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To generate attractive, risk-adjusted returns, principally through income distributions, mainly invests in US and European CLOs or other vehicles.
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Archy147; you mentioned POLN a while ago; thanks for that, I have now added this; interestingly I knew this as the previous Honeycomb, which I never held but was a fan of. I'm not sure about the small Pollen asset mgmt side, it's value, but the underlying Honeycomb debt instruments/lending are basically FAIR et al; I note their is considerable negativity/concern to the stock which I don't share, being borne more of lack of understanding of these loan/debt instrument stocks than anything else. Whilst the asset mgmt part doesn't shout to me, I am a big fan of the numerous asset managers out there believing they are for the most part fundamentally undervalued, and in a sector which I feel is ripe for consolidation.
Notice the recent NAV update shows a marginal tick up; small but any gain is a good gain!
Been an interesting week, what with the fear of contagion from the SVB collapse (which personally I feel is an overreaction borne of a nervous market rather then actual company economics) that has cut a deep cut to markets and established (unrelated) stocks - albeit seemingly not to these high risk specialised stocks such as FAIR. Whilst mainstream FTSE 100 'safe' high yielders like MNG/PHNX have dropped 15% through the floor, FAIR and there ilk have barely budged. Maybe this is an instance where the lack of liquidity in these 'specialist' stocks is actually a benefit. Amidst times of major market turmoils (COVID, Ukraine, SVB) I have actually found them to be a reassuring counterweight within a balanced portfolio (albeit I am top heavy skewed to CLO/debt stocks), and very much contrary to the high risk tag associated.
Interestingly SVB's demise seems to be around it's debt lending instruments, having been caught out paying the higher rates reflective of the FEDs rate rises yet the UK listed, but US dominated debt stocks like FAIR don't seem to raising concerns - albeit CLO style US mortgage arbiters have taken a notable haircut.
BGLF - announced results of their consultation to address NAV discount - basically carrying on as is.
Archy147; you mentioned POLN a while ago
Hi Agricore; I totally agree with your points re DEC....this was my view recently posted there...
"I've long been a fan of DEC, but this raise was out of step with DECs normal sure footedness. That, along , with to me, the excess use of hedging has made me examine my investment belief here, and seemingly, looking at the SP reaction many others. The question I am asking myself is, is this a fleet of foot gas producer that hedges to protect margins or a financial trading product backed by gas production".…....I agree totally with the points you raised, hence I am exiting DEC completely when I can do so efficiently. Because of the financial engineering, that is less transparent than CLOs (!), my current view is that it is akin to a sophisticated pyramid scheme, and the thought that is screaming at me is Enron mkII, whereby they keep purchasing new assets just to reinforce that pyramid. In summary I spend more time monitoring DEC than I do all of my CLO stocks combined, and I don't want to hold a stock I don't AND can't understand.
You're both very brave regarding DEC. I held DEC for a while but felt perturbed by the large net loss which seems to be breezily overlooked by analysts and investors. As a trained accountant I've tried to get my head round they arrived at that loss and how it connects to the hedging. I asked their IR folks several times (no reply) and raised it on the DEC forum too. In the end I followed the maxim of don't invest in what you don't understand and got out. However apart from a slight drop (along with the whole market) the sky hasn't crashed on DEC and perhaps never shall. But the apparent 2021 29.8p loss per share and adjusted profit of 14.5p made no sense to me! What's your perspective on this Damofarl? Sorry it's off topic to FAIR but I am genuinely curious.
Tag57; I hold DEC too, and have for a couple of years.
