A New S&P 500 Record — and Your New Holding in Silver Bay Realty Trust (SBY)

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

The big news of the week was that the S&P 500 broke out to new nominal highs, finally surpassing a nominal level it last reached in the year 2000. Yet, that masks a week where markets barely budged. The S&P 500 was up a mere 0.41%, while the MCSI Emerging Markets Index actually ended the week down 0.46%.

The big news in your Alpha Investor Letter portfolio was that the share price of U.S. Investment REIT Two Harbors Investment (TWO) dropped 11.25% last week.

But before you think this is was a lousy week for TWO, you must understand that the headline share price does not reflect two important factors.

First, the stock went ex-dividend date on March 28, 2013. So as an owner of TWO shares, you will receive a dividend of 32 cents per share on April 24. At its pre-ex dividend closing price of $13.88 on March 27, that equals a dividend yield of 9.3%.

Second, you are also set to receive a special dividend of shares from the spinoff of Silver Bay Realty Trust (SBY) to TWO shareholders. Recall that SBY’s business is to buy up and rent out U.S. real estate properties, and it first went public in December.

On March 25, Two Harbors announced that stockholders will receive approximately 0.049 shares of Silver Bay common stock for each share of Two Harbors common stock they are on record of owning on April 2, 2013.

So, here are my own back of the envelope calculations:

If you held 100 shares of TWO, you received 4.9 shares of SBY valued at an additional $101.33, based on yesterday’s closing price. That works out to roughly an additional $1.01 per share of value for any TWO shares that you hold.

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These are paid to you as dividends, so you paid nothing for these shares. So add $1.01 and 32 cents back to this week’s TWO closing price of $12.38 and you get a pre-dividend share price of $13.71. That’s a drop of 1.75%, compared to last week’s close of $13.95.

As an aside, TWO announced that the stock dividend is payable on or about April 24, 2013. Yet, I already saw SBY stock show up in my client accounts at Global Guru Capital yesterday.

For now, I am recommending that you hold on to your Silver Bay Realty Trust (SBY) shares and place your stop at $18.50.

Portfolio Update

Berkshire Hathaway (BRK-B) gained 1.27% over the holiday-shortened trading week. BRK-B also managed to hit a new 52-week high and break through its $104.25 resistance level, tested just weeks earlier. Berkshire Hathaway is up nearly 15.5% year-to-date, and 38.36% since you purchased it in 2011. Of course, had you purchased the stock 48 years ago, you would be up 586,817% — a fine gain, even if you only owned one share. BRK-B is a BUY.

Visa Inc. (V) took a breather last week, rising just 0.29%, after a tremendous gain the week prior. The investment brokerage firm Jefferies just reiterated its ‘Buy’ rating on Visa and raised its price target to $196.00 — nearly a 9% upside from yesterday’s close. Visa will report earnings on May 1, after markets close. V is a BUY.

WisdomTree Japan SmallCap Dividend ETF (DFJ) lost 3.51%. The Bank of Japan (BOJ) posted its quarterly Tankan “business confidence” report last Monday. Although its measure did inch higher, the index rose less than analysts expected, causing the recent large fall in DFJ’s price. The BOJ will begin a two-day meeting today and release news on its upcoming policy changes at the close of the proceedings. DFJ is a BUY.

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PowerShares Global Listed Private Equity Portfolio ETF (PSP) ended flat for a second week. PSP uses the Red Rocks Global Listed Private Equity Index as a target for its holdings. The index currently tracks up to 75 companies. PSP holds 66 positions, with a 5% stake in Onex as its top holding. PSP is a BUY.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) gained 0.31% over the past four trading days. VNQI managed to hit a new 52-week high yesterday after two attempts earlier in the week. With the bullishness in global property still booming, and valuations still below their historic average, this position should do well in the weeks and months ahead. VNQI is a BUY.

S&P Global Timber & Forestry Index Fund (WOOD) remained flat last week. Value investing guru Jeremy Grantham’s GMO LLC, which manages nearly $106 billion in assets, added to defensive positions in WOOD and the Guggenheim Timber ETF (CUT). Recall that Grantham pegged timber as the top-performing asset class over the next seven years. WOOD is a BUY.

Two Harbors (TWO) fell 11.25% last week on news of an analyst downgrade from ‘Buy’ to ‘Neutral.’ Note that the effective drop was around 1.75%, thanks to a combination of cash and share dividends. However, the same ratings firm did raise its price target to $14.75 — a 19% jump from yesterday’s closing price. TWO remains a BUY.

WisdomTree Japan Hedged Equity (DXJ) fell 5.22%. DXJ gave back some of its recent gains last week on the same news that caused DFJ to suffer. Falling just a few cents below its 50-day moving average, DXJ is now a HOLD.

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WisdomTree Emerging Markets SmallCap Dividend Index (DGS) closed the week flat, in line with movement in the broader emerging markets. The recent weakness in emerging markets supports a good value case for upside potential in this sector. DGS is a BUY.

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