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2014-08-06 TIA PIP Shorter Call Preferreds vs Cash Alternatives

TO:          Investment Consultants

FROM:      Larry K. Pitts, CFA

DATE:       August 6, 2014

SUBJECT:  Shorter Call Preferreds vs. Cash Alternatives

In a July 2014 article, the Kiplinger letter discussed ways to boost your cash yields.  Here is their encore: “For the four months ending June 13, Juiced-Up Cash delivered $279 -- total return of 0.56% for an annualized gain of 1.68%” on a hypothetical $50,000. 

They discuss five selections for your consideration including a one-year certificate of deposit cracking the 1% barrier.

TIA’s Shorter Call Preferred Portfolio (SCPP) is an “Oasis” in the current desert of low yielding alternatives.    SCPP’s average portfolio coupon rate of 7.61% all but assures being called in 17 months.  The current yield is a whopping 7.20% resulting in an average premium price of $26.39 ($25 Par) with a yield to call of 4.74%.  Compare this to the attached July 31, 2014 exhibit with yields of 0.53% for a 2-year U.S. Treasury Note and 0.11% on a 1-year U.S. Treasury Bill.

Trillions of dollars are trapped in these low yielding money market funds and other cash management alternatives.  We may never have such a superior cash alternative in our life times (certainly not in mine).  You can’t afford to wait for “normal” you need to embrace the alternatives.

In my 50-year career in fixed income management, I have never been able to say our yield to call of 4.74% is:

        474 times the Money Market Fund of 0.01%

        43 times the 1-Year U.S. Treasury Bill of 0.11%

        5 times the 1-Year Certificate of Deposit of 0.90% (average)

        9 times the 2-Year U.S. Treasury Note of 0.53%

We welcome your inquiries on this outstanding cash alternative.

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