Got too much cash, time to line up some 2017 yield…
Preferred ETF, PFF, 6%
RBS series F, 8%
Barclays series D, 8%
Public Storage series U, 6%
SunTrust series E, 6%
Goldman series I, 6%
A larger chunk in the ETF for monthly pay, then individual names for quarterly pay, 6.5% weighted yield.
Yellen has never kept her word yet, market is betting she will, I’m betting she won’t. She’s saying 3 hikes because she’s trying to manage the stock market down (overheating Trump rally), same game as always. Sh!t will happen, one hike late next year, so figure a 6% capital gain in Q1 or Q2 once the market figures out she’s full of sh!t. Walk away late 2017 with 10-11% total return before she gets around to it.
I have invested in these over the years and have increased my allocation to them very recently amidst the sell-off.
I don’t know the European financials too well and have stayed away from RBS and Barclays, but instead have allocated toward U.S. super regionals w/o the large investment banking and trading arms.
Rather than chase yield w/ European financials, I’ve gone to the oil markets (for diversification) for my yield and Callon Petroleum Series A 10% has been a favorite of mine though it is a small issuance. Got to get it near par though b/c it’s callable in a couple of years. I cover the industry and this is a good one, in my humble opinion.
I know there isn’t much juice on it, but U.S. Bancorp’s Series B is a good one. That’s a fantastic bank.
I’d recommend looking at AT1 bonds in well capitalized European banks. They rank between equity and subordinated bonds. Yielding 6%-10% with relatively little risk if you hold them to call. Most will have a minimum size of a couple of hundred thousand though I think.
Cool, added Callon to my list to research, didn’t know that issuance existed. I’ll need to calculate yield to call and think about how likely it is they do that, as it’s trading above par.
Dug thru the US Bancorp issues and found this one. Trading over par but not callable till 2022, at which point it converts to floating rate. Currently 5.8% yield.
No minimum, trades just like common stock. The ETF is hugely popular, but on individual names there is less liquidity, took around 15min this morning to finish the trades…hit the midpoint and wait for orders to fill.
If you are looking for yield and financial exposure, I think the stone castle (banx) is a interesting structure. Not sure if an equivalent exists. I was in the middle of building out a bank level analysis of their portfolio but found out it would be prohibited by my compliance department, so stopped looking into it. They had some troubles earlier on with a dividend cut.
^Thanks for this suggestion. I have followed some community banks over the last year as someone else on this board brought them up, and have enjoyed learning about them. Fortunately, their equity has traded very well.
I have seen some subordinated debt investments and preferred securities capitalizing some of these community banks and was curious as to whom was making the investments (mainly b/c I was interested in doing the same). StoneCastle looks like a player in this. Thank you for bringing this up!
Yeah Financials have done very well. Amazing how quickly sentiment shifted. I spend most of my time looking at community banks, since it’s my primary circle of competency. There are so many small banks that just can’t be invested in directly by smart money that I think there is often great opportunities.
Interesting, never heard of anything like this; so a closed-end fund of small bank preferreds/debt, 7.7% yield. Generally I stay away from complicated financial instruments, having designed them, I always suspect trickery. Putting this on my watch list though, seems like there would be more volatility with this closed structure, so maybe I’ll get some during a dip.
“StoneCastle Financial Corp. is a closed-end investment company established to serve as an investor in healthy community banks seeking capital for organic growth, acquisitions, share repurchases and other refinancing activities. We invest in community banks that have experienced management teams, stable earnings, sustainable markets and growth opportunities. Our primary investment objective is to provide stockholders with current income, and to a lesser extent, capital appreciation, through preferred equity, subordinated debt and common equity investments predominantly in U.S. domiciled community banks.”
I had been allocating to prefs in uncertain times; more recently the floaters / resets have been bouncing lately as IR expectations change. I recently built a database on the Canadian preferred shares (www.cdnprefs.com) if anyone is interested. It has all the relevant features tagged, various tools/screeners for analysis and even the actual prospectus for all the various issues. There is a YTC / YTP calculator so that one can calculate the risk if the issuer calls etc.
On the U.S. side various different sources for research: WSJ, Quantum among others.
I own a fair amount of this StoneCastle after this was brought up. I have been pleased and like it. You say there is no equivalent in the public market but are there certain asset managers that specialize in this stuff? Any more information you could provide would be appreciated. I like the community bank preferreds/subordinated notes a lot. The Community Bank CLO they invest in really interests me as I did not think something similar was in the market.
This worked out brilliantly. These bounced around +6% in Q1, been collecting dividends. I sold off 25% of the preferreds portfolio just to lock in some gains, but given the lack of places to put money, going to keep the rest.
