DOCSLIB.ORG

New Income Buys for 2019 Dear Friend, the US Economy Continues to We Are Now Fully Into 2019, and the General Stock Market Has Taken a Pause from Grow

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
New Income Buys for 2019 Dear Friend, the US Economy Continues to We Are Now Fully Into 2019, and the General Stock Market Has Taken a Pause from Grow VOL. 30, NO. 2 February 2019 Economy Good, But the Markets…? New Income Buys for 2019 Dear Friend, The US economy continues to We are now fully into 2019, and the general stock market has taken a pause from grow. When the fourth-quarter the aggressive selling. For now, at least, the S&P 500 index is modestly positive. numbers come in, we should see But this doesn’t mean that now is the time to embrace risk. Instead, continue to them cap off a year of healthy focus on the defensive parts of the markets. But the good news is, this doesn’t mean domestic production. And even that you need to sacrifice good and even great rates of return, even as I’ve added with the economy coming off of further safe havens to our model portfolios over the past few months. the boil, most expectations are There are plenty of investments that are now on offer that can not only side- for 2019 to see further upward step much of the risk of the general stock market, but also pay you well. In progress. this issue, I’ll introduce a collection of investments that continue to quietly pay Fueling the economy is the US quarterly dividends that range from 7 to 9% or more. And at the same time, they consumer, who is comfortable to are by default lower-volatility investments that will let you eat well and sleep well keep spending. And businesses not only during the winter months but nicely into the spring and summer. remain generally optimistic and I’ll be starting with a series of curated individual preferred shares from cash willing to make investments to cow companies that will easily make their ample dividend payments. Then I’ll meet consumer demand. While bring in a different class of investments that may be new to you, which I call the initial impact of the corporate minibonds. While they have been around for decades, traders and institutions tax cuts of 2017 on company have paid them little heed, as they were designed, built and brought to the market profits might be ebbing, the for individual investors. But while they might be smaller in price, they are big in lower rates continue to support dependable dividends. I’ll show you a great collection to buy right now. continued gains in after-tax But as I said above, we’re not abandoning growth, as I’ll also show where we profitability (if at a somewhat have plenty of companies that continue to deliver in the model portfolios, all slower pace than last year). while paying nice dividends themselves. But will the markets care? Much So, I’ll start with the lay of the land for the markets and the economy—then of the last quarter of 2018 showed it’s on to the new additions and changes to our portfolios. that less profit growth meant less enthusiasm to buy stocks. And while stocks are recovering so far Growth Strategies in January, it’s getting harder to What Worked Is Still Working see an exuberantly bullish case for For the fourth quarter of 2018 and into where we stand in 2019, it is generally buying. accepted that the overall growth of earnings for the members of the S&P 500 Instead, the best recipe for a Index will slow. successful 2019 is dividends, Right now, Bloomberg’s compiled earnings estimates for the S&P 500 especially from steady companies members show growth for the past year coming in at 16.38%. That is projected focused on maintaining and to drop to 10.15% for 2019 and 7.89% for 2020. With the projected decline in improving margins. This is growth in earnings, it is not surprising that the valuation for the index relative exactly what we’ve been doing to earnings fell over the fourth quarter of 2018. for the last year, and in this issue, This is one of the warnings for growth investors looking for a bet on a repeat we’re expanding the focus on of higher earnings growth, and the reason why many of the stocks that drive higher dividends for better returns the index have fallen along with the other indexes (and the indexed funds and regardless of the general stock ETFs keyed off them) over the past few months. market’s actions. Now, we could just throw in the towel, back further into cash and wait out the bearish general stock market