Tag Archives: stocks
Ozymandias On The Street: The Fall Of The Mighty In Fixed-Income CEFS
Taxable fixed-income, closed-end funds have fared poorly in 2015. Highly visible distribution cuts by category leaders have been followed by sharp selloffs and price declines with very high premiums falling to discounts. There may be opportunities in taxable, fixed-income funds although one might want to wait for a decision on interest rates before taking any action. It took a long time but the market has finally decided that the PIMCO High Income Fund (NYSE: PHK ) is not worth a premium. After running a premium in the stratosphere for seven years, PHK closed below par today, just five months after running a premium of 66%. PHK was clearly a house of cards. It was earning less than 65% of its distribution. But investors stuck with the fund and even defended it vigorously long after the writing was on the wall. A distribution cut was inevitable and when it came it wiped the premium off the board. On Sept 1 the fund announced a 15% cut in its distribution. Now, two weeks later (Sept 14), what had been the second highest premium in fixed-income CEFs is gone. This chart shows PHK’s premium/discount history. What you may not realize is that the right side does not show a vertical cut-off of the mountain at the end of the chart; that’s a vertical drop to near-zero. Interestingly, if someone buys the fund at today’s discount, the yield will be 17.4% until PIMCO drops the distribution further. It was that sort of return that driving the premium, and I’d not be surprised to see that premium moving up between now the next cut. Some might argue that with that distribution there is an opportunity, but I’m certainly not among them. Continuing to deliver that distribution after September (ex-date was Sept 9) at today’s -0.43% discount, will mean PHK has to pay out 17.3% on its NAV [Distrib NAV = Distrib Price /(1-(Premium/Discount)]. So, if PHK was a house of cards, parts of that house remain standing. And inevitably they must fall. Look for another distribution cut soon. For those of us not invested in PHK, there is a lesson here. One might choose to avoid all closed end funds, especially in this time of market uncertainty. And the steady declines in fixed-income CEFs ( discussed here ) says that many may have taken that tack. To my mind there is real opportunity in this market even though returns have been dismal and discounts continue to grow. Identifying those opportunities with confidence is going to be tricky however. I’ve written several times about the PIMCO Dynamic Income Fund (NYSE: PDI ), most recently this week . It is, in my view, well poised to provide strong returns in the near- to mid-term future. One of its qualities, which so many funds in this category lack at present, is that it is earning its distribution handily. Its current undistributed net investment income or UNII as a percentage of its distribution is the highest in the category, a category where 55% of funds are failing to cover their distributions from investment income. What other funds might be attractive on this metric? Right now, the strongest subcategory looks to be mortgage bond funds. I’ll be discussing this group in detail shortly, but I’ll mention a few highlights here as preview. The Western Asset Mortgage Defined Opportunity Fund (NYSE: DMO ), the BlackRock Income Trust (NYSE: BKT ) and the First Trust Mortgage Income (NYSE: FMY ) are standouts for their positive levels of UNII. FMY’s modest market cap and volume make it somewhat problematic in terms of liquidity, which is always a consideration in CEFs. DMO and BKT fare better on liquidity metrics. DMO is paying a 10.2% distribution yield; BKT’s is 5.9%. DMO has the best 1yr return on NAV in the category and it has recently dropped to a small discount. Anyone interested might want to start with a hard look at DMO. PDI is another consideration in the mortgage space. Although not a mortgage bond fund its present portfolio (30 June 2015) comprises 66% mortgage securities, so today it is two-thirds of one. The potential advantage is that if mortgages go south, PDI’s management has the flexibility to move out as readily as they moved in. What about those with existing positions? My advice to anyone invested in fixed-income CEFs is to take a look at the NII status of their holdings to see how well the fund is earning its distribution. Negative UNII alone does not necessarily mean one should sell a fund, but a persistent negative on this metric is a most worrisome sign. It could well mean that one should start looking for a suitable exit point. Waiting until distributions are cut to bring them in line with NII can be devastating not only to income, but to the value the portfolio as well. I’ll add as an aside that the value of UNII as an indicator of a fund’s status and distribution stability does not transfer to many of the equity funds. Details are outside the scope of this discussion, but I’ll note many solid equity funds, especially those that use options (option-income or buy-write funds), routinely show negative UNII and its evil twin, Return of Capital. They can even be a part of a fund’s investment objectives as they can create tax-advantages to the shareholder. It’s not clear what the Fed will do this week, but should they finally decide to raise rates, expect a move out of many of the fixed-income funds and sharp increases in the absolute values of discount. That may well be the best buying opportunity since the infamous taper-tantrum. Time spent now searching out quality funds may be rewarded. Disclosure: I am/we are long PDI. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
The Best Companies To Work For Provide The Best Returns
