I Need More Energy...& Less Volatility

Sold UTF (3.05% Allocation)

UTF is an excellent utility fund with a long history of consistent distributions. I have nothing against it, but it has appreciated 5% in approx 4 months. That’s a lot for a boring utility fund. The result is a yield that dipped to 6.99%. UTG has appreciated even more so why not sell UTG instead? 

Both are Closed End Funds, and UTF is now trading at a 3.5% premium to Net Asset Value.

By contrast, UTG is trading at a more modest 0.75% premium to NAV. The higher the premium (relative to its historical average), the more risk that it will over correct during a market pullback. UTG and UTF were explained in this review.

Sold NYMTI (2.65% Allocation)

This Baby Bond (low priced corporate bond targeted at retail investors) offers a juicy yield of 9.28%, and less volatility than the stock market (ie S&P 500). That lower volatility can come in handy if there’s a market correction, and you want to sell something that didn’t drop, to buy something that did.

The April tariff chaos showed that NYMTI did an “OK” job of consistent income with low volatility. However, the DX.C preferred shares from Dynex Capital, did a much better job. Rock solid!

Bought NML (2.7% Allocation)

The 10 year total return for Midstream Energy sector looks terrible…

But the 5 year total return looks amazing!

What happened? 

The rise of the North American shale industry created an oversupply, that led to a price war with OPEC in late 2014. Then Covid collapsed the demand for energy. Two giant shocks to the energy sector that will be covered in a future video episode, scheduled to air on July 27th. 

Midstream operators do the boring work of transporting, storing, and processing gas and oil products after they’re extracted from the ground, but before they’re refined into finished products like gasoline, and delivered to your gas station.

NML yields 7.99% and is my first foray into Midstream funds (I’ve owned HESM, an individual Midstream operator in the past). I’m also keeping an eye on two other funds that have performed well (post Covid): EMO and AMZA.

EMO has outperformed NML over the past 5 years for total return, however it uses more leverage, and comes with a higher management fee.

Bought DX.C (3.0% Allocation)

Dynex Capital’s Series C preferred shares currently yield 9.81% and as explained above, have demonstrated low volatility. The issuer of the preferred stock, Dynex Capital, is a Mortgage REIT that pays a yield of 16.2%. As mREIT’s go, Dynex is a decent operator. However, I find the common shares for this sector too risky/volatile for my taste. The higher yield from the common stock looks enticing, but is exposed to a much higher risk of a dividend reduction and/or price correction. As long as the common stock pays a common dividend…any dividend, the preferred dividend is safe. Dynex Series C preferred shares were reviewed in this video.