Jim Fowler

The 10-year treasury yield increased 48 basis points during April, that followed on the 32-basis-point increase during 1Q24, which resulted in DVDN declining 2.85% during the month. In fact, the 80-basis-point YTD24 increase resulted in 10-year treasury yields settling just above the yield at the time DVDN was launched. Market expectations are settling in at 1 rate cut, later in FY24, as the most likely outcome.

During April, DVDN portfolio managers, (a) reduced BDC positions from 7 to 2 as stocks reached price targets and forward lending spreads are compressing; (b) reduced CREIT positions from 5 to 4 eliminating one office-centric stock; and (c) increased MREIT positions to 8 from 5 to take advantage of better relative value companies. One notable item is the reduction in the equal-weighted yield for the CREITs that declined from 12.22% in MAR24 to 8.97% in APR24. The reason is that DVDN currently holds one CREIT that does not pay a dividend and is owned as a total return opportunity.

For further details, please see our April 2024 Newsletter here.

10-year treasury yields declined a modest 5 basis points during March which allowed DVDN’s active portfolio management to deliver monthly returns that more than offset the January & February return drawdowns* largely resulting from the 37-basis-point increase in yields. Market expectations for FY24 Federal Reserve rate cuts seem to be settling in at 2 or 3 with July being the market’s odds-on favorite for the first rate cut. That said, markets are also pricing a 0 or 1 rate cut as non-zero probability outcome.

During March, DVDN portfolio managers (a) increased total companies in the portfolio to 17 from 14; (b) continued decreasing exposure to residential REITs as median valuations rallied to 90%+ of book value*; (c) increased exposure to commercial REITs by overweighting multifamily exposure and taking opportunistic positions in attractively priced office exposure; and (d) maintained its allocation to BDCs that should continue delivering attractive returns in a “higher-for-longer” rate environment.

For further details, please see our March 2024 Newsletter here.