Summary I use employee review site Glassdoor to find the best companies to work for in America. Companies with high employee satisfaction seem to provide less volatile returns. The best company to work for in 2015 was Google. Do you work for a great company? Does it take care of your needs? Does it have a happy workforce overall? If so, are you tempted to invest in its share program? Maybe you should. In this article, I look at some of the best and worst-rated companies in America in order to see which companies give the best investment returns. Introduction When it comes to analyzing stocks, many investors focus on traditional measures of valuation such as company finances, financial ratios , or earnings projections. But one problem with this is that all investors are looking at the same things. I believe that there is sense in looking at some other, more qualitative, factors too. After all, there is more to a company that just a set of numbers on a piece of paper. Companies are made up of individual people and as English philosopher Alain De Botton said: To write up the goings-on in businesses only in economic terms, to sum up an entire company as being +1.20 or to compress the experiences of 8,000 people into a turnover of 375,776 seems as limited as reducing a novel of the complexity of Price and Prejudice to a ledger of the characters’ bank accounts. – The News, Alain De Botton . Knowing this, I believe it is important to not only analyze the financials of a business but also the manner in which the company treats its employees. And in my view , a company that treats its employees well is likely to perform more reliably and make better returns for investors. To analyze this concept, I decided to gather data from the employee review site Glassdoor . If you haven’t heard of Glassdoor, it’s basically a site that allows employees to leave anonymous reviews of employers. By storing up this data, Glassdoor has been able to rate companies across the globe based on levels of employee satisfaction. I therefore took the best and worst companies (as rated on Glassdoor) and analyzed which companies had performed the best over the subsequent few years. Best Companies To Work For In 2012 In 2012, Glassdoor released a list of the best 50 companies to work for in America and gave top place to Bain & Company. The highest publicly listed company was Facebook (NASDAQ: FB ), which was praised for its “attractive salary and friendly employees.” The following table shows 2012’s best 11 companies to work for in America and the subsequent share price of those companies, beginning 8/11/2012: (Note, I only included companies on the list that were publicly listed on one of the major US exchanges). As the table indicates, the best publicly listed company in 2012 according to Glassdoor ratings was Facebook. The stock went on to give a 77% one-year return and a 240% three-year return. Investing $1000 into each of the 11 best-rated companies would have made a 20.28% return on investment over one year and a 61.62% return over three years. Worst Companies To Work For In 2012 Turning now to the companies that were rated worst. This data was gathered from 24/7 Wall Street , originally from Glassdoor. The table below shows the worst rated 11 companies and their subsequent share performance: As shown in the table, the worst company to work for in America was Dish Networks (NASDAQ: DISH ). However, investing in DISH would have produced an excellent one-year return of 47.57% and a 3-year return of over 100%. Moreover, investing $1000 into each of the worst-rated companies would have returned 67.46% over one year and 110% over three years, sharply outperforming the return for the best-rated companies. RadioShack (NYSE: RSH ) It’s also worth noting though, that one company on this list (RadioShack) would have been a very bad choice for your portfolio. Users on Glassdoor criticized RadioShack for its “poor management, below average pay, and strenuous hours.” And if you’d invested in RadioShack alone, you would have lost 81% of your capital. In fact, the company was later forced into liquidation in February 2015. Best Companies To Work For In 2013 In 2013, the highest rated public company on Glassdoor was Facebook again. And following is the top 9 companies to work for in 2013 and their subsequent share performance from 7/20/2013: As is clear, investing in the best-rated companies would have been a good strategy in 2013. The top rated company, Facebook, produced a 166% return over the first year and a 276% return over two years. Investing $1000 into each stock would have returned 29.84% in the first year and 49.73% over two years. Worst Companies To Work For In 2013 In 2013, there were some new entries into the worst-rated companies to work for in America including businesses such as NCR Corp. (NYSE: NCR ) and Dollar General (NYSE: DG ). As you can see from the following table, the worst 9 companies to work at in 2013 produced poor returns over the next one and two-year time horizon: Investing $1000 into each of the worst-rated companies in August 2013 would have produced just a 0.75% return on investment in the first year and a 6.84% return over two years. (click to enlarge) So what can we make of these results? The goal of this piece was to try and find a link between employee satisfaction and share price performance, and on first glance, our findings are not completely compelling. In 2012, the worst places to work actually turned out to be the best stocks to invest in. This suggests that a contrarian type strategy, where investors look for businesses on the verge of turnaround could be worthwhile. However, this finding was reversed in 2013 where the worst-rated companies significantly underperformed. Less volatility One interesting insight to be culled from this study is the case of RadioShack. The stock ended up in bankruptcy in 2015 with its stock price going to zero. And the inclusion of the company in the worst-rated list in both 2012 and 2013 is telling. So, using this data on its own might not be particularly wise. But it does seem likely, that the best companies to work for give less volatile, more reliable, stock returns overall. In general, companies should be evaluated not just on their finances but based on the individuals that make up the business as a whole. Personally, I would rather invest in those companies with the most content employees. – As of 2015, the best company to work for in America was Google ( GOOG ). – Dates chosen to reflect release of the worst companies list in order to avoid look-ahead bias – Number of companies used chosen in accordance with the number available on the worst companies list. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.