Most importantly is what it owns - it is focused on Fannie Mae, Freddie Mac, and Ginnie Mae debt. What is Ginnie Mae? It's basically what Fannie and Freddie have now become - mortgage backed debt explicitly guaranteed by the US government. So the nature of this instrument's holdings has changed since the take over of Freddie/Fannie - in the past the Ginnie Mae debt was explicitly guaranteed while the Freddie/Fannie was "wink wink" guaranteed. Now it is all guaranteed - unless your thesis is the US government will default on it's debt. I don't see that happening for about 15-20 years out.
The closed end fund has been underperforming of late and as I review its structure it is now over 1/5th corporate bonds. That was not the idea behind owning this fund - I wanted a pure "government guaranteed" mortgage bond fund. Therefore I am going to exit here, take the loss and look for an alternative down the road.
A reader had once mentioned First Trust/FIDAC Mortgage Income (FMY) as an alternative, which does look more like a pure play... I will have to look deeper at this group since its been half a year.
This has low volume and by Investopedia.com rules I only get a fraction of real time lots, so it will take a while...
No position (soon)
4 comments:
Mark, You keep looking at the fundamentals of these CEF funds but they trade on other factors as well, in particular their discounts or premiums to net asset value and their historical relationships. RCS had gone from more than a 20% premium to 11%. While FMY sells at a slight discount to net asset value -- -4% -- its historical low is close to -13% so while the core holdings can increase in value, that might not translate into appreciation of the stock price. CEFs are also thinly traded and very subject to emotional swings. Best time to buy CEFs is when they are trading near historical low discounts AND have core holdings that are likely to appreciate. Just my 2 cents after years of being frustrated by CEFs!
Yep I am just looking for a simple yield play and these seem to require much more individual hand holding than I want to do. Anything you have to monitor almost daily is too much.
Maybe they need to create a GNMA ETN!
I gave up on CEF's. Like Bob said, the best time to buy them is when they've been pummeled. Try www.etfconnect.com and look for fixed-income ETF's. I remember last time I looked, I threw several out because they were weighted something like 80% agency debt. I'm sorry I don't think I'll have time to look, as I am prepping for a long vacation (finally!).
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