we may well return to in 2019. However, there are plenty of sectors and stocks that aren’t as reliant on ever- higher rates of earnings growth to successfully deliver positive returns for shareholders. (continued) REITs Still Right more than 2.13 times the yield of the the impact of the TCJA on utilities’22.00 Real estate investment trusts (REITs) S&P 500 Index, it is no wonder that profitability. The argument was that were one of the better success stories this remains an ever-more-attractive lower corporate taxes would reduce21.00 for investors last year. From the low sector with improving values and regulated services rates, reflecting for the sector in February 2018 to date, better dividend payouts. This is why lower corporate tax liabilities. That20.00 REITs, as tracked by the Bloomberg US we continue to have so many of the and a fear of spiking interest rates had REITs inside the Total Return Portfolio, some investors fleeing. But as with REITs Index, have delivered a return 19.00 of 12.54% even with the big general as well as in the Incredible Dividend REITs, investors figured out that the market downdraft in the fourth quarter. Machine, the Niche Investments and impact of the TCJA was not going be REITs, of course, aren’t about in real estate funds held in the Model as they feared and that interest rate18.00 fast-track growth, but steady asset MutualS&P 500 FundPrice to Portfolios.Earnings Ratio spikes weren’t on the horizon. appreciation and maximizing lease Since June, utility stocks, as 17.0017.095 Utility Players Prove Out tracked by the S&P Utilities Index, revenues for shareholders. REITs Utilities areSep another sectorDec that is Mar Jun Sep Dec pay out the majority of their profits 2017 have turned in a 201return8 of 11.65%. showing its strength. Like the REITs, Utilities aren’t focused on aggres- to shareholders without the double- last year started out with concerns over taxation challenge of corporate taxes. And in turn, individual investors get a Falling Expectations for Earnings tax break from the TCJA, which allows 22.00 for a deduction of 20% of the dividends paid from their taxable income. 21.00 There are plenty of different REITs because there are plenty of different types of real estate, but in 20.00 general, there is demand for quality properties supporting solid to rising 19.00 rents. This, in turn, is supporting attractive dividend payouts, which are 18.00 supporting improving valuations for S&P 500 Price to Earnings Ratio the REIT stocks. Take a look at the 17.0017.095 growth in the price to earnings for the Sep Dec Mar Jun Sep Dec Bloomberg REIT Index in the bottom 2017 2018 chart on this page. Source: Bloomberg Finance, L.P. This graph shows that unlike the REIT Values on the Rise S&P 500 Index, the market for REITs Bloomberg US REIT Index Price to Earnings Ratio is better valuing the underlying 48.00 profits for real estate companies by beginning to bid up values. And yet, 46.00 while the market has been bolstering 44.00 43.401 the shares in this market segment, 42.00 REITs are still a relative value. The average book value for the member 40.00 companies inside the index is only 38.00 sitting at 2.45 times, which is lower 36.00 than recent highs of the past five years by 13.12%. That makes the 34.00 sector still a very good value. 32.00 Mar Jun Sep Dec And with the average dividend yield 2018 2019 for the index sitting at 4.42%, which is Source: Bloomberg Finance, L.P. Neil George’s Profitable Investing® (ISSN 2577-9311) is published monthly by InvestorPlace Media, LLC, 9201 Corporate Blvd., Suite 200, Rockville, MD 20850-3334. Please write or call if you have any questions. Phone: 800/211-8566. Email: [email protected]. Web site: profitableinvesting.investorplace.com Editor: Neil George Chief Executive Officer: Brian Hunt Marketing Director: Mary Southard Managing Editor: David Clarfield Chief Marketing Officer: Brad Hoppmann Marketing Director: Katy Anadale Editorial Coordinator: Wola Odeniran BloombergSenior Designer: US REIT IndexMarc GagarinPrice to Earnings Ratio 48.00 Subscriptions: $249 per year. © 2018 by InvestorPlace Media, LLC, Founding Member of the Newsletter Publishers Association of America. Photocopying, reproduction or quotation strictly prohibited without the written permission of the publisher. While the information provided is based upon sources believed to be reliable, its accuracy cannot be guaranteed, nor can the publication be considered liable for the investment performance of any securities or strategies mentioned. Subscribers should review the full disclaimer and securities holdings disclosure46.00 policy at https://profitableinvesting.investorplace.com/disclaimers-and-disclosures or call 800/219-8592 for a mailed copy. Periodicals postage rates paid at Rockville, MD, and at additional mailing offices. Postmaster: Send address changes to Neil George’s Profitable Investing®, InvestorPlace Media, LLC, 9201 Corporate Blvd., Suite 200, Rockville, MD 20850-3334. 