Utilities Delivered the Goods (I’m Out)

UTG: Sold (Exited 5.48% Allocation)

Falling interest rates have been great for the utility fund, UTG. The price of UTG increased faster than expected. This has caused the yield to fall below 7%. It’s a rock solid fund, and conservative investors may want to stay in it for the consistent income.

The price gains may continue, but I’m more focused on income than price, so I’m out of UTG. Generally, income is easier to forecast than price! I’ll happily buy back in on dips, as it's one of my favorite sectors/funds.

AGNCN: Reduced Allocation from 2.87% to 1.85%

These floating rate preferred shares will gradually reduce their dividends as the Fed reduces interest rates, as explained in this recent video. They’ve had a nice steady run with stable pricing, and a yield exceeding 10%. I’m on the lookout for some fixed rate alternatives in the preferred share, and/or corporate bond asset class.

NLY-F: Reduced Allocation from 2.85% to 1.82%

Same scenario as AGNCN above.

BST: Increased Allocation from 0.69% to 3.15%

The BlackRock Science and Technology Trust (BST) yields 8.42%, and has delivered excellent returns for most of its history. The exceptions were 2021 and 2022. These were a disaster for its price (distributions, including a massive special distribution in 2021, were fine). 

Now that interest rates are…most likely…. headed down, BST is in a better position to appreciate again. The market has acknowledged this with a 1 year total return of 22.77%. Not earth shattering, but a clear improvement over 2021 and 2022 when uncertainty and rising interest rates made it unfavorable. The fund is actively managed, and weighted toward big tech names including Nvidia, Microsoft, Apple, and Broadcom. It generates income by selling covered calls, a small amount of dividend income, and realizing capital gains from the portfolio. 

The kicker for BST, is a small portion of the fund allocated to private placements. These don’t really help income investors unless/until they’re sold. They’re not liquid like publicly traded stocks, so they require patience. The gains come when the private equity market heats up again and BST can exit via IPO’s, or private sales (M&A). Lower interest rates are likely to favor that activity.

I paid $40/share for BST last year, so I’m slightly more than $4/share underwater (before distributions). I expect to keep this one for the long term, and it may take 1-2 years before the private placements pay off.

STWD: Increased Allocation from 3% to 4.45%

The valuation on this ETF has been attractive recently, pushing the yield up to 9.61%.

PBDC: Increased Allocation from 4.74% to 5.2%

The valuation has been attractive recently, pushing the yield up to 9.81%.

GPIX: Bought (2.04% Allocation)

This is a covered call index fund based on the S&P 500, and managed by Goldman Sachs. The total return since its October 24, 2023 inception is an impressive 34%. Not bad for a fund paying a yield of 7.4%. 

Typically I’d look for a higher yield, but the distributions have been trending up, and the price appreciation has been solid. If it wasn’t so new, I’d buy more! 

If you’d like to learn more about this fund, I reviewed it here. If you’d like to know more about any of the funds in the portfolio, click the hyperlinks in the far right column of the downloadable portfolio pdf (below).