The market is a little nervous lately.  Time to talk about a safer investment: bonds.

music selection: “Get It On” — T. Rex (You knew I’d choose it eventually)

weigh-in: 227.2 (0.4) #loser

I have three CEF bond issues for you today and they are all trading below NAV.  The first is a special situation that is applying to move to an open end fund.  Investors will earn the spread against NAV immediately upon conversion.  I speak of AllianceBernstein Income Fund (ACG).  This leveraged fund is in mostly Investment grade debt and yields 5.2%.  Not too shabby.  It trades today for a 4.11% discount to NAV.  Shareholders vote 1FEB16 to convert to an open end fund.  If the vote passes, the 4.11% discount will immediately evaporate.  I’ll be selling immediately upon conversion to earn an easy quick return.

BlackRock Credit Allocation Income Trust (BTZ) is a leveraged CEF dealing in corporate bonds.  It yields 7.7%, which is rather tasty.  It trades for a 14.13% discount to NAV, much better than ACG above.  The prospectus describes the investment strategy thusly: “BlackRock Credit Allocation Income Trust’s (BTZ) (the ‘Trust’) investment objective is to provide current income, current gains and capital appreciation. The Trust seeks to achieve its investment objective by investing, under normal market conditions, at least 80% of its assets in credit-related securities, including, but not limited to, investment grade corporate bonds, high yield bonds (commonly referred to as ‘junk’ bonds), bank loans, preferred securities or convertible bonds or derivatives with economic characteristics similar to these credit-related securities. The Trust may invest directly in such securities or synthetically through the use of derivatives.”  This is a long term buy and hold debt security.  Raptors who don’t need the income to meet expenses might put this in a tax advantaged account to defer paying on the distributions.

My favorite of these three has been saved for last.  Take a look at Western Asset Global High Income Fund Inc. (EHI).  This is a diversified global bond fund.  It pays a whopping 11.7% at today’s price (act fast!)  The discount to NAV is an amazing 16.43%.  Such high yield normally suggests a lot of interest rate risk.  So I explored their literature to see what the duration on these bonds are.  Per the Q2 2015 published fact card, the effective duration is only 4.6 years.  Even in a global rising interest rate environment this funds should be relatively stable.  This is another one you might want in a tax advantaged account as taxes on distributions could add up.

Smart raptors have an allocation to bonds.  They let you sleep well at night when the market is acting badly like it has been lately.

Devour your prey raptors!

Three Closed End Bond Funds Trading Below NAV

Never miss another opportunity to devour prey!

2 thoughts on “Three Closed End Bond Funds Trading Below NAV

  • September 15, 2015 at 11:05 pm

    Why do many leveraged CEF’s trade with such large discounts to NAV? Is it in anticipation of higher interest rates?

    • September 15, 2015 at 11:46 pm

      That is a good question and I’m not sure there is an answer. Theoretically, the difference should get arbitraged away. Higher interest rates could be a small drag on these ETF’s but they have access to borrowing facilities you and I do not. It should be that large of a problem for them. My opinion is Mr. Market is just being irrationally moody.


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