“Trade Wars,” interest rate cuts, an eerily calm VIX, and the longest bull rally in history is leading many investors to believe we’re due for a market wide sell off (perhaps a big one) that could arrive any day now. We are not in the businesses of “fear mongering,” but being prepared for very bumpy roads ahead is just good investing. This week’s Blue Harbinger Weekly discusses two critical things you can do with your investment portfolio to be prepared for the next big market sell off. The first is to simply pick good investments (and we will review a few in this write-up). The second has to do with picking the right kind of investments—which we will explain in more detail.
A 7.6% Yield Contrarian Bet On Interest Rates, Trading at a Big Discount
There’s been plenty of discussion lately about where the Fed should be setting interest rates, especially considering over the last year expectations have changed from anticipating increases to cuts. The economy remains strong by many measures (e.g. strong GDP, low unemployment), yet the Twitter in Chief wants rate cuts to better compete internationally. And whilst this dramatic change in expectations has been occurring, one interesting 7.6% yield (paid monthly) floating rate closed end fund (“CEF”) has fallen very hard—perhaps significantly too hard. Specifically, not only have sinking rate expectations punished its floating interest rate holdings, but the pure selling pressure has caused the shares to trade at a very wide discount to the actual market value of its underlying holdings (it trades at an 11.6% discount to NAV). If you are an income-focused contrarian investor that likes to buy things at widely discounted prices—this one is worth considering.
BH Weekly: Has The Fed Lost Its Mind?
The following chart shows expectations for interest rates set by the fed have changed dramatically over the last year from expected increases to expected decreases. And the big question to many investors is Why? With an economy that appears quite healthy (healthy GDP growth, low unemployment, inflation in check), why wouldn’t the fed be raising interest rates to a more normal level? Afterall, they’ve been abnormally low by most standards since the financial crisis. Is the fed bowing to the Twitter in Chief or are they simply punishing savers? There are plenty of retirees that long for the +15% yield on treasuries that existed in the early 1980s.
A Powerful Under-the-Radar High-Income-Producer Trading at an Attractively Discounted Price
If you like to generate stable income from your investments, this energy focused CEF has a minimum annual distribution commitment of 6% and is currently trading at a discount of 16.7% to its NAV. The fund is one of the oldest CEFs and has a successful track record of paying over 80 years of distributions. The fund has been a consistent performer and what is even more encouraging is that it operates with no interest-bearing debt! If you’re looking for a powerful income-producing investment, with a long successful track record based on an indispensable element of economic growth, and trading at an attractively discounted price—this one is worth considering.
Despite Big Market Gains, Lots of Attractive Opportunities Remain
The market (SPY) has been on fire this year (+21.4%), however plenty of very attractive long-term investment opportunities remain. This week’s Weekly shares the performance of each of our holdings across all three of our strategies, and then provides concise commentary on attractive opportunities among REITs, healthcare, growth stocks and our high-income low-beta “Alternative Fixed Income” strategy. We conclude with a little advice.
Misleading Fear Tactics And Attractive Opportunities
The S&P 500 is now up over 20% this year, which is a big number. But to keep that in perspective, it’s up only 11.4% over the last year, and it’s averaging 10.7% over the last 5 years. Keep those more moderate numbers in mind the next time someone tries to frighten you into ditching your long-term strategy and selling everything because “the sky is falling.” This week’s Weekly reviews the performance of every position we own over recent time periods, and highlights a few ideas that are particularly attractive right now.
This 7.6% Yield Healthcare focused CEF Is Worth Considering
If you are looking for attractive high yield, this healthcare focused CEF is worth considering. Not only does it trade at an attractive discount to NAV, but the experienced management team’s approach to investing in the healthcare sector offers additional attractive benefits. The fund uses a healthy dose of leverage (and it does so prudently), and the strategy is poised for attractive long-term total returns.