HELIOS STRATEGIC MTG INCM FD HSM
April 12, 2010 - 12:34pm EST by
torico780
2010 2011
Price: 5.83 EPS $0.84 $0.672
Shares Out. (in M): 10 P/E 6.9x 8.8x
Market Cap (in $M): 63 P/FCF 6.9x 8.8x
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 63 TEV/EBIT 0.0x 0.0x

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Description

This is a simple trade. 

 

HSM is a closed end fund that invests in mortgage related securities, cmbs, rmbs and all of the other BS that is still around after the debacle. HSM announced on Friday that going forward it will be paying 5.6 cents monthly in dividends adjusting the dividend down from 7 cents. At today's current price that works out to a yield of 10.9 pct which given that it is paid monthly is very attractive considering fed funds rates etc. 

Some investors look at these funds and get hung up on the discount or premium to NAV and that is all good and well, but unfortunately it is not the premium or the discount to NAV that pays the bills but the coupon that the fund pays out and consequently one should be more worried about the fund's ability to pay the coupon than with the premium or the discount. 

Now that HSM has adjusted its coupon rate to a manageable level for its portfolio there should be significantly lower risk of a coupon cut going forward.  

 

As stated in the press release: http://www.marketwatch.com/story/helios-strategic-mortgage-income-fund-inc-announces-dividend-reduction-2010-04-09?reflink=MW_news_stmp 

the portfolio is composed of:

As of March 31, 2010

Sector Allocation as a Percentage of Total Assets

   ----------------------------------------------------------------------
   Commercial Mortgage-Backed Securities ("MBS")                      44%
   ----------------------------------------------------------------------
   Non-Agency Residential MBS                                         23%
   ----------------------------------------------------------------------
   Agency MBS                                                         22%
   ----------------------------------------------------------------------
   Asset-Backed Securities                                             5%
   ----------------------------------------------------------------------
   Cash                                                                6%
   ----------------------------------------------------------------------




Credit Allocation as a Percentage of Total Assets

   ----------------------------------------------------------------------
   U.S. Government / Agency and AAA Rated                             62%
   ----------------------------------------------------------------------
   AA Rated                                                           10%
   ----------------------------------------------------------------------
   A Rated                                                             7%
   ----------------------------------------------------------------------
   BBB Rated                                                           8%
   ----------------------------------------------------------------------
   Below-Investment Grade                                             13%
   ----------------------------------------------------------------------

Catalyst

The catalyst occurred with the dividend reduction whereby the risk in coupon in the security has been adjusted to reflect the portfolio's income generating ability.

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