Closed-end bond funds
« Reply #10 on: April 02, 2009, 10:16:16 AM »
SD & SJ, ericd1,
Appreciate if you can list your picks of quality preferred's with little catastrophic risk of.
Thinking of margining up with borrowing costs of 6%.
Will keep some room, and hope not to get a margin call.

any advice on this strategy..

(have wfc-l, orh-a and some small portiion of risky preferreds like citi, hpt-pc..)


StubbleJumper

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Re: Closed-end bond funds
« Reply #11 on: April 02, 2009, 11:39:44 AM »
SD & SJ, ericd1,
Appreciate if you can list your picks of quality preferred's with little catastrophic risk of.
Thinking of margining up with borrowing costs of 6%.
Will keep some room, and hope not to get a margin call.

any advice on this strategy..

(have wfc-l, orh-a and some small portiion of risky preferreds like citi, hpt-pc..)

Well, to start with, peruse this list of preferreds:

http://online.wsj.com/mdc/public/page/2_3024-Preferreds.html

In there you will see a nice selection of cumulative trust preferreds for WFC, USB, or JPM...and then there are CORTs and TRUCs for GS...and then there are garden variety preferreds for RNR, ORH, Everest RE or MetLife.  So, that's a nice selection of potential candidates many of which are unlikely to blow up any time soon.  Yields on these tend to range from high single digits to low double digits.

If you already own ORH-A, I would say that you have one of the nicer combinations of risk and yield.  If your margin interest costs are 6% and you margin 2:1 then at today's prices for ORJ-A, an 18% return is conceivable.....as long as you are comfortable with ORH!

SJ

ericd1

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Re: Closed-end bond funds
« Reply #12 on: April 02, 2009, 12:47:06 PM »
I haven't seen the negative equity reports on WFC. Like some of the other majors, they have significant challenges, but hopefully not like Lehamn, or Citi. Today's mark-to-mark changes sure won't hurt, nor will the toxic asset plan if it works.

There aren't any guarantees on the dividend. My belief is that WF won't fail and like Citi's PFDs there's some assurances a swap for common won't wipe you out. As others have mentioned, spread the risk and own several.

In my watch list ORH is probably the highest quality and highest yield. There are some other insurers that have been mentioned (look back in the thread). The quality corporates pfds seem to be yielding 6-8% and quality banks 8%-10% (JPM, USB).

The Financial PFD ETF is now yielding ~13.6% and appears to still have some upside. I've held it along with my basket, approx same movement, not sure I'd margin it, but it's an option. The PFD bargains are rapidly vanishing...I'm going to look at the WSJ PFD list tonight...



cheapguy

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Re: Closed-end bond funds
« Reply #13 on: April 02, 2009, 01:02:37 PM »
ericd1 & others,

Anyone looked into PSA 's preferred.

they have equity about $10Billion and the have preferred for about 550million.
so the debt/equity is 5-6% only.

their preferreds are earning in high 9's (close to 10) and very unlikely of not paying dividends or default.

also as they are not in finance, it could be a good diversification.

please poke holes in this corporate, preferreds

sswan11

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Re: Closed-end bond funds
« Reply #14 on: April 02, 2009, 06:46:52 PM »
What will happen to the prices of preferreds if we get (massive) inflation?

StubbleJumper

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Re: Closed-end bond funds
« Reply #15 on: April 03, 2009, 06:39:26 AM »
Define the term "massive inflation."  In a recent context, 5 or 6 percent annually might be massive.  If we get 5-6 percent for 4 or 5 years, that's no biggie as the nominal yield from ORH-A is about 12%.  If inflation increases and corporate spreads decrease (as I think they will), the impact might not be enormous.

On the other hand, if you think that massive inflation means 10-15 percent for 4 or 5 years, you'll get killed in preferreds....but you'll also get killed in many other asset classes.   In fact, if you believe that this magnitude of inflation will prevail, the best approach might be to buy real-estate with a very long term fixed mortgage.....

My money is on a mildly inflationary future....but who the heck knows?!?!

SJ