What Value Looks Like – JP Morgan 9%
To: Clients, Friends, & Family
From: Julien B. Booth
It is my job to wear the market-related anxiety of our clients and coldly execute – overcoming non-prudent behavioral tendencies we all have.
Attached you will find a chart/slide on one of our largest and safest holdings, JP Morgan.
The security is a floating-rate security issued by JP Morgan. I am hoping to use this note as an informational tool – and an example of particular value.
A floating rate bond has a period of fixed payment interest – in this case, 4.6% at the issue price of $1000. At its call date, the bond begins floating on an index rate + a fixed spread. In 2025 this security will begin floating on 3-month SOFR + 3.13% spread. Today that would equate to 8.46%. Held to the call date, this bond will pay 9.45% until (2025) and thereafter at the prevailing level of rates relative to the index rate.
We have actively sold this bond at a large premium to its par value in the past (when the yield was below 4%). Today the bond trades at a substantial discount and yields roughly 9.5%. We are active buyers at this level.
Interest rates have become the latest hysteria of investors (always our focus). While disconcerting to many, the opportunity for investors is far better than it has been in 15 years, or more. JP Morgan – the World’s largest bank, and the other SIFI banks (structurally important) have very solid credit quality and superior financial positions.
We are 100% focused on generating income with the least credit risk possible. JP Morgan is excellent value with an impeccable financial position.
Thank you for your interest. Please advise questions.
Julien
jbooth@forestcapital
704-608-3100