44.00 43.401 2 Profitable Investing | February 2019 | profitableinvesting.investorplace42.00.com 40.00 38.00 36.00 34.00 32.00 Mar Jun Sep Dec 2018 2019 S&P Utilities Index Price to Earnings Ratio 17.50 17.00 16.50 16.395 16.00 Mar Jun Sep Dec 2018 2019 S&P Utilities Index Price to Earnings Ratio 17.50 S&P Preferred Stock Index Total Return 35 30 17.00 25 20 16.50 16.39515 10 16.00 5 Mar Jun Sep Dec 0 2018 2019 2014 2015 2016 2017 2018
Load more

Recommended publications
  • 3. VALUATION of BONDS and STOCK Investors Corporation
    3. VALUATION OF BONDS AND STOCK Objectives: After reading this chapter, you should be able to: 1. Understand the role of stocks and bonds in the financial markets. 2. Calculate value of a bond and a share of stock using proper formulas. 3.1 Acquisition of Capital Corporations, big and small, need capital to do their business. The investors provide the capital to a corporation. A company may need a new factory to manufacture its products, or an airline a few more planes to expand into new territory. The firm acquires the money needed to build the factory or to buy the new planes from investors. The investors, of course, want a return on their investment. Therefore, we may visualize the relationship between the corporation and the investors as follows: Capital Investors Corporation Return on investment Fig. 3.1: The relationship between the investors and a corporation. Capital comes in two forms: debt capital and equity capital. To raise debt capital the companies sell bonds to the public, and to raise equity capital the corporation sells the stock of the company. Both stock and bonds are financial instruments and they have a certain intrinsic value. Instead of selling directly to the public, a corporation usually sells its stock and bonds through an intermediary. An investment bank acts as an agent between the corporation and the public. Also known as underwriters, they raise the capital for a firm and charge a fee for their services. The underwriters may sell $100 million worth of bonds to the public, but deliver only $95 million to the issuing corporation.
    [Show full text]
  • The Use of Credit Default Swaps by U.S. Fixed-Income Mutual Funds
    Sanjiv R. Das FDIC Center for Financial Research Darrell Duffie Working Paper Nikunj Kapadia No. 2011-01 Empirical Comparisons and Implied Recovery Rates The Use of Credit Default Swaps by U.S Fixed-Income Mutual Funds Risk-Based Capital Standards, kkk Deposit Insurance and Procyclicality November 19, 2010 Risk-Based Capital Standards, Deposit Insurance and Procyclicality An Empirical September 2005 An Empirical Analysis Federal Dposit Insurance Corporation •Center for Financial Researchh State- May, 2005 Efraim Benmel Efraim Benmelech June 20 May , 2005 Asset S2005-14 The Use of Credit Default Swaps by U.S. Fixed-Income Mutual Funds Tim Adam, Humboldt University* and Risk Management Institute (Singapore) Andre Guettler, University of Texas at Austin and EBS Business School† November 19, 2010 Abstract We examine the use of credit default swaps (CDS) in the U.S. mutual fund industry. We find that among the largest 100 corporate bond funds the use of CDS has increased from 20% in 2004 to 60% in 2008. Among CDS users, the average size of CDS positions (measured by their notional values) increased from 2% to almost 14% of a fund’s net asset value. Some funds exceed this level by a wide margin. CDS are predominantly used to increase a fund’s exposure to credit risks rather than to hedge credit risk. Consistent with fund tournaments, underperforming funds use multi-name CDS to increase their credit risk exposures. Finally, funds that use CDS underperform funds that do not use CDS. Part of this underperformance is caused by poor market timing. JEL-Classification: G11, G15, G23 Keywords: Corporate bond fund, credit default swap, credit risk, fund performance, hedging, speculation, tournaments * Humboldt University, Institute of Corporate Finance, Dorotheenstr.
