Today I am going to discuss a closed end fund composed of senior variable rate debt.
music selection: “Poison” — Alice Cooper
weigh-in: 221.8 (0.2) #loser
We go back to Nuveen for another closed end fund. Nuveen Floating Rate Income Opportunity Fund (JRO) is a CEF composed primarily of senior variable notes. In the event of bankruptcy, these notes must be paid first before other creditors and bond holders can be compensated. This adds an extra measure of safety. The closed end nature ensures shareholders can not force the fund to lock in loss during liquidity events by taking redemptions. The closed end nature also means we can sometimes buy assets for less than their fair value. In this case, JRO is trading at a 12% discount to NAV. A real steal!
The fund pays a monthly distribution of .063 per share. Against today’s market price, the yield is 7.5%; comparable to the after tax return on our closed end municipal bond funds. Like the munis, this fund pays monthly allowing more frequent compounding for those still accumulating their retirement bulkhead or more convenient budgeting for those in the draw-down phase. The variable nature of the debt held by JRO means there is upside for both income and capital gains if the Fed begins raising interest rates. This is an important defensive measure in the current environment.
JRO is a buy anytime it trades at more than 10% below NAV. Raptors can track NAV at the Nuveen fund page here.
Devour your prey raptors!