Tim Melvin here with your Benzinga Yield Report update for January 28, 2025. You’ll probably be reading this on the 29th, but let’s get right to it. I had my notes all set to talk about how much better our portfolio did compared to tech-heavy alternatives, especially after the DeepSeek buzz yesterday. But then, like clockwork, NextEra Energy Partners, now rebranded as XPLR, dropped their bombshell. So instead of reinventing the wheel, I’m going straight to the source and breaking it all down for you.
The Big News: XPLR Update
NextEra Energy Partners, now XPLR, decided to take an approach I didn’t see coming. They’ve suspended distributions indefinitely. This move eliminates the need for new equity issuance, which we all assumed would be their strategy to handle convertible bond obligations. Instead, they plan to pay off the debt using a combination of balance sheet cash, asset sales, and cash flow.
Historically, their model focused on growing distributions per unit. Since 2018, they leaned heavily on convertible financings to fund expansion, but now they’re pivoting. The new plan prioritizes organic growth, new clean energy investments, and potentially returning capital to shareholders through buybacks rather than dividends. However, this won’t happen overnight. The portfolio of 10 gigawatts of renewable energy assets remains valuable, and the balance sheet looks solid with their credit ratings recently affirmed. Still, with no yield factor, this security no longer aligns with the primary purpose of our income-focused portfolio. We’ll look to exit XPLR as it recovers.
For anyone who over-allocated to this position, let this be a lesson. Proper position sizing is paramount. This hit is unpleasant, but for a well-diversified portfolio, it should only represent a 2% to 2.5% loss overall. Mistakes happen, but they shouldn’t be portfolio-breaking.
AGNC: Still a Bright Spot
AGNC reported an accounting loss of $0.11 per share, but the real story is in the net spread and dollar roll income, which easily covered their $0.36 dividend. Book value dipped slightly due to higher interest rates, but the portfolio remains robust. AGNC holds $73 billion in assets, with $65 billion in agency mortgage-backed securities. Liquidity is strong, with $6.1 billion in unencumbered cash and assets. They even raised capital through an at-the-market offering, which is cheaper than issuing debt.
We remain bullish here. The dividend yield hovers around 14%-15%, and as interest rates stabilize or decline, book value should recover. With no credit risk due to agency backing, AGNC remains a cornerstone of our strategy.
DeepSeek: Game-Changer or Smoke and Mirrors?
DeepSeek, the new AI out of China, has generated a lot of chatter. Reports suggest it’s faster, smarter, and cheaper than anything we’ve seen from OpenAI or Claude. But let’s not get ahead of ourselves. Is it possible they’ve developed a breakthrough AI on a fraction of the budget? Sure. But there’s also a chance this is all smoke and mirrors—or worse, based on stolen source code and backdoor deals for GPUs.
Either way, it’s a Sputnik moment. China has made it clear they’re not playing catch-up; they intend to win this race. Whoever dominates AI, quantum computing, and potentially fusion energy will shape the global economy and geopolitics for decades. This development warrants close attention. For now, though, skepticism is healthy.
Macro Thoughts: Fed and Bonds
The bond market slipped back into familiar bear territory after a brief flight to safety. With the Fed meeting tomorrow, don’t expect a rate cut. The economy is strong, unemployment is low, and wage growth remains muted. Inflation, however, is sticky. One area to watch is legal immigration. If we go too far in limiting it, we’ll see wage pressure build, fueling inflation and impacting bonds.
Portfolio Performance: Lessons in Diversification
Aside from XPLR, the portfolio had a solid week. Dividends kept rolling in, and our cash flows remain steady. The key takeaway is this: diversification and position sizing matter. Mistakes, like the one with XPLR, will happen. What’s important is that no single position takes you out of the game. With a diversified portfolio of 30 to 35 names, we’re well-positioned to weather these storms.
Final Thoughts
Yes, I got XPLR wrong. The company’s filings and communications gave every indication they were committed to the distribution model. I’ll do a post-mortem to understand what signals I missed and share those insights with you. For now, the focus remains on steady income and risk management. The rest of the portfolio is cranking out cash flows and dividends as expected.
Hang tough, folks. We’ll recover and move forward. If anything major develops—whether with XPLR, AGNC, or DeepSeek—you’ll be the first to know. Otherwise, we’ll catch up next week. Thanks for reading, and have a great week ahead.