    [Show full text]
  • Connecticut Ladder 1 to 5 Year Municipal Fixed Income Sample Portfolio August 9, 2021
    Connecticut Ladder 1 to 5 Year Municipal Fixed Income Sample Portfolio August 9, 2021 % of Sample Bonds Sample Portfolio Characteristics S&P Rating ^ Portfolio Sample Portfolio Sector Allocation (Bonds Only) Only (Bonds Only) LD1-5CTNETAVERAGE ASSETS EFFECTIVE DURATION (YRS) 2.62 AAA 40.3% LD1-5CTNETAVERAGE ASSETS MATURITY/LIFE (YRS) 2.82 AA 49.6% LD1-5CTNETAVERAGE ASSETS COUPON (%) 4.81 A 10.1% LD1-5CTNETAVERAGE ASSETS CURRENT YIELD(%) 4.29 BBB 0.0% LD1-5CTNETAVERAGE ASSETS YIELD TO WORST(%) 0.24 NR 0.0% LD1-5CTNETAVERAGE ASSETS YIELD TO MATURITY(%) 0.24 AVERAGE TAX EQUIVALENT YIELD TO WORST (%) 0.40 AVERAGE TAX EQUIVALENT YIELD TO MATURITY (%) 0.40 Revenue 40% General Sample Portfolio Representation Bond Holdings Obligation Yield to 60% Effective Moody's S&P Description Coupon (%) Maturity Price ($) Worst Duration Rating Rating 0 (%) 1LD1-5CTMunicipalsTEXAS TRANSN COMMN ST HWY FD R 5.000 04/01/22 103.15 0.63 years 0.08 Aaa AAA 2LD1-5CTMunicipalsNORTH CAROLINA ST LTD OBLIG 5.000 06/01/22 103.98 0.80 years 0.07 Aa1 AA+ 3LD1-5CTMunicipalsUNIVERSITY CONN 5.000 02/15/23 107.28 1.45 years 0.19 Aa3 A+ 4LD1-5CTMunicipalsMASSACHUSETTS ST TRANSN FD REV 5.000 06/01/23 108.86 1.74 years 0.10 Aa1 AA+ 5LD1-5CTMunicipalsCHANDLER ARIZ 5.000 07/01/24 114.04 2.73 years 0.14 Aaa AAA 6LD1-5CTMunicipalsWEST HARTFORD CONN 5.000 10/01/24 115.13 2.92 years 0.17 NR AAA 7LD1-5CTMunicipalsBLOOMFIELD CONN 5.000 01/15/25 116.03 3.21years 0.30 NR AA+ 8LD1-5CTMunicipalsNEW YORK N Y 4.000 08/01/25 114.49 3.73 years 0.33 Aa2 AA Sample Portfolio Duration Distribution (Bonds Only) 9LD1-5CTMunicipalsBROOKFIELD CONN 4.000 08/15/26 117.48 4.48 years 0.47 NR AAA 10LD1-5CTMunicipalsENFIELD CT 5.000 08/01/26 121.99 4.52 years 0.52 NR AA 11LD1-5CTMunicipals 12LD1-5CTMunicipals 100% 13LD1-5CTMunicipals 90% 14LD1-5CTMunicipals 15LD1-5CTMunicipals 80% 16LD1-5CTMunicipals 70% 17LD1-5CTMunicipals 18LD1-5CTMunicipals 60% 19LD1-5CTMunicipals 50% 20LD1-5CTMunicipals 39.79% 40.45% 40% 30% 19.75% 20% 10% 0.00% 0% 0-2 2-4 4-6 >6 Years MASH0421U/S-1585094-1/2 Source: BlackRock, Bloomberg, Reuters.
    [Show full text]
  • 12. the Current Yield Curve for Default-Free Zero-Coupon Bonds Is
    12. The current yield curve for default-free zero-coupon bonds is as follows: Years to Maturity YTM 1 10% 2 11% 3 12% a) What are the implied one-year forward rates? Obtain forward rates from the following table: Maturity Forward YTM Price (Years) Rate 1 10% 909.09 2 11% 12.01% 811.62 3 12% 14.03% 711.78 b) Assume the pure expectations hypothesis is correct. If market expectations are correct, what will the yield curve on one- and two-year zero-coupon bonds be next year? Maturity (Years) Price YTM 1 1000/1.1201 12.01% 2 1000/[1.1201*1.1403] 13.02% c) If you purchase a two-year zero-coupon bond now, what is the expected total rate of return over the next year? What if you purchase a three-year zero- coupon bond? Next year, the 2-year zero will be a 1 year zero, and will sell at 892.78; likewise, the 3-year zero will be a 2-year zero trading at 782.93. Expected total rate of return: 2-Year: (892.78/811.62) – 1 = 10% 3-Year: (782.93/711.78) – 1 = 10% d) What should be the current price of a three-year maturity bond with a 12% coupon rate paid annually? If you purchased it at that price, what would your total expected rate of return be over the next year? The current price of the bond should equal the value of each payment times the present value of $1 to be received at the maturity of that payment.
