Current PIP Memos
2014-02-21 TIA PIP Covered Call Results If Assumptions Not Achieved
TO: Investments Consultants
FROM: Larry K. Pitts, CFA
DATE: February 21, 2014
SUBJECT: 7% Income Return “Forever”
The purpose of this e-mail is to discuss the current yield of our Preferred Income Portfolio (PIP). Our investment strategy is to only own preferred issues with a coupon rate greater than 6.50%. Since 2002 all preferred issues with a coupon higher than 6.50% have been called on schedule except two. We have structured PIP with an average coupon of 7.23% and 41 months of call protection. We believe our strategy is based on a solid foundation of historical data. The key is our current 3.42% greater current yield (spread) over the 30-year U.S. Treasury current yield of 3.69%. The historical spread is a range of 1.50% - 2.00% giving PIP a 1.42% cushion. (No interest spread in 2006 prior to the “Credit Crisis”).
If our call assumptions are not achieved, PIP investors will receive a 7.11% current yield “Forever” because preferred issues are perpetual with no maturity. This preferred yield will be competitive with equity returns in the future.