PIM: Diversified Income Portfolio
Paul Borisoff - Apr 04, 2018
PIM: Diversified Income Portfolio – May 2nd, 2018 The Diversified Income Portfolio* was up 1.9% in April - leaving the portfolio up 0.4% in 2018. In comparison our benchmark was unchanged in April (0.0%) – leaving it down 2.5% in 2018. Over the
PIM: Diversified Income Portfolio – May 2nd, 2018
The Diversified Income Portfolio* was up 1.9% in April - leaving the portfolio up 0.4% in 2018. In comparison our benchmark was unchanged in April (0.0%) – leaving it down 2.5% in 2018. Over the most recent 12-month rolling period the portfolio is up 4.8% compared to our benchmark which is down 0.8%.
* These returns are reported as a composite, time-weighted, rate-of-return (gross of fees, net of transaction charges) for all accounts in this mandate. Long-Term Returns/Benchmark Numbers will be reported in our Quarterly Updates.
April was another challenging month for most Canadian “income” portfolios – which was no surprise. This time we saw high-dividend stocks firm-up – coming off what looked like very oversold levels – at the same time as the bond market moved in the opposite direction. The S&P/TSX Composite High Dividend Index (40% of our benchmark) moved up 1.3% in April – leaving it down 5.2% in 2018 – and now down 0.8% over the last twelve months. The FTSE/TMX Canada Universe Bond Index was down 0.9% in April though - putting it back into negative territory for the year (down 0.8% in 2018) – and down 0.9% over the last year.
Many of our larger individual security positions are very attractively valued at current levels – and we expect to see very strong returns over the next year. Last month we only made a couple of small changes to the portfolio:
Recent Portfolio Changes
We reduced our TORC Oil & Gas position to 2.6% of the portfolio from 3.2% at $7.05 per share – after it had moved up quickly from $6.60 at the end of March. We last added to TORC in March 2017 at $6.10 per share – and we continue to like the outlook for the company over the next year. At month-end the one-year consensus price target for TORC was $9.23 per share (Bloomberg).
We moved our 0.9% position in AltaGas at $24.75 into our AltaGas Subscription Receipt position at $25.77 (8.5% yield) – leaving the portfolio with a 1.7% Receipt position with an average cost of $27.93. If you recall, these Receipts were issued to partially finance the company’s WGL Acquisition announced over a year ago – which has been poorly receive by investors. If the acquisition of WGL (a Washington, D.C., based regulated utility) does not go through Receipt holders are expected to receive back $31.00 per share – plus dividends while waiting. Note, the company and analysts are generally expecting the acquisition to close (the Receipts will then convert to the shares on a one-for-one basis) and currently have an average twelve-month consensus price target on AltaGas of $28.02 per share (Bloomberg).
We also increased our exposure to the FuelCell Energy Cumulative Perpetual “B” Preferred Shares to 4.4% of the portfolio from 3.7% at $365 USD (13.7% current yield). Our average cost is now ~$309 USD (~$390 CDN in client accounts) – leaving the position up ~32% based on the quarter-end price of $405 USD and taking into consideration the exchange rate. The FCEL B Prefs were issued at $1,000 per share in 2004 - and have been paying $50 per year since then. These shares have liquidation preference of $64 million ($1,000 per share) over common shareholders in a worst-case scenario – and if an entity acquires 50% or more of FCEL, FCEL B Pref holders can require FCEL to redeem FCEL B Prefs at $1,000. We note that ExxonMobil continues to work very closely with FCEL on their joint Fuel Cell Carbon Capture Solution (unique to FCEL’s Molten Carbonate Fuel Cells). Additionally, FCEL is working on a Global Deployment Strategy with Toyota Motor Company for their Distributed Hydrogen Solution – which now might involve Shell Oil Company as well (Shell is going to own and operate the Hydrogen Refueling station at the Port of Los Angeles that will service Toyota’s Fuel Cell Freight Trucks – supplied by renewable Hydrogen from FuelCell Energy’s previous announced Tri-Gen Plant under contract with Toyota).
At month-end the portfolio’s cash position was sitting at ~8.6% and our convertible debenture exposure was approximately 35.3%. Total Cash and Fixed Income exposure including our four 3rd party specialty fixed income manager positions was ~71.5% at month-end.
We continue to strongly believe that the portfolio’s composition and flexibility offers a substantially improved risk/reward trade-off compared to an “income portfolio” relying only on government bonds and pure stock market exposure to drive returns and income.
Please do not hesitate to contact me if you have any question or concerns.
Paul J. Borisoff
Senior Vice President
Portfolio Manager, Senior Investment Advisor
Paul J. Borisoff
BBA, CIM, FCSI, AIFP, RIAC
SVP, Portfolio Manager
Senior Investment Advisor