    [Show full text]
  • Chapter 10 Bond Prices and Yields Questions and Problems
    CHAPTER 10 Bond Prices and Yields Interest rates go up and bond prices go down. But which bonds go up the most and which go up the least? Interest rates go down and bond prices go up. But which bonds go down the most and which go down the least? For bond portfolio managers, these are very important questions about interest rate risk. An understanding of interest rate risk rests on an understanding of the relationship between bond prices and yields In the preceding chapter on interest rates, we introduced the subject of bond yields. As we promised there, we now return to this subject and discuss bond prices and yields in some detail. We first describe how bond yields are determined and how they are interpreted. We then go on to examine what happens to bond prices as yields change. Finally, once we have a good understanding of the relation between bond prices and yields, we examine some of the fundamental tools of bond risk analysis used by fixed-income portfolio managers. 10.1 Bond Basics A bond essentially is a security that offers the investor a series of fixed interest payments during its life, along with a fixed payment of principal when it matures. So long as the bond issuer does not default, the schedule of payments does not change. When originally issued, bonds normally have maturities ranging from 2 years to 30 years, but bonds with maturities of 50 or 100 years also exist. Bonds issued with maturities of less than 10 years are usually called notes.
    [Show full text]
  • Glossary of Bond Terms
    Glossary of Bond Terms Accreted value- The current value of your zero-coupon municipal bond, taking into account interest that has been accumulating and automatically reinvested in the bond. Accrual bond- Often the last tranche in a CMO, the accrual bond or Z-tranche receives no cash payments for an extended period of time until the previous tranches are retired. While the other tranches are outstanding, the Z-tranche receives credit for periodic interest payments that increase its face value but are not paid out. When the other tranches are retired, the Z-tranche begins to receive cash payments that include both principal and continuing interest. Accrued interest- (1) The dollar amount of interest accrued on an issue, based on the stated interest rate on that issue, from its date to the date of delivery to the original purchaser. This is usually paid by the original purchaser to the issuer as part of the purchase price of the issue; (2) Interest deemed to be earned on a security but not yet paid to the investor. Active tranche- A CMO tranche that is currently paying principal payments to investors. Adjustable-rate mortgage (ARM)- A mortgage loan on which interest rates are adjusted at regular intervals according to predetermined criteria. An ARM's interest rate is tied to an objective, published interest rate index. Amortization- Liquidation of a debt through installment payments. Arbitrage- In the municipal market, the difference in interest earned on funds borrowed at a lower tax-exempt rate and interest on funds that are invested at a higher-yielding taxable rate.
    [Show full text]
  • Corporate Bonds
    investor’s guide CORPORATE BONDS i CONTENTS What are Corporate Bonds? 1 Basic Bond Terms 2 Types of Corporate Bonds 5 Bond Market Characteristics 7 Understanding the Risks 8 Understanding Collateralization and Defaults 13 How Corporate Bonds are Taxed 15 Credit Analysis and Other Important Considerations 17 Glossary 21 All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association (SIFMA) from our membership and other sources believed by SIFMA to be accurate and reli- able. By providing this general information, SIFMA is neither recommending investing in securities, nor providing investment advice for any investor. Due to rapidly changing market conditions and the complexity of investment deci- sions, please consult your investment advisor regarding investment decisions. ii W H A T A R E C O R P O R A T E BONDS? Corporate bonds (also called “corporates”) are debt obligations, or IOUs, issued by privately- and publicly-owned corporations. When you buy a corpo- rate bond, you essentially lend money to the entity that issued it. In return for the loan of your funds, the issuer agrees to pay you interest and to return the original loan amount – the face value or principal - when the bond matures or is called (the “matu- rity date” or “call date”). Unlike stocks, corporate bonds do not convey an ownership interest in the issuing corporation. Companies use the funds they raise from selling bonds for a variety of purposes, from building facilities to purchasing equipment to expanding their business. Investors buy corporates for a variety of reasons: • Attractive yields.
