Supermodel Portfolio

Cheeseburger in paradise.

Heaven on earth with an onion slice.

Not too particular, not too precise.

I'm just a cheeseburger in paradise.

Cheeseburger in Paradise by Jimmy Buffett

Jimmy Buffett - Cheeseburger In Paradise Video

Sometimes you need to get your hands dirty in the name of research. You know, down in the trenches, sand under the finger nails, old fashioned research. Well, that's exactly what I've been doing the last couple of weeks. I have been trying to construct a diversified high-yielding portfolio -- a "Supermodel" Portfolio. While our Global Tactical Asset Allocation Model Portfolio is our core all-weather portfolio, several of my clients, myself included, have expressed a desire, no a need, for more income. In a world where the Federal Reserve is battling the specter deflation via ZIRP (Zero Interest Rate Policy), many investors are seeking income alternatives other than collecting bottles and cans along the roadside. So after extensive Supermodel research I determined that I would have to make an on-site visit to the home of the legendary S.I. Supermodel Reunion ... the pink sand beaches of Harbour Island. After all, if you're going to construct a "Supermodel" Portfolio, what better place could there be for inspiration than the site chosen for one of the most famous supermodel photo-shoots ever. 

 All-Star Model Cover Model Reunion - Rebecca Romijn SI Swimsuit ...

First logistics.

Harbour Island (aka Briland) is a speck of an island (3.5 miles long by 1.5 miles wide) in the Bahamas off of the coast of Eleuthera. Getting there from Pittsburgh entails a flight to Charlotte (like every flight out of the 'burgh), a connection to Nassau, another connection (via a much smaller plane) to North Eleuthera, a short taxi ride, and then a water taxi from Eleuthera to Harbour Island. There are no airports on Harbour Island, so even those of you with access to private jets will have to slum it a bit with the common folk on the water taxi. Of course those of you with private yachts can sail right over. 

The entire island is surrounded by a treacherous reef known as the "Devil's Backbone". Even experienced captains stop at Eleuthera to pick up a local pilot to help them navigate safely through. The beauty of this treacherous reef is that "No" cruise ships visit the island ... and that's exactly how the locals like it. In fact the locals are very protective. Development has been strictly limited and there are only a handful of boutique hotels and houses for rent. Idyllic is an apt description.

Harbour Island is one of the oldest settlements in the Bahamas, originally occupied by the Lucayan Indians who were enslaved by the Spanish in the 1500's. English puritans settled on the island in the 1600's and many English Loyalists moved there after the American Revolutionary War. Today the largest inhabitants seem to be free-range chickens and in particular roosters (my favorite t-shirt was "So Many Roosters, So Few Recipes). The architecture is very reminiscent of a quaint New England village. The Island is world renowned for its pink sand beach which is 3 miles long and 50 to 100 feet wide, it is simply the most beautiful beach that I have ever seen. Also, because of the reef right off shore, the water is exceptionally clear and calm, a snorkeling and swimming paradise.

Images for harbour island bahamas

Traveling on the island is almost entirely done via golf carts. Our first morning I ventured out in search of coffee and breakfast while the girls slept. I found out that the place for breakfast on the island is Arthur's Bakery. While Arthur's has a great selection of breakfast and lunch items (try the guava turnovers, lime tarts, and lobster omelets), it is also news and gossip central. Arthur is the quintessential island entrepreneur, and was a font of information on island happenings as well as the Bahamas in general.

While chatting with Arthur I found out that the biggest investment news in the Bahamas over the last several years is very similar to the investment news in most emerging markets...the Chinese. The Chinese have purchased and operate the airport in Freeport, and they've also built the largest container port in the world in Freeport. They are buying resorts and farm land throughout the Bahamas, and have filed for over 6,000 Chinese work permits. Arthur said that most people are enthusiastic to have the Chinese money entering the islands but are very leery of Chinese workers displacing Bahamian workers. He said that the Chinese are now the "go to" source for investment funds in the Bahamas.

Back to our "Supermodel". The keys to building a supermodel investment portfolio are very similar to those used to build a supermodel photo spread. Find some very appealing assets that will help you achieve your goals, while making sure you have enough diversity. As for our "Supermodel" High-Yield Portfolio I searched for a variety of high-yielding securities that would meet my goal of high current income while hopefully not being perfectly correlated to one another. My broad areas of interest fell into the following categories: High Yield Corporate Bonds, Mortgage REIT's, Royalty Trust's, Master Limited Partnerships, and Convertible Securities. Using individual securities, ETF's, and closed-end funds I was able to construct a fairly diversified portfolio with a current yield of about 9%. OK, 9% current yield in a world of 2.7% ten year Treasuries sounds appealing, but it should also send off warning alarms. Obviously yields that high mean that you are taking risk. Higher yielding corporate bonds and convertibles are lower quality securities, and lower quality securities are more volatile than higher quality securities. REIT's,  MLP's, and Royalty Trusts generally have higher yields because of various tax advantages at the corporate level, these tax advantages at the corporate level may increase tax complexity for individual investors. In other words this portfolio is not for the faint of heart, nor should it be used for a large portion of your assets (I'm starting with less than 5%). High reward, high risk, what would you expect from a "Supermodel". 

If you think this "Supermodel" may be of interest to you please give me a call.

Overall, it was a fabulous couple of weeks of research. Rested, recharged, a few pounds heavier (Jimmy Buffett frequents Ma Ruby's for her Cheeseburger in Paradise whenever his yacht is in the area), with a new "Supermodel" Portfolio tucked under my arm. 

Be careful out there,

Chris Wiles

www.rockhavencapital.com

For prior Rockhaven Views visit:

www.rockhavencapmgmt.blogspot.com

This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management.  The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.