Written by David Fabian, March 13th, 2017
Preferred stocks offer the distinction of being unique hybrid instruments with qualities of both stocks and bonds. In that manner, they offer healthy dividend yields alongside a favored position in the capital structure of many companies that issue these securities.
The reason company’s issue preferred shares are to raise capital from investors that are seeking an attractive yield without adding traditional debt (bonds) that carry strict maturity dates and covenants. Preferred stocks can also be “callable” from the issuer, who has the right to redeem them at a certain price or time at their discretion. Read more
Written by David Fabian, October 18th, 2016
The first six months of 2016 were characterized by a sharp drop in U.S. interest rates as investors flocked to the safety of Treasury, municipal, and investment grade corporate bonds. This created significant inflows to diversified exchange-traded funds that track these asset classes in an attempt to ride the building wave of momentum. However, as the ship became overloaded to one side, it was only a matter of time before it began to swing back towards a relative state of equilibrium.
One major indicator of this trend, the 10-Year Treasury Note Yield ($TNX), fell to an all-time low of 1.34% near the mid-point of the year. This index has now reversed course and risen to a four-month high near 1.75%.
Written by Michael Fabian, February 28th, 2014
Its been a bumpy road for bond investors over the last 12 months, and while the pavement has smoothed out in the near term, investors need to remain cautious and vigilant with their fixed-income holdings.
Interest rate and credit volatility have largely dissipated following the post-taper announcement reaction, however some sectors of the fixed income market may present more risk than others. In my 2014 introduction to fixed income investing I posited that a well articulated mix of assets that is strategically allocated to undervalued areas of the market would yield better results than languishing in an aggregate fixed-income fund. As part of this approach I suggested several areas that investors can use to more broadly diversify their portfolio, overweight targeted areas, and increase their yield. Read more
Written by Michael Fabian, July 16th, 2013
I have had some discussions lately with some prospective clients about the place senior loan holdings have within our strategic income portfolio. Essentially how they work, and how they fit into our portfolio design. The striking revelation I came to is that there are a lot of misconceptions on exactly what happens to senior loans and other floating rate securities when “interest rates rise”. A generalization that has been inserted into many main-stream financial media headlines for the last month and a half.
The investors I had conversations with simply believed that when treasury rates rise, floating rate securities would ultimately benefit. This is largely false. One quasi-truth to that statement, is that when treasury rates rise, floating rate securities aren’t severely impacted. The second would be that when treasury rates rise, floating rate securities may benefit. Read more
Written by Michael Fabian, April 17th, 2013
Over the past six months every ETF or mutual fund wholesaler pulling their weight has dutifully suggested floating rate notes as the perfect ammunition to fight the fears of rising interest rates. Late last week at the behest of one of my followers, I committed to writing an article on which floating rate/senior loan vehicles I favored most. That got me thinking about a conversation I had last August with an unnamed mutual fund wholesaler. He made the case for adding floating rate notes to our strategic income portfolio via his fund. The idea was sound, but that wasn’t what made me think twice, it was that I’ve been in countless meetings with wholesalers over the years, and there isn’t one that I can remember when timely allocation advice was given. Its that out of the ordinary experience that made me question whether loans were appropriate in the current state of the credit markets. For purposes of discussion I want to compare and contrast some of the popular loan products available, but also detail some of the risks and rewards of this small corner of the bond market. Read more