High-yield/macroeconomics (fka YIELD)

[Democritus_of_Abdera]

Regarding VTA (and VVR)...

There seems to be an effort to make the VTA and VVR more open to the investors. Something that I applaud. However, the VTA and VVR teams have done a poor job. It appears that management does not pay attention to detail...a damning statement for funds such as these.

For example:

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1. Van Kampen provides down-loadable Excel spread sheets of a) VTA’s & VVR’s holdings approximately 30 days after the end of each calendar quarter, b) historical distributions, and c) historical prices. see: http://www.vankampen.com/vksite/holdings/holdings_ce.asp & http://www.vankampen.com/vksite/prices/history_ce.asp

The fund holding data could be particularly revealing, especially if one kept track of quarter to quarter changes. But the data provided is sloppy (or wrong). The absurdity of the website fund holdings’ data is easily revealed by summing the 6/30/08 market values to get $3.1B. This is markedly different from the $1.7B on 4/30/08 and the current assets of $1.2B listed at http://www.vankampen.com/vksite/prices/prices_ce.asp .

Looking closely, one sees that this is due to repeated duplicate, and sometimes triplicate, data entries in the website spreadsheet. And, when you compare the data to that published in the N-Q filed on 6/26/2008 for the preceding quarter, you find that there are some minor discrepancies in the stated principle amounts that are difficult to rectify. For example, one need to go no further than the second entry on the N-Q where the IAP Worldwide Sevices holding of 4/30/08 is listed once at a principle amount of $2,426,000. On the van Kampen website listing of 6/30/08 fund holdings, IAP is listed twice with each listing having a par value of $2,240,634 for a rounded total of $4,471,000.

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2. Responses to questions in the 9/4/08 Conference Call suggested to me that the Portfolio Manager (Phil Yarrow) and Portfolio Specialist (Greg Olsen) did not have detailed knowledge of the fund parameters important to investors.

Relevant question and answer exchanges:

<Q>: Okay, and in terms of the, the volatility in the NAV, I recall a couple of years ago, VVR stood out among the corporate loan funds of having one of the lowest standard deviations among its peer groups. And I also noticed that has kind of reverted or inverted, I don’t know what you want to call it, it now is standing out as having the highest NAV, so I guess what my question is, can you tell us a little about what has happened over the -- 18 months or so, has there been any changes in your management approach in terms of size of the concentration of the holdings, sector allocations, what -- I guess what I am looking for is some color on what -- are there any changes and how -- explain the difference in the standard deviation on NAVs.

<A – Phil Yarrow>: There definitely hasn’t been any changes in the management style as far as
concentration, industry or name, we clearly managed the portfolio in exactly the same manner. I got to be honest -- without going back and really doing some detailed analysis, I don’t really know the answer as to why standard deviation might have changed. Clearly, you know, VVR does have a significant amount of leverage, which magnifies the declines and the increases in the fund, when market conditions change. So I am not really sure if you’re comparing a period of time when there was virtually no -- when the market was very stable with one way it’s obviously, been very volatile, but there is definitely not been any management style changes.
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<Q>: Hi guys. Just a quick update on loan pricing. I know at the outset, you were all seeing sort of LIBOR plus 6 in the portfolio on average. Can you give us a sense for where the market is now?
<A – Phil Yarrow>: When we say -- and you’re talking about the market yield that we would see on the loans, or the actual loan coupons?
<Q>: Just a sense that I think that the target was somewhere around 8 or 9% at the time.
<A – Phil Yarrow>: Yes.
<Q>: And that was sort of a yield on the portfolio.
<A – Phil Yarrow>: Yes.
<Q>: Which was about LIBOR 6, if I remember correctly? Just curious what you all are seeing now.
<A – Phil Yarrow>: Okay. I already said I don’t have that number in front of me, but clearly I would say if you looked at the portfolio and the trading levels, and you obviously have to make some sort of assumption about average life of these loans. If we assumed maybe a four year average life, I think in VTA you’d be seeing something probably in the LIBOR plus 800 range maybe, LIBOR plus 800 to 900, and VVR a little bit lower than that, but it’s certainly high.
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<Q>: Hi, guys. Just what’s the average spread on the portfolio at this point? Just an average you know stated spread not market based on the market rate. Round numbers I mean.
<A – Phil Yarrow>: Okay. And again I don’t have the numbers in front of me. So I am sort of going let the office off my head yet VVR obviously this fund has been around for a while here and so I would say that the average spread is going to be somewhere in the L plus 250 to L plus 300 range probably.
<Q>: Okay, okay.
<A – Phil Yarrow>: VTA, where -- was we have obviously been ramping that trend up over the last 12 months or so. It’s going to have a much higher steady two point spread. I mean probably more or like a LIBOR plus, 400 plus.
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<Q>: And what is your average spread on the leverage?
<A>: Average cost of the leverage?
<Q>: No, just what are you making between what you’re borrowing and what you’re getting paid?
<A>: Well, it’s...
<Q>: On average.
<A – Phil Yarrow>: On average. You see, you have to -- there is two ways of looking at it, right? You can look at it from our actual income basis and on what the market yielded on the portfolios. So, I am not – I mean on an income basis, I am not sure, but it’s probably certainly a couple of 100 basis points. And if you looked at the market yield of the portfolio compared to the cost of leverage, and it’s substantially more than obviously, as we mentioned.