I don't know about you but I am enjoying the Olympics, well most of it anyway. I'm not a fan of tennis as an Olympic sport because we can see tennis anytime we want as opposed to something like water polo.Occasionally I get an email touting some sort of small cap stock or more correctly a micro cap stock. I don't write about these for several reasons and I am not about to start now but I had an interesting observation with an email of this ilk that I received yesterday.
Being as vague as humanly possible, the company in question apparently has access and rights to some sort of as yet untapped oil field in a country that is not known for oil production. The idea being that if the oil discovery pans out the company stands to make a lot of money and so the stock should go up a bazillian percent.
I don't know if any of it is true, that is not the point. If there is oil in this country that could become a bit of a game changer for the country in question down the road when, or more likely if, crude starts to flow.
The point is that while the stock being touted in the email is of no use to me some of the news being used as a catalyst is of use. If the whole thing is bogus, so what, this is something that may happen, I know about it and if it does happen then fine. There is no reason to not read a tout you might learn something. Investing in a tout is a different story and hopefully the distinction made here is clear.
IndexUniverse has an article up about TIPS and the corresponding ETFs that capture the space. The article questioned the utility of TIPS relative to other segments of the bond market and also questioned how CPI is calculated. The calculation of CPI does have real problems and I wouldn't suggest going real heavy in any segment of the bond market but the article overlooked (or at least I did not see this) an important piece of information about TIP's payout.
The article correctly notes that the 30 day SEC yield is 1.36% but there is more to the story.
The table is from ETFconnect. The monthly payout has gone up considerably in the last months. The reason for this is that the fund pays out, as part of the fund's dividend, what would be the par value adjustment for the individual issues. I verified this on the phone with them a couple of weeks ago for a TSCM article.The average monthly payout over the last three months has been $0.8288. TIP closed yesterday at $105.82 giving the fund a 7.8% yield. Pretty good eh?
Well it is pretty good but thinking 7.8% is exactly the wrong way to look at this. The dividend is never the same two months in a row. It has gone up lately because CPI, flawed and understated though it may be, has been going up.
The yield on just about every bond ETF I have ever looked at is a moving target but I think, I say I think, it can remain on the high side for a while as CPI seems destined to stay elevated for a while. The fund is $7 off of its high and seems like it has correlated fairly closely to iShares Lehman 7-10Yr Treasury Bond Fund (IEF) for most of the last couple of years.
This is not a suggestion that anyone buy TIP, which I own for clients, but to realize that although the fund is not perfect it does have quite a bit of utility. If you are going to use ETFs I think it is important to realize that there are drawbacks with all of these funds, hopefully you weigh both the positives and the negatives before diving in.
5 comments:
I got the same email and, being somewhat familiar with both the country in question, and the regions allegedly being explored, my reaction was...ROFLMAO. God Bless all who sail in her, but incinerating the money would be a far quicker, cleaner and more net energy-producing way of getting rid of the money than the exploration program being touted.
Greg Newton
Hi Greg, thanks for keeping it vague (not being sarcastic). I get an image of Granny from the bugs bunny cartoon throwing bound stacks of money on to the fire to keep it going in front of Yosemite Sam.
Comparing a closed end fund WIW to TIP as of 7/31/08, hard to compare from this 6 month chart with WIW paying a 6.26% distribution.
http://finance.yahoo.com/q/ta?t=6m&s=TIP&l=on&z=m&q=l&c=wiw+xwiwx
not crystal clear what you are trying to know.
in the time you study the discount has narrowed a little. the ETF beat the NAV price wise and it appears that TIP yielded more. the CEF holders were advantaged because the market price did better, meaning the discount narrowed. no way to know if that trend will continue.
people trying to game that aspect would buy the CEF people not wanting to game the discount would buy the ETF
am i missing something?
I own WIW and would love to buy some TIP. I've spent some time in the last couple of days trying to understand TIP. Your article is greatly appreciated. One of the articles I read said that since the TIP shares have their value modified on some schedule, there are annual tax consequences to holding them in a non-tax sheltered account. I'm not sure what that means - if anything. Can you clarify?
Thanks
Don D
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