I’m introducing a new regular Friday feature at the raptor.

music selection: “Tumbling Dice” — The Rolling Stones

I’ve been getting more questions about the non-options portion of my portfolio.  I rarely report on that as the positions are mostly fixed income positions that are held with a wide stop loss and are intended as permanent positions rather than for trading.  A “nothing changed again” blog post has always seemed sort of dull to me so I have refrained.

But I think it is important for an early retiree to have a reliable stream of income that is not dependent on trading.  The best traders are the ones who have the discretion to sit back and not trade anything at all if nothing attractive is on offer.  You don’t want to pick up nickles in front of a steamroller.  So I have built a base of my portfolio, about 40% by cost basis into fixed income type investments.  This allows me live modestly without trading when and if necessary.

I like to invest in fixed income via Closed End Funds that are trading below their Net Asset Value (NAV).  You get diversification, an opportunity to buy assets below their liquidation value, and low cost leverage without the possibility of a margin call.  So I am going to start offering three selections in the closed end fund space each Friday that are yield rich and attractively priced.

Aberdeen Inc. Credit Strategies (ACP) is a closed end fund that invests in senior loans.  It pays monthly and the distribution type is “income only”.

  • Discount to NAV – 6.32%
  • Yield – 10.01%

Brookfield Real Assets Income (RA) is a closed end fund that invests in mortgages and mortgage securities.  It pays monthly and the distribution type is “managed distribution”.

  • Discount to NAV – 6.83%
  • Yield – 10.12%

EV Tax Advantaged Bond & Option (EXD) is a closed end fund that invests in high quality bonds with a rules based options overlay strategy.  It pays quarterly and the distribution type is “managed distribution”.

  • Discount to NAV – 6.00%
  • Yield – 10.91%

What do you think of the new feature, raptors?

Devour your prey raptors!

New Feature – Fixed Income

Never miss another opportunity to devour prey!

6 thoughts on “New Feature – Fixed Income

  • January 5, 2018 at 7:28 pm

    Glad to see this. I originally started reading your blog because of your insights into non-traditional equities. I hadn’t ever heard of distressed bonds or CEFs until coming here.

  • January 5, 2018 at 8:18 pm

    This is intriguing. I’ve spent some time on CEFconnect.com and the things that deter me from CEFs are the fees. When index funds charge less than 0.1% (some < 0.05%) it's hard to pay 1.5-2+% for a CEF. The discounted value of all future fees explains why these funds usually sell at a discount to NAV, but the discounts are all over the place. I think it would be interesting to analyze whether a discount on NAV is deserved, or if there exist inefficiencies to be exploited. I.e. at what level of discount to NAV does it makes sense to pay 2%/year, compounded?

    The 2nd thing I wonder is how these CEFs performed during the 2008-2009 panic and the subsequent megabull. Does the discount cushion them from volatility, or does the leverage burn? During this bull market, high dividend stocks sucked (relatively anyway). My general observation is "high dividend = price to decline soon". Has that historically applied to CEFs as well?

    • January 