Thanks Damofarl. I appreciate your comments and well done on your midstream investments. When I did look at some of these I decided to go with DEC. Not quite the same but they do have a well supported high divi due to significant hedges - I liked this approach as it should reduce volatility over the longer term (fingers crossed). Most of my investing is based on a medium to long term hold so I am taking a look at FAIR on this basis. I have a decent amount invested in VSL so will also be looking for a home for these monies as VSL winds down and FAIR looks like it has potential. Cheers Tag
Tag57; welcome
US Midstreams. You raise a good point, that for brevity I didn't cover previously when mentioning them. Yes, sadly is the quick answer. About 2 years ago some of these were yielding 12 to 15% so took the deduction on the chin, believing they would still yield around 8% with a potential uplift after tax, which isn't sheltered even within a SIPP on the LP versions. I now have no LP versions, partly for the reason you mention, but mainly because they appreciated SP wise and I sold the value realisation (SHLX amongst others was taken back in house by Shell). Yes do avoid the LP versions, because you can't avoid the chunky tax deduction, and look for those that aren't LPs. An example is Antero Midstream (AM) (not to be confused with AR from which it was spun off and is contracted too) which has zero deduction in a SIPP. Hope this helps.
But thinking about your question, maybe suggesting midstream wasn't a good idea as the tax deducted versions are few now, so their attractiveness is less, albeit there are still many LP versions that after deduction yield 7% - which whilst not insignificant, doesn't meet the point of being here (FAIR etc), the discussion here, of 10%ish yields.
Good luck whatever you choose. If it's here, my no 1 caveat would be, not for a trade or short term, think 5 years plus.
I do think the optimum window for us Midstreams was about 18 months ago, when even after taxes 10% could be garnered.
Hi Damofarl, I have been watching FAIR for a while but not yet taken a position, should have done a little while back but have been more focussed on some of my other investments. I appreciate your comments and views on your investment strategy. I just had a query on your US midstream Investments as I looked at these a while ago but got put off as some are Limited Partnerships leading to 30% tax deductions (I believe)- are you invested in LPs and accept the tax deductions or have you found “normal” companies allowing you to receive the full payment (assuming invested via a SIPP). TIA Tag
Agricore; yes I definately think a softer landing, and that is reflected in that NAV uplift. FAIR themselves have long been saying slightly higher defaults expected albeit lower than planned for, and below their expectation, and low against historical rates. To be fair it has been dropping slowly but surely for a while (NAV), but I think this is because these sort of investments, even more so than mainstream stocks/markets, are pricing eventualities well ahead. Having priced in a harder environment than has materialised, the income is materialising without the drag of defaults (previously priced in), hence the uplift in NAV. As such agree with you totally, that that income received, and lesser quality underlying loans themselves, are being recycled into longer/higher quality yield.
I feel very comfortable about their mgmt of such here.
Whilst ordinarily not a fan of buybacks, interesting to note that FAIR's buybacks have been at an 8% discount to current SP, and a 25% discount to NAV, which I have to concede, seems to be enhancing both too.
Really looking forward to next update, and yes where is the divvy announcement? Be interested in their commentary (once deciphered!), and particularly interest in flows, cash at hand, confidence in dividend cover.
As an aside, I think how the realisation shares are performing demonstrates your point - they seem to be doing well precisely because they are not reinvesting /recycling (for continuance of income/yield), hence are receiving income unencumbered to rundown unencumbered by potential loss.
Impressive 6% boost to NAV announced this morning. The U.K. and US retail and GDP numbers all point to a far gentler landing and lower defaults than is priced. This is my understanding for the value here is that repayments/cash is being recycled into new instruments which are trading at an unwarranted discount. Volta appears to report the same. But I agree the monthly updates are couched in complicated language.
Gla
Whilst we await the divvy/January factsheet, I revisited the December factsheet.
I feel the level, regularity of updates/reporting in this arena is exemplary. Don't get me wrong I don't understand 70% of it, the technicalities are WAY above my head. But there is much to be understood, learnt. For instance, I note the preponderance here of loans in the B quality rated area, and I only mention this because in BGLF's recent update (and I do consider them the creme de la creme in this area), they highlighted, whilst positive generally, they highlighted a heightened default rate in B and below rated loans, in which FAIR is predominated, albeit FAIR has stated a lower than expected default rate. Also in FAIR'S factsheet the income yield on some of FAIR's loans are astronomical, frequently 20 upto 30% , and an outline of whom some of those loans ultimately are to. Those company's include Virgin Media, Ineos, and Refresco (think Ben Shaw's pop/every supermarkets own brand pop), so not exactly obscure small struggling companies. My quick calcs showed their income yield was about 2% above what we receive as investor yield. Indeed, I noted a seperate statutory declaration on distributions that showed the distributions were less than income received, which reassured me greatly that dividend was earned rather than churned. Also, interestingly I thought, they referred to the use of buybacks to reduce the NAV discount, to PAR. Irrespective of my dislike of buybacks, that statement, 'to PAR' instills confidence in me that they believe this discount is true based on current considerations.
