Wrapping Up Portfolio Performance Through May

May 31, 2015     11 pm

Conservative, income investing has become infinitely more difficult in the last 1-2 months as markets have gyrated while attempting to figure out the future direction of the U.S. and the global economy.  As is normal there remains no concensus on anything.  We don’t think that it will be any easier the rest of the year to invest (I know you are tired of hearing us harp on the potential difficulties ahead)–there is danger around every corner and one should be mentally prepared to potentially sustain some sizable losses.  Of course none of us want to take losses, but without risk there is no reward and the bullets that have been dodged, globally, will score a hit sooner or later (witness the 6% tumble in the Shanghai market a few days ago).

Reviewing our 2015 Blended Income Portfolio we feel fortunate. The portfolio ends the month up 3.81% YTD as compared to being up 2.4% the last time we reviewed it (3/31/2015).  Our goal is 7% for the year so our return YTD is ahead of plan. Just like forseeing the MLP massacre last year allowed us to earn stellar returns avoiding weak sectors this year has been a positive.  In particular maintaining only a small position in REITs and avoiding energy preferreds while investing in safer (although somewhat lower yielding) exchange traded debt issues and term preferreds we have outperformed most benchmarks. The S&P500 is up 2.35% YTD while the iShares Total U.S. Bond ETF (ticker:AGG) is up a measley .05% (although it does have a current yield of 2.26% which is not included in the .05%).

For April and May, while we harvested some profits in MLP Alliance Bernstein (ticker:AB) we also made a number of purchases. We made 2 purchases of MLP NGL Energy (ticker:NGL) as well as purchases in term preferred Gladstone Investment 6.75% (ticker:GAINO) and term preferred Eagle Point Credit Corp 7.75% (ticker:ECCA).  Additionally we doubled our position in Leisureworld Senior Care (now Sienna Senior Care–ticker:LWSCF).  The addition of the 2 term preferred issues follows our plan to overweight shorter duration instruments. The addition of the NGL Energy units and Sienna Senior Care common shares were opportunistic in that we believed each was undervalued and in fact Sienna is up 8-9% in the last month and NGL Energy is up 5-6% in the same time frame.

We will likely harvest more profits in June as we look to move our cash position to 20% to have a bankroll for bargain hunting later in the year.

Additionally, we should take a moment to touch on the 2014/2015 Short/Medium Duration Income Portfolio. We set this up in October, 2014 with only income securities (either exchange traded debt issues or term preferreds) with maturities in the not distant future (although one term preferred doesn’t mature until 2027).  The idea is reduced volatility because of the closer ‘date certain’ for redemption. In 7 1/2 months this portfolio has returned 4.6% and carries a current yield of 6.67%.  This is a darned good return for a portfolio with a selection of debt and preferred issues of varying qualities (although many are somewhat low quality).  So far we have had a couple issues called and we have purchased 1 issue with proceeds from the forced sales on redemption.  We have cash on hand for 1 additional purchase.  In observing this model we have been very happy with the minimal movements on a day to day basis (typically no more than a couple hundred dollars on a near $89,000 balance), exactly as designed.  We do caution that this model, while performing almost perfectly does have some shortcomings.  When a recession is highly expected (at least in your mind) one should weed out some of the lower quality issues and move forward only with quality. Of course all investors have different needs (for instance some mainly are concerned with current income, while in our case we are concerned with capital preservation first and income second) so there are any number of variations on the various portfolios that can be constructed with individual needs in mind.