Here is the Income Investor Dashboard for May 2011 and my commentary below.

As usual I highlighted the sectors in green that became cheaper during the month. Most people would put these in red but I have a bias to looking for opportunities and putting more capital to work which is why I look at it this way. The SPY, VYM, REM, PFF, and TLT all got less expensive over the month. The biggest change was in REM, the mortgage REIT plus ETF. This is one reason for my recent turn in focus to mortgage REITs.

Among the global stock indices international, EFA, remains the best relative value. Also, among the dividend ETFs the international dividend index, IDV, remains the best relative value. In the high yield sector ETFs, REM stands out as having the best value. Investors have been spooked by the fear of rising rates and this sector could represent good value. My favorite sector, AMZ, became even more expensive during the month (although the last 3 days the AMZ has been selling off hard).

In bonds there has been a lot of interesting developments. First of all and maybe most importantly all the fear over rising rates so far has not come to pass. Rates have actually gone down with the 10 yr note back down to 3.24%. The spread between the 10yr and the 2yr note remains extremely wide. The bond ETFs all went up in price and yields decreased, except TLT which was basically flat. I wanted to point out the the Muni bond ETF, MUB, continues to recover and is now only about 5% off its all time high. So much for all the muni collapse fears. This month I added a new bond fund to the list, HYD. HYD is the muni equivalent of HYG, a high yield bond muni ETF as HYG is the corporate high yield bond ETF. Looking at the tax equivalent yields, HYD is a better value than HYD. I still prefer the closed end leveraged muni funds, like BFK on this list. Personally, I own NPI, NXZ, and NZF. The muni trade is still worth a look.

Finally, I wanted to add some commentary on bond funds in general. Other than yield an important metric to consider when looking at bonds funds is the average price of the bonds in the portfolio of the fund. Bonds are issued and redeemed at $100 which is called par. For each of the bonds funds you can find out the average price of the bonds in their portfolio which gives you an indication of value. For example, for HYG the avg price of the bonds they own is 106.5, for MUB its 103.9, and for BBK it is 100.5.  This tells you, along with the yield, that HYG is the most expensive among the bond funds and the muni funds offer the best value in terms of price.

That’s it for this month. Let me know if you have any other insights.

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2 thoughts on “ Income investor dashboard for May 2011

  1. “My favorite sector, AMZ, became even more expensive during the month (although the last 3 days the AMZ has been selling off hard).” Ain’t that right! My MLPs are getting hosed as I type; I think it is all about the commentary on changing their tax treatment. The optimist in me says, watch for a meaningful new bottom and buy more. The pessimist says, lock in your gains (sell) and go away. What are your thoughts on this sector at this time? What happens to the distributions (dividends) if they are taxed at the corporate level? Do you think this is likely? Thanks for your thoughts. For now, by the way, I am hanging tough and waiting for an entry point to buy more.

    1. J, as usual, you’re one step ahead of me. I’m working in a post on this issue right now. It’s become important enough in the last few days that I think the issue needs addressing. I think its an over reaction in the market and maybe attributable to the tax issue, maybe not. I think the right move is to wait for a good entry point, for me a 15% correction, an buy more. Stay tuned for the post.


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