    [Show full text]
  • Current Income Portfolio Holdings
    Current Income Portfolio Holdings YTM1 CURRENT % OF CURRENT YIELD % OF SECTOR/SECURITY MATURITY RATING SECTOR/SECURITY MATURITY RATING (%) YIELD (%) PORTFOLIO (%) PORTFOLIO CORPORATES 74.66 PREFERRED SECURITIES 24.12 MOTOROLA SOLUTIONS INC 05/23/2029 Baa3 2.75 4.05 4.61 NEXTERA ENERGY CAPITAL 03/01/2079 Baa2 5.04 2.24 FISERV INC 10/01/2028 Baa2 2.35 3.73 4.51 DUKE ENERGY CORP 09/15/2078 Baa3 5.24 2.15 CITIGROUP INC 07/25/2028 Baa2 2.56 3.74 4.45 AT&T INC 08/01/2067 Baa2 5.36 2.10 HP INC 06/17/2027 Baa2 2.00 2.83 4.27 AMERICAN INTL GROUP PERP Baa3 5.31 2.21 DISCOVER FINANCIAL SVS 02/09/2027 Baa3 2.08 3.69 4.47 ALLSTATE CORP PERP Baa2 4.72 2.16 GOLDMAN SACHS GROUP INC 02/25/2026 A2 1.67 3.42 4.41 BANK OF AMERICA CORP PERP Baa3 4.96 2.17 BOSTON PROPERTIES LP 02/01/2026 Baa1 1.66 3.34 4.40 JPMORGAN CHASE & CO PERP Baa2 5.46 2.20 COMCAST CORP 08/15/2025 A3 1.26 3.10 4.38 PNC FINANCIAL SERVICES PERP Baa2 5.74 2.14 MORGAN STANLEY 07/23/2025 A1 1.37 3.60 4.48 PUBLIC STORAGE PERP A3 5.02 2.24 CAPITAL ONE FINANCIAL CO 02/05/2025 Baa1 1.38 3.00 4.30 STATE STREET CORP PERP Baa1 4.64 2.31 BECTON DICKINSON AND CO 12/15/2024 Baa3 1.18 3.42 4.42 US BANCORP PERP A3 5.01 2.20 WALGREENS BOOTS 11/18/2024 Baa2 1.29 3.49 4.42 CASH 1.20 ALLIANCE TOTAL PORTFOLIO 100.00 VERIZON COMMUNICATIONS 11/01/2024 Baa1 1.07 3.23 4.41 ANTHEM INC 08/15/2024 Baa2 1.05 3.24 4.35 MCKESSON CORP 03/15/2024 Baa2 0.87 3.50 4.35 2 2 PORTFOLIO STATISTICS PORTFOLIO BENCHMARK WILLIAMS COMPANIES INC 01/15/2023 Baa3 1.08 3.54 4.22 TYSON FOODS INC 06/15/2022 Baa2 1.28 4.33 4.21 Current Yield (%) 3.84 2.06 Credit Rating (Moody’s) Baa1 Aa2 Yield-To-Maturity(%) 2.38 1.00 Option-Adjusted (Effective) Duration 4.03 4.09 1 Yield-to-maturity.
    [Show full text]
  • 1 Overview of Derivatives
    1 Overview of Derivatives A financial derivative is usually defined as an instrument whose value is derived from some underlying cash market instrument. Familiar examples include • options to { buy (\call options") or { sell (\put options") a specified security or commodity at a specified price on a specified date, and • contracts such as { futures or { options on equity indices such Standard & Poor's 500. Newer examples include structured notes, which are securities whose interest or principal payments depend on market conditions, such as floating rate notes and inverse floaters. Swaps of various kinds are also derivatives. Various kinds of derivative are described by Hull, with both details of how their markets operate and the theory of pricing. 1.1 Exchange-Traded versus Over-the-Counter A significant distinction is that between exchange-traded and over-the-counter (\OTC") derivatives. Derivatives that are traded on an exchange are stan- dardized to promote liquidity. They are \marked to market" as of the close of business every day, and the holder's brokerage account is credited or deb- ited with the day's change in value. The holder is required to keep cash or securities in the account sufficient to cover the next day's possible losses with a very high level of probability; this margin protects the other partici- pants against default by the holder of an \out of the money" position. Each instrument is a contract between the holder and the exchange. The OTC market consists of an informal system of dealers linked by telephone, and allows transactions to be customized to meet the precise needs 1 of the dealers' clients.