I think that is quite some statement of the validity of value, certainty of continuance of yield, considering it is on the back of the last three years of COVID/Ukraine/rate rise uncertainty and volatility.
Gavster-NBC; thanks too your kind words. Yes divvy announcement due but we know it's 2c, as is the monthly factsheet. The renewables you mention - I'm a big fan of those, but only recently bought NESF - I've considered all off those in the past few years, but until recently avoided, purely because, until late last year, they were at premium to NAV, hence I am looking at them anew at the moment. I think the long term fundamentals, societal, environmental and regulatory, support long term income return (divvys) - I see the utility predictability of say UU but higher, so will definitely be diversifying more into this area. As for TPT, yes I too missed that oppurtunity, hesitating too much, but still like. We can't catch every fish! I feel I missed out similarly on SNWS which I still like too. As for PAF, thanks for highlighting that. I actually looked at it a while back and like it then, but looking at it today, it is the kind of contrarian value/yielding stock I like. As for the employee involvement there, I'm actually a fan of such, so that's more a plus for me, and as for country, well, I'm in Nigeria, Tanzania, Azerbaijan, India, Kurdistan, Brazil , Kenya etc so that holds no concern for me.
Archy147; ......."can see myself moving more funds into this arena when my other (mainly FTSE-250) holdings have run out of steam (think they have plenty of gas in the tank yet)...." - interestingly, ever the contrarian, I actually recycle the high yielders into 250/aim stocks for growth, which just highlights you have to find something that works for you.
Happy investing all.
Hi Damofarl and Archy.
Firstly, I expected a dividend announcement in recent days and imminently ..?
Damo, I also read your post in Jan with great interest and have to thank you for posting it on the FAIR discussion, which has become a quiet but good respite in the past year.
I also hold Seplat, DEC and of course TORO in your list.
A few dividend payers not in your list where I hold, and also attempt to trade my positions higher, are the lower yielding (Than FAIR ,TORO and company) AEWU, NESF, UKW which is also a way of spreading sectors and I have a good size position in SMIF, which also pays a healthy yield monthly.
STCM is now on my watchlist as is Topps Tiles TPT, where I recently missed the opportunity to buy low after the dividend announcement, then missed the rise. The ex-div drop was practically non-existent too, which is unusual as we all know. Still on my watchlist with a hopeful marker.
One of my largest holdings is PAF, a gold miner which is currently good value at 15p due to a dip in production for restructuring and reorganising, also a new loan to increase productivity with a new operation, but they still have plans to keep production aims by year end. One of the more honest (dare I say it) CEO's I have come across. New presentation due tomorrow. With this new operation Mintails online. Edison predict a rather outlandish 30% yield on todays price in 2026. See Exhibit 14.
https://www.edisongroup.com/research/setting-the-scene-for-fy23-and-beyond/31596/
A P/E of 5. PAF also have large solar panel fields, a farming operation, water treatment facility to bring the used land back to life, have large Black Ownsership and a fave of the SA government. It's drawback is also being in SA.
Cheers and GL.
Archy147; thanks your kind words. Just trying to debunk the 'mystique' around CLO type investments; with these my starting point is, due to the illiquidity/spread you need to be prepared to hold for circa 5 years.
I was running the rule over RGL at the weekend, as for POLN, a new one on me so thanks for that.
Hi damofarl, I just wanted to say thanks for your informative and interesting posts. I think its great to hear someone's investment strategy laid out and you've given me a few ideas to think about there.
I also consider myself a contrarian value style investor. This has paid off well in the last few months. Also, happy with my holdings in FAIR and TORO which have held steady over the same period. I can see myself moving more funds into this arena when my other (mainly FTSE-250) holdings have run out of steam (think they have plenty of gas in the tank yet).
