August Doldrums

These past few weeks have been typical of late August; high volatility on low volume.  With many market participants off on vacation, prices of REITs and particularly small cap REITs move on single trades.  In this sort of environment, our method of approach is to watch and wait for the mispricing, only acting after it is present.

Starting on Tuesday, I anticipate the market will return to normal.  Summer trading will be finished and people will return to a more standard work week.  This generally brings fundamentals back into focus which we see benefitting some of our more undervalued securities.

Trade issues

Farmland Partners and CatchMark Timber should work as an offsetting hedge for the uncertainty in our trade relations with Canada.  Farmers would benefit from more open trade as milk and other products are currently harmed by Canadian tariffs, while timber benefits from less open trade as Canada would like to export tremendous amounts of lumber to the US.  We have no better guess than anyone else as to how trade relations will conclude, but this offsetting relationship should protect 2CHYP from a big swing caused by either outcome.

The deal that has sort of been inked with Mexico seems to be a win for the US auto industry as well as US agriculture.  If Mexico becomes a larger importer of US food products it will offset some of the pressure American farmers are feeling from China.  A raised wage for auto workers should bring incrementally more production onto US soil which indirectly benefits the industrial REITs.

2CHYP cash

While we have no problem holding cash, we are looking at a variety of issues to buy with 2CHYP’s roughly 5.5% cash position.  Some significantly discounted preferreds are presently available that offer sizable dividends as well as capital appreciation potential.  We are also looking into the cheaper end of triple nets as the valuation rift has once again widened with ADC moving to a fairly extreme multiple.

2CHYP Portfolio Snap Shot

8/30/18 2CHYP Performance since inception

2CHYP Weekly Trade Confirmation Report