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Friday Fixed Income

Every Friday I present three fixed income options.

music selection:  “Show Me How To Live” — Audioslave

A huge part of my success as an early retiree is dependent on a stable stream of income, largely from closed end funds purchased at a discount to their Net Asset Value.  This is an easy and safe way to gain access to cheap leverage without taking a margin loan.

Having enough income to cover your budget without trading is a key component towards being able to trade profitably.  You see, if you are compelled to make trades by your budget, you will make a lot of bad trades you otherwise would have left on the table.

Below are three new ideas in the Closed End Fund debt space that are yield rich and offer attractive pricing.

Neuberger Berman Real Estate Sec (NRO) is a closed end fund that is invested in various income producing securities in the real estate sector.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 8.17%
  • Yield – 11.18%
  • Effective leverage – 2.07%

EV Tax Advantaged Bond & Option (EXD) is a closed end fund that is invested tax advantage short term bonds with an options overlay strategy.  It pays a managed distribution on a quarterly basis.

  • Discount to NAV – 11.57%
  • Yield – 12.34%
  • Effective leverage – none

Virtus Global Multi-Sector (VGI) is a closed end fund that is invested in various bonds domestically and globally.  It pays a managed distribution on a monthly basis.

  • Discount to NAV – 8.37%
  • Yield – 12.48%
  • Effective leverage – 26.05%

Devour your prey raptors!

{ 2 comments… add one }
  • Chris B February 7, 2018, 8:25 pm

    We got an opportunity to test CEFs against the S&P 500 during a volatility event.

    Symbol 5d change 1m change
    ————————————————-
    ^SPX. -4% +0.3%
    NRO. -2.19% -15.06%
    EXD. +5% -4.9%
    VGI. -0.41% -15.34%

    I’m not sure what conclusions to draw. Maybe… less volatile in the short-run but with major drag compared to the stock index?

    • The Lizard King February 7, 2018, 11:32 pm

      I’m not sure I have ever sold a CEF. I buy them to hold for income. It seems unlikely to me the income stream from VGI was worth 15.34% less in that period of time. I recommend of thinking of these like a bond allocation.

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