Other high yielders I'm in that I think offer great value with large discounts to NAV are POLN and RGL.
Followers of FAIR/CLO stocks might want to note BGLF's recent RNS, to consult on narrowing/realising NAV discount, which includes a realisation share akin to FAIR's of last year. It's a tacit admission that despite 3(?) Years of buybacks it hasn't narrowed, but also, to me a confidence in their market, the validity of that NAV.
Sort of reinforces my concern here that buybacks don't really realise value for holders (cements yes), but speaks positively for the arena. FAIR has stated divvy is easily covered by income, and whilst a cursory glance at FAIRs realisation shares suggests they have done better than FAIR, I do think FAIR has similar confidence it's NAV is true, and their new fixed divvy means they will issue a special divvy at some point (having already done the realisation route).
2 of 2;
Which CLO do i prefer? I don't, FAIR, TORO, BGLF etc have their own merits, styles. I just have most in FAIR proportionately, as i topped up when they dropped irrationally.
What consideration of currency do you make? If i'm honest i dont. Because my view is that i'm holding CLO stocks for 5 years +, i sort of feel that it will work itself through; what i lose in transfer to GBP might be a gain in profit origination. If I'm honest ive not looked into it. And maybe i should, because directly or indirectly, about 70& of my portfolio is US$ dollar related.
To round up, i mentioned STCM as a high yielding stock; i'm a big fan, and if you go to it you will see a big gyration on disappointment/misreading of the recent RNS in the last couple of days. I've held for 4 yours and basically it's a 10+ yielder, in a very boring industry in a less developed/emerging county/politically affected environment. I believe that its consistent fireworks free continuity is supported by the need for concrete to build the infrastructure, roads, houses, hospitals of a developing nature. There was a delay in dividends recently (due to taxation changes/
STCM's tax avoidance culture) but now resumed. Te SP has gyrated wildly in the time i have held, currently SP positive but very yield positive, but if you consider as long term for the yield, you will disregard those SP fluctuations.
Oher high yields; if you are not adverse to currency considerations i am a fan of US Midstream oil companies. many of whom pay around 8%+; i like the visibility of their earnings, getting paid for volume through their pipelines, irrespective of oil/gas price. The certainty, 'utility' like of say United Utilities but at a higher rate.
A particular stock, whilst not currently a high yielder i am a big fan of, and overweight for me in, is JXN, the US pension/annuity provider spun out of Prudential. It currently yields around 5.5%. The reason i'm such a fan is i believe it will in short term (about 3 years) become a 10% yielder with considerable SP appreciation towards such. I believe it is so so undervalued. Do be aware that unlike the spread on CLO's you can get a tight price, but it does seem to gyrate quite wildly often within a day or a week 5 to 10% - it's 'shorted' position is quite high to what we see in the UK, albeit quite normal for the US, which i think drives those gyrations. Personally this is MY greatest conviction stock for the next 5 years. I am heavily invested in high yielders with no/minimal SP movement, which i'm happy with. This i believe can be a high yielder AND an SP appreciator. Take a look, look at the numbers. Marketwatch.com is a great site to do so, along with the US midstream companies.
Views my own, not a reccomendatiom etc blah blah blah on all ive posted, but i hope my thoughts help someone.
As for FAIR, i remain a fan, remain uncertain that their buybacks have best value, acknowledge that they are picking them up cheap. A special divvy i
Happy New Year to all FAIRy's (!). 1of 2
I'll try to answer/give my opinion on some of the questions asked here - apologies for the tawdry response.
Firstly have to say i've been thinking about FAIR and its ilk since the update from DLG yesterday. DLG is a favourite amongst high yield seekers and whilst it demonstrates the value trap that seemingly all high yielders can be, it, to me, also demonstrated that supposedly high risk stocks such as FAIR aren't actually so high risk - especially within the context of mainstream high yielders, and being part of a wider portfolio (albeit i am top heavy with CLOs/high yielders). I hold DLG, took the hit yesterday, but still hold. Believe in it long term, but i have to say, to cancel your dividend because of one weeks poor weather smacks of poor mgmt hence i have no confidence in them, so i hold not because i believe they will turn it around, but because i believe someone will buy it to do such and i'll recoup my loss on DLG.
I say this because it brings me to answer a post about 40% drops in CLOs SP's over 5/10 years, i.e. are they value traps. Well if you are going into them for SP appreciation yes. And pretty much always. The nature of the beast is they pay out heavily regularly so they are never going to grow SP wise. I hold 5 pure UK CLOs, and 4 are down SP wise an average of 10%, 1 is up because unlike the other 4, i trade it's predictable (large) gyrations. They have been down SP wise since day 1. But the yield has more than covered that - the first i bought, BGLF, is now a free ride, and FAIR is nearing there. To answer the question, i would ask one. Would you rather a esoteric high risk stock that loses 40% over 5 years whilst paying 70% divvy, or a mainstream 'safe' stock such as DLG that has lost 50% of its SP whilst paying out 20% of it's SP?
Other High yield recommendations was a question. I don't give recommendations, just try to give insights. Yes i'm top heavy CLO's as a percentage of portfolio, but i'm actually mega top heavy high yielders. Personally i like a decent wine today, every day, not the promise of endless probably illusionary champagne some day maybe, maybe far away. so i'm a value investor first. I work on a 10/10/10/10 basis. I want a business/stock that has a yield of 10%, that has net profits of 10% (+ and ideally 20%), and a price to equity of 10. The last 10, is my strategy of targeting 10 stocks yielding 10% (ideally higher) on the basis that if 1 TOTALLY failed i would not be at at a loss. Most of my investments are high yield, most 10%+, but not all. I like solidity, continuity, not growth. that said i'm in a number of below 10%s that i believe will grow to be such. No recommendations, but in the higher range i'm invested in, believe in, MNG, DEC, GNL, IMB, JUP, RIO, NRR, PSN, PHNX, PMI, SEPL, TW., VTY and STCM. You can see many are in unloved areas (housing/fund mgmt/fossil fuels). My contrarian value style believe will come good, whilst reaping high yiel
Hi.Damofarl.
I did understand, but the other side of the the coin also could be argued to have merits, and the SP sitting at NAV be seen as a buying opportunity. Anyway. I decided against and am now holding a fair amount of cash going into January.
Happy new year )
gavster-nbc; i think you have misunderstood MY view, namely that Marble is less attractive now. 1) dividends will cease within the larger group; 2) as the SP is at NAV, and the founders are moving to well remunerated roles in the larger acquiring Investcorp, i don't see them fighting for a takeout premium - even full SP.
FAIR; aye, the buybacks.....not a fan, but they are compounding value (presuming business is business as usual). At some point with the comfortably covered fixed dividend, that has got to mean a special dividend as SP appreciation/NAV reduction hasn't materialised, and that is the only option left to realise shareholder value to holders, the rationale for the buybacks.
Cheers Damofarl. I can understand also why Marble could be more attractive as an investment right now too due to the takeover, the larger group does feels like it could provide more safety net. Bigger fund, continued strategy.
Back to FAIR... This buyback will last a long long time.
GL
Hi Gavster,#; the issue was not uncertainty as to MPLF itself but to its takeover by Investcorp. While the takeover RNS is vague, it's absorption into a larger group meant uncertainty as to whether dividends would continue. MPLF's founders joining Investcorp in senior (promoted, well renumerated) roles meant with the SP at/around NAV there was unlikely to be takeout SP uplift, and probably no divvys, albeit (surprisingly) i note they have just declared their latest.
Hi Kentio.
I'm just looking at MPLF (Marble Point Loan Financing) today, so I'm curious to ask.
What was the main uncertainty issue that made you pull out, and how is FAIR less uncertain than ?
I note that not a single investment is named specifically but the strategy is laid out with a maximum of 1.5% of total portfolio exposure to a particular investment across a wide range of sectors ( I can't say the same about my own portfolio ).
MrBlobby, no there is no Us withholding tax. I have held this. share. for many years. in my brokers nominee. account
Hi Kentio, am happy to hear any responses, thank you for yours.
I already hold PHNX, RGL and MNG but am checking out the others you mention
Merry Xmas to you and everyone here :)