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August 2, 2017

Go to Core Portfolio for current positions.

DividendInvestor.com talks about a new fixed to floating rate preferred from Annaly.  We ARE buying a small position.  The coupon of almost 7% is appealing.

The symbol is:  NLY-F (which is NLYPRF at Fidelity:  check with your broker for the symbol)

The giant of the mortgage real estate investment trust (mREIT) universe, Annaly Capital Management (NYSE: NLY), has sold a huge fixed-to-floating rate preferred with an initial coupon of 6.95%.
Proceeds from this offering of 28 million shares will be used to redeem the company’s 7.875% preferred issue, which is one of four preferreds that Annaly has outstanding. The 28-million-share issue also includes a brokers’ overallotment option of an additional 4.2 million shares.

The proceeds of almost $780 million is massive for a mortgage REIT and just $185 million will be needed to redeem the NLY-A issue with the balance going to acquire additional residential and commercial mortgages. The new issue will have a fixed coupon until September 30, 2022, and then will float at a coupon rate of three-month LIBOR, plus a base fixed rate of 4.993%.

Since the three-month LIBOR is currently at 1.32%, if the issue were floating today, the coupon would be 6.3%. It should be noted that the majority of fixed-to-floating-rate preferreds issued recently have a 10-year period until going to a floating rate coupon versus the five years for this issue.


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GBAB is in the Core Portfolio.  We happened to see a current article talking about this holding and pasted below are some comments.  For the full article go to the link below.  At this point we are HOLDING GBAB, but we would NOT buy it as it new position….. as rising rates will hurt.  If we do ANYTHING we would sell if rates spike.

So… absolutely, without a doubt the Guggenheim Fund has been the best performer in the recent past and virtually tied overall with the BlackRock fund for the best performance out of our five-some of “BAB” funds.

Am I surprised? Not anymore.

While I have been fully following the two Nuveen Funds, I have not up until now taken a deeper dive in GBAB. Prior to doing this, I was actually intrigued as to how you can generate “alpha” in a fairly commoditized Build America Bond market.

Looking deeply into the fund you get your answer. That answer is you invest in lower quality, AND bonds OTHER than Build America Bonds.

While the two Nuveen Funds and the PowerShares ETF are more or less “pure,” the Guggenheim and BlackRock funds can invest 20% or more in assets other than Build America Bonds.
So there is our answer to the question.

Bottom line, it is a pretty good fund and up till now the managers have been able to generate incremental returns over its pure peers by adding non-core assets as well as being generally lower quality to the tune of 10% or more.



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Starting this blog five years ago, we have always listed a link to Rezny Wealth which has an excellent financial radio show on Sunday mornings.  They are offering a free report which you need to read when thinking about hiring a financial advisor:  “Suitability vs Fudiciary”.  Even if you are currently using an advisor, we suggest you read this report.


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