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Portfolio Update

Year in Review

By Roger S. Conrad, on Jan. 6, 2016

By most measures, last year was a difficult time for income-seeking investors, as anticipation of the Federal Reserve’s first rate hike since 2006 weighed on sentiment.

The severe downdraft in oil and gas prices, coupled with growing concerns about volumetric and counterparty risk, has weighed heavily on midstream master limited partnerships (MLP), a favorite among investors over the past few years. (For our take on the risks and rewards in this space, see MLPs: Be Selective.)

Meanwhile, a strong US dollar hit income-seeking investors with a one-two punch, reducing the value of any international equities in their portfolios and the dividends that these companies pay.

The bottom also dropped out of the high-yield bond market in the back half of last year, triggering a wave of withdrawals and forcing funds to sell assets to meet these redemptions. These headwinds prompted the ruinously positioned Third Avenue Focused Credit (TFCIX) to suspend shareholder redemptions and move its assets to a liquidating trust.

Last year had its bright spots. Elevated volatility enabled us to enter several high-quality positions at good price points, and we booked hefty profits on Digital Realty Trust (NYSE: DLR) and Mid-America Apartment Communities (NYSE: MAA).

However, the Lifelong Income Portfolio swam upstream against a strong current in 2015 and finished the year underwater. We take a hard look at what went wrong and what went right with an eye on the overriding goal of building wealth for 2016 and beyond.


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