This and That – Some Loose Ends

October 12, 2014  9:30 pm

We have had some questions on various holdings that readers have in their portfolios and thought since we have some time we would touch on a couple of points (remember that bond markets are closed Monday for Columbus Day–unless you are in Minneapolis it is ‘Indigenous Peoples Day’).

We have had questions on holding preferred stocks of energy issues–in particular MLP’s. Many of the energy preferreds have been taken down a notch, but we don’t think on a longer term basis there is any pressing problem with these issues.  As part of a general move in our portfolio we have eliminated Legacy Reserves Preferred from our model – that is a combination move to shorten duration while at the same time weeding out lower quality. We continue to hold other preferreds from the energy sector.

We had one question on the FX Energy 9.25% Convertible Preferred (ticker:FXENP). This issue has tumbled in the last couple of weeks – down from 24.75 to the 22.50 area–actually not so bad.  This is a unique issue in that their main production is in Poland and their natural gas sells for prices that are around twice of that in the U.S.  Just the same they are losing buckets of money and we would expect that to continue as they drill new wells in Poland.  We don’t view them too much differently from the junior E&P companies that focus on the U.S., although there is a chance for geopolitical problems in eastern Europe.  For us personally we would not hold this issue – but if you thought it was a buy 3 months ago when the issue came out we would wonder what has changed in your motivation to own the issue.  Likely if it was good 3 months ago for you it would still fit the bill.

In the MLP’s we have begun to review issues that focus on the natural gas area because some issues that are gas focused are selling rather cheaply considering gas prices are not falling and inventories of natural gas are not rising—while the U.S. is producing more gas the usage is higher as well. We believe there may be opportunity in the natural gas sector.  In particular we have looked at the 3 Atlas issues–Atlas Energy LP, Atlas Pipeline Partners and Atlas Resource Partners as well as American Midstream Partners and Crestwood Midstream.  We have further research before making any decisions, but we are certain of opportunity in this arena.

We are currently updating distributions for the MLP’s–we last updated them in June so there have been plenty of changes since the last update.