    [Show full text]
  • Current Yield Calculation
    Current Yield Calculation Current yield is the annual rate of return that an investor purchasing a security at its market price would realize. Generally speaking, it is the annual income from a security divided by the current price of the security, expressed as a percentage. However, the calculation for annual income can vary, depending on the security type and settings for the security. This document explains the various calculations and settings and how they affect the Current Yield you see on portfolio holdings reports in PortfolioCenter. Calculations for Current Yield Because current values can be calculated differently for different security types, the current yield calculation can also vary by security type. This document covers three main categories of security types: Equities, Mutual Funds, Unit Trusts – see the calculation information starting on page 2 Fixed Income, CDs and Mortgage-Backed Securities – see the calculation information starting on page 5. Other Security Types – see information about other security types starting on page 6. Each section shows the calculation for that category, followed by examples of the calculation. DocumentID: SPT010870 Last Updated: January 20, 2011 Equities, Mutual Funds, Unit Trusts and User Defined Securities The calculation for Current Yield for equities, mutual funds, unit trusts and user defined securities is: The Annual Income per Share calculation, or the numerator of the formula above, depends on the status of the Allow Updates checkbox in the security details for each security. Allow Updates is checked in Security Details: One way to calculate current yield is to check the Allow Updates box on the General tab of the security details, similar to the example on the right.
    [Show full text]
  • Active Fixed Income: a Primer
    Active Fixed Income: A Primer ©Madison Investment Advisors, LLC. September 2016. madisonadv.com Active Fixed Income: A Primer Most investors have a basic understanding of equity securities and may even spend a good deal of leisure time reading about stocks and watching equity-focused news shows. Mention bonds and you often get a glazed look. When it comes to fixed income strategy, some investors are familiar with the simplest approach: buying bonds and holding until maturity. Using this strategy, the investor’s return is approximately the average yield of the bonds in the portfolio. However, few have an appreciation of the techniques and potential advantages of active management. This primer looks at active fixed income management and the methods used in the effort to add value. There are two basic ways to add value: generate a total return above what a buy and hold (or yield only) strategy would generate; or reduce volatility from a fixed income portfolio so that more risk can be taken elsewhere in pursuit of greater overall portfolio rewards. Table of Contents Active Bond Management Overview .............................................................. 1 Duration Management ..................................................................................... 3 Active Yield Curve Management .................................................................... 6 Sector and Spread Management .................................................................... 9 Credit Risk Management ..............................................................................
    [Show full text]
  • Fabozzi Course.Pdf
    Asset Valuation Debt Investments: Analysis and Valuation Joel M. Shulman, Ph.D, CFA Study Session # 15 – Level I CFA CANDIDATE READINGS: Fixed Income Analysis for the Chartered Financial Analyst Program: Level I and II Readings, Frank J. Fabozzi (Frank J. Fabozzi Associates, 2000) “Introduction to the Valuation of Fixed Income Securities,” Ch. 5 “Yield Measures, Spot Rates, and Forward Rates,” Ch. 6 “Introduction to Measurement of Interest Rate Risk,” Ch. 7 © 2002 Shulman Review/The Princeton Review Fixed Income Valuation 2 Learning Outcome Statements Introduction to the Valuation of Fixed Income Securities Chapter 5, Fabozzi The candidate should be able to a) Describe the fundamental principles of bond valuation; b) Explain the three steps in the valuation process; c) Explain what is meant by a bond’s cash flow; d) Discuss the difficulties of estimating the expected cash flows for some types of bonds and identify the bonds for which estimating the expected cash flows is difficult; e) Compute the value of a bond, given the expected cash flows and the appropriate discount rates; f) Explain how the value of a bond changes if the discount rate increases or decreases and compute the change in value that is attributable to the rate change; g) Explain how the price of a bond changes as the bond approaches its maturity date and compute the change in value that is attributable to the passage of time; h) Compute the value of a zero-coupon bond; i) Compute the dirty price of a bond, accrued interest, and clean price of a bond that is between coupon
    [Show full text]