Current PIP Memos
2014-08-06 TIA PIP Shorter Call Preferreds vs Cash Alternatives
TO: Investment Consultants
FROM: Larry K. Pitts, CFA
DATE: August 6, 2014
SUBJECT: Shorter Call Preferreds vs. Cash Alternatives
In a July 2014 article, the Kiplinger letter discussed ways to boost your cash yields. Here is their encore: “For the four months ending June 13, Juiced-Up Cash delivered $279 -- total return of 0.56% for an annualized gain of 1.68%” on a hypothetical $50,000.
They discuss five selections for your consideration including a one-year certificate of deposit cracking the 1% barrier.
TIA’s Shorter Call Preferred Portfolio (SCPP) is an “Oasis” in the current desert of low yielding alternatives. SCPP’s average portfolio coupon rate of 7.61% all but assures being called in 17 months. The current yield is a whopping 7.20% resulting in an average premium price of $26.39 ($25 Par) with a yield to call of 4.74%. Compare this to the attached July 31, 2014 exhibit with yields of 0.53% for a 2-year U.S. Treasury Note and 0.11% on a 1-year U.S. Treasury Bill.
Trillions of dollars are trapped in these low yielding money market funds and other cash management alternatives. We may never have such a superior cash alternative in our life times (certainly not in mine). You can’t afford to wait for “normal” you need to embrace the alternatives.
In my 50-year career in fixed income management, I have never been able to say our yield to call of 4.74% is:
474 times the Money Market Fund of 0.01%
43 times the 1-Year U.S. Treasury Bill of 0.11%
5 times the 1-Year Certificate of Deposit of 0.90% (average)
9 times the 2-Year U.S. Treasury Note of 0.53%
We welcome your inquiries on this outstanding cash alternative.