Asset Backed US Corporate Bond Investment

As volatility returns in the US stock market, investors become risk averse and seek safer investments such as bonds. Since most of the developed countries in the world, including Japan and many European countries, offer negative interest rates, investors have to settle with sub-par US treasury bonds, which at least offer positive interest rates. As of Friday 10/18/2019, the treasury yield ranged from 1.75% for the 1 month treasury bill to 2.25% for the 30 year treasury bond. Now, is it possible to increase the return on your investment while ensuring the safety of your principal? Good retail corporate bonds could provide you with a better rate of return than that of government bonds and a higher safety of your principal than that of the stocks. In this blog post, I will talk about one asset backed corporate bonds that I found to be fairly safe and worth looking into.

Amerco (UHAL)

I am sure you or someone you know has rented a U-Haul truck to move from one place to another. U-Haul is said to be the leader in the “do-it-yourself” moving and self-storage business. Amerco (UHAL), the parent company of U-Haul, provides these asset backed corporate bonds. Amerco offers a program called the U-Haul Investors Club, where individual investors can sign up and pick securities to invest in. The company calls these securities “U-Notes”. Furthermore, “U-Notes” are backed by assets such as trailers, trucks, real estate, and equipment. In other words, these assets work as collateral (these assets can be liquidated in case of default). As these U-Notes are issued directly through the company’s website, there is no sales charge or brokerage commission associated with underwriters. Unlike other investments, individuals can invest in increments as small as $100. Lastly, it is free to join the U-Haul Investors Club.

When I went to the investors club website (hyperlinked) on Friday, 10/18/2019, these were the direct investment opportunities available at that time:

Uhaul

As you can see above, U-Haul is currently offering 2 year, 5 year, 8 year, 12 year, and 15 year bonds backed by their Utility Dolly, RV Trailer, and RT Trailer assets. The picture below shows information about the 2 year Utility Dolly bond offering at 3% interest rate.

dollyoffering

When I enter the principal amount, it calculates the number of payments, amount of each payment, and interest payments I would receive throughout the 2 year period. As you can see in the picture below, the total interest payment would be $30.60 for this 2 year bond investment.

Dolly

Now, I went ahead and checked out the bond with the longest time period. This was the 15 year existing RT Trailer bond at 5.75% interest rate. The picture below shows information about this bond.

trailer

I went ahead and checked the payments I would receive if I had invested $1000 in this 15 year bond. The results showed that I would have received a quarterly payment of $25, and the total interest paid was $499 on my $1000 principal. The only downside to these “U-Note” securities is that there is no secondary market. In other words, you can’t just liquidate your bonds whenever you want.

In my opinion, asset backed bonds like “U-Notes” are far superior than bonds issued to help fund pension fund deficits by companies like United Parcel Service Inc (UPS), Dow Chemical Co. (DOW), and Northrop Grumman Corp. (NOC). The return from investing in “U-Notes” is far superior to the mediocre 2% return on the 20 year US treasury bond.

cropped-cover-5.png

Please note that when you seek higher yields, you will run into junk bonds, which provide little to no safety of principal. So, it is best if you get rid of the bond that are rated BB+ or lower by Standard & Poor’s rating agency.

Hope you learned a little and found this blog post helpful. We talked Amerco’s U-Haul Investors Club, which offers “U-Notes”. “U-Notes” are collateralized debt securities, backed by assets such as trailers, trucks, real estate, and equipment. We noticed that asset backed US Corporate bond is also an investment worth looking into. As always, you can sign up for our mailing list here.  Like us on our Facebook page here. You can sign up for our paid subscription services here. Thank you!

 


Superior North LLC’s content is for educational purposes only. The calculators, videos, recommendations, and general investment ideas are not to be actioned with real money. Vyom Joshi is not a professional money manager or a financial advisor. Contact a professional and certified financial advisor before making any financial decisions. Please review the Disclaimer and Terms and Conditions.


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