Hawking Portfolio Review – 30 September 2021

Hydro Dam at Lake Powell, Northern Arizona

The Hawking portfolio is designed as an “Income” Portfolio with a targeted annualized “income” of 8%. The portfolio quiver is comprised of a number of Closed-End-Funds (CEFs) that pay out high dividends – usually on a monthly schedule, but some quarterly. This month (September) was a month for payments from all funds (monthly and quarterly payers) and over $900 was received on a ~$108,000 account. So, this portfolio generates a nice consistent cash flow of funds that can be withdrawn (if required for living needs) or re-invested, as desired. Since I don’t need the funds for my normal day-to-day needs I choose to re-invest the cash so as to enhance geometric returns.

The last few weeks have been hard on the US stock markets with us seeing a 5% “correction” from the highs – so, let’s see how the Hawking portfolio has behaved:

where we see the pullback – but, pretty much in line with the VTTVX benchmark fund. The good news is that we can now re-invest dividends at lower prices.

As a reminder of the current portfolio “quiver”:

we see that the portfolio is invested in 30 CEFs covering a diversified range of assets from equities to bonds, from preferred shares and convertible bonds, to real estate, collateralized loans, Options and other “alternative investments” that we, as small retail traders, don’t normally have access to. Many of these funds also come with leverage. This means that we need good managers that know these markets and how to use derivatives and leverage to enhance returns. We pay for this in the management fees (if we compare these with the low fees on ETF funds – that are usually balanced to an index by computer) but this is well worth it if we can find good managers.

The above portfolio quiver is the same as last month’s quiver with the exception of SPE (Special Opportunities Fund) that I have added to replace GLO (Clough Global Opportunities) since I am already holding a position in GLQ that is a similar fund managed by the same company. SPE is a similar fund (currently paying a slightly lower dividend) but diversifies the management capabilities – no really big change.

From the above figure we can see that my current projected income stream is calculated as 8.13% – that meets my target.

Although this portfolio is built around “income” this does not mean that I ignore potential growth – so, when I have dividends to re-invest I will look at funds in which I may be a little under subscribed and that may be selling at a discount. From the above figure we can see that I have ~$1,450 in Cash to re-invest. If I look at my current holdings I see that I am a little under-invested in IGD that is currently paying ~8% dividend (close to my 8% target) so I check it out at cefconnect.com:

that confirms the dividend and shows that IGD is currently trading at a 7.23% discount to Net Asset Value – so I would be buying $100 value for $93, thus opening up the possibility for future “growth” (should price increase to NAV or the fund be liquidated).

If I check the price chart:

I see that IGD has dropped with the recent market pullback (this is an equity fund) and has just corrected for the monthly dividend – so, I will be looking to add another ~250 shares to my current holdings.

Note that I do not use the Kipling workbook or strategies to manage this portfolio – although, If I want to add a new CEF to the portfolio, I will first check for Buy recommendations before looking at dividend distributions and discounts. I do not act on Sell recommendations from the workbook since I don’t really want to “trade” this portfolio – I want consistent (monthly) dividends, so need to be invested. I do, however, use 3 Standard Deviation TSLOs to avoid potential catastrophic declines in value. I don’t recall one of these stop-loss orders being hit to this point in time.

David