Risk/Reward Vol. 154
THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN.
"Hello, Dolly/Well, hello Dolly
It's so nice to have you back where you belong
You're still glowin'/You're still crowin'
You're still goin' strong."---lyrics from "Hello Dolly" by Jerry Herman
"What you goin' do with all that junk?
All that junk inside your trunk?"---lyrics from "My Humps" by The Black Eyed Peas
"After all I am forever in your debt/And woman I will try to express
My inner feelings and thoughtfulness/For showing me
The meaning of success."---lyrics from "Woman" by John Lennon
With stability in the Eurozone, growth in China and relief (albeit temporary) from the debt ceiling crisis here in the U. S., the Dow Jones Industrial Average is "still glowin'", "still crowin'" and "still goin' strong." It is up over 6% year to date and nearing its all time high. "It's so nice to be back (in the market) where I belong!" So, how long can it last? Some insight on this was provided by Ray "Hello Dalio", the founder of Bridgewater Associates (the best performing hedge fund of all time) during an interview conducted by CNBC Thursday from the World Economic Forum in Davos, Switzerland. Dalio gave a remarkable thirty minute tutorial on investing that I recommend to your attention ( www.cnbc.com/id/100403678 ) during which he opined that 2013 would be a year of transition away from the constraints of deleveraging (e.g. austerity, cash hoarding, sovereign bond investing,etc.) and into riskier capital allocations. (equities, commodities, corporate debt). In essence, he described in economic terms the concept of the Great Rotation about which I reported last week. ( For past editions go to www.riskrewardblog.blogspot.com )
As further explained by Dalio, the expansion of corporate (as opposed to sovereign) debt is a good thing. Indeed, without readily available debt, companies cannot transact business at all, let alone contemplate growth. Sources of corporate debt financing run the gamut from simple bank loans to investment grade bonds. Between those two extremes are a plethora of other vehicles including high yield bonds, convertible bonds, asset backed financing, senior floating rate loans and collateralized debt obligations. These vehicles usually are not of investment grade and are thus termed (unfortunately) "junk." But, like it or not, the only decent returns that one can achieve these days in debt investing are in these riskier forms. So I for one have a lot of "junk inside my trunk." "What you goin' do?"
Accordingly, "allow me to show you the meaning of success" by sharing "my inner feelings." about junk. After much "thoughtfulness", I have purchased the following. In the junk bond arena, I like HYT, HYV and CYE, three closed end funds managed by BlackRock that have received a Bronze rating by Morningstar. These funds achieve an 8% return through a leveraged approach to bond buying, and they achieve diversity by holding debt in several hundred companies. In the arena of floating rate senior loan financing, I like JFR and JQC, two closed end funds sponsored by Nuveen, that also are Bronze rated and yield more than 8%. Further, I like business development companies (BDC's) which offer a variety of investment options (senior debt, mezzanine debt, and even some equity) to middle market companies looking to expand or to reorganize. In this space I like FGB, a closed end fund that holds investments in a variety of BDC's, and I like ARCC as a stand alone BDC stock. To round out my portfolio, I like BTZ which holds a variety of debt instruments in many companies.
As a new year begins, I am all-in and bullish. "You may say I'm a dreamer/But I am not the only one." In his guarded way, Ray Dalio is also bullish, and that, to me, is "Instant Karma."
P.S. Is anyone else contemplating buying AAPL at this low entry point?
No comments:
Post a Comment