It's time to play b-sides: Blue Oyster Cult is running through my mind this morning as I watch the markets once again implode following yet another soothing speech from Jerome "The Reaper" Powell.
The Bond market, indeed, fears the reaper.
But what to do about it? Let me tell you, as an active asset manager, the worst thing, absolutely the worst thing you can do is to do nothing. And this is where having a full palette of investing knowledge comes in handy. Occasionally my grey hairs serve a purpose. As I watch formerly loved names like Peloton (PTON) and Roku (ROKU) get taken to the woodshed, and as an active asset manager, I cannot feel it's good enough to just tell my clients that I wasn't stupid enough to buy those "hopium" names at this time last year. I wasn't, but we still have to win, not to just be not bad. The hurdle is not that low, sadly.
So, it is in the wild and wooly world of retail-oriented fixed-income issues (you can tell them by the fact that they have $25 par values, not the classic $1,000 par values of old-fashioned bonds) where the opportunities lie.
There are two modalities. FLOAT, my portfolio composed entirely of floating-rate preferreds, has done absolutely nothing. It's down 1.76% as of this writing, since inception on Sept. 26. Let me tell you, that is a damn good outcome for a portfolio that, on its surface, yields 6.0%, but in reality will actually pay much more, as quarterly preferred dividend payments in all cases are calculated by adding a London Inter-Bank Offered Rate spread to a fixed payment.
The one FLOAT name that I have given in my Real Money column, PNC Financial Services Group (PNC) , was called as of Tuesday. Smart move by PNC's CFO. Sad to see it go, but there are nine other names there and I'll replace it soon.
But what of non-floating rate preferreds, some of which I have also mentioned in my column. Well, like all fixed-income securities, they have not performed well. My free-to-all (it's not updated) PREFS portfolio has fallen 9.6% since inception on May 26, although that blow is cushioned by a 6.63% (fixed-rate) blended annualized yield from the portfolio.
One of the names that I have also featured separately in my column, CorEnergy's (CORR-A) 7.375% preferred dropped to $8.50, or 34 cents on the dollar, last week. There was no fundamental reason for this. So, I marshaled the troops in the portfolio guru army and we bought CORR-A. In size. It's back to $14.77 share (59 cents on the dollar) today, but it is still massively misvalued. These are very small and illiquid issues, and sometimes they will be hammered for no apparent reason. That is when I act.
No word from CorEnergy management on a three-quarter earnings date yet, but I would expect those numbers next week. There has been no change in the fundamental -- Midwest natural gas pipeline, California oil pipeline -- businesses that produce the cash flows underlying CorEnergy's real estate investment trust structure, at least that I can see. So, sometimes you have to buy more, and wait for the information later (CorEnergy reported second-quarter earnings on Aug. 11).
I expect the company to report earnings in similar fashion next week; the Securities and Exchange Commission's reporting deadline is 45 days after quarter-end. I don't care what Powell and the Federal Open Market Committee do; 21.6% (the annualized yield on CORR-A at its nadir) will be an appropriate return for me and my clients' funds.
I have also been buying Tellurian's (TELZ) 8.25% senior notes due 2028. Unlike some financial commentators I could name, I actually know how to analyze an earnings report. It is what I did for 11 years of my life as a sell-side analyst. Tellurian 's third-quarter 2022 figures (reported earlier this week) showed an adjusted earnings before interest, taxes, depreciation, and amortization that covered interest expense by 10-times. That degree of financial solvency is why my clients and I don't cry. Because I work the numbers.
Finally, next week, I will be looking forward to doing that same analysis on preferreds that I have mentioned from the Gladstone family of companies. Gladstone Land's preferreds ( (LANDO) and (LANDM) ) have performed relatively well in the bond market tumult. You don't have to be wearing a tinfoil hat to appreciate the safety and security of owning U.S. farmland. LAND is composed of real assets.
The Gladstone Commercial preferreds ( (GOODO) and (GOODN) ) I have mentioned in my column, conversely, have been hammered in the bond market rout. Gladstone Commercial reports earnings Monday and Gladstone Land reports Tuesday. You best believe I will be on those conference calls asking extremely annoying questions to both CFOs. It's what I do and it's why I don't cry. I am not at all worried about the farmers in the U.S., but smaller warehouses and commercial facilities (which compose GOOD's portfolio) could see downturns in occupancy rates or slower lease payments if we really go into 2008 mode.
So, I will listen intently to Gladstone Commercial next week, and understand what the future holds. It's what I do. Others can yak on about album-cover worthy Big Tech plungers like Meta (META) and Amazon (AMZN) , but I will stick to the b-sides.