Too often I come across folks who think the only way to make money is in the stock market. Well the fact of the matter is, that is just wrong.
Here is an example of the value-added by High Rock and our constant search for stronger risk-adjusted returns. And the reason why I am writing this today is because we just received notification yesterday that one of our positions (a high yield energy bond) was being called by the issuer. Time to take profits!
Sure we own stocks and even some energy stocks (in fact, energy stocks are now cheap and high yield energy bonds are now expensive) but the bulk of our energy exposure was in high yield energy bonds that we acquired over a year ago. What is so fortuitous lately, is that, we have had a couple of our biggest high yield energy bonds called from us at $100 (par) including Athabasca (a Top Pick I gave on BNN last April) and now Perpetual. I am thrilled with this as it enables us to re-allocate our energy exposure to some select energy stocks that have been hit very hard lately.
Here is what happened over the past year and with yesterday's call on the bonds:
Issuer - Perpetual Energy (one I have been involved in over the years)
Bond - Perpetual Energy 8.75% 2018
Price Purchased - 1) For clients who were with us before March 22, 2016, they got in at $56.50 and 2) For clients who joined before June 28, 2016, they get in at $71.50.
Call Price - $100.00
Call Date - April 17, 2017
Total Return @ $56.50 - +93.30% (includes the ~13 months of interest income)
Total Return @ $71.50 - +48.01% (includes the ~10 months of interest income)
Still think the only way to make money is in stocks? Not bad for a bond, eh?
Well, Perpetual Energy has public stock outstanding too, so let's look at how it performed over the same two time periods and compare to the bond:
PMT Total Return (no dividends on this stock) from Mar 22, 2016 to Mar 22, 2017 - +14% (from $1.40 to $1.59 today)
And from June 28, 2016 to Mar 22, 2017 - -28% (yes, that is right "negative return" from $2.20 to $1.59 today)
To conclude and compare:
Time Period 1 - Bond +93.3% / Stock +14%
Time Period 2 - Bond +48% / Stock -28%
There was a very good reason why we bought these bonds and not the stock. If you want the in-depth reasoning, feel free to give me a call. Always happy to discuss our rationale and reasoning.
Risk-adjusted returns - our major focus on every trade/position we take.
Past performance is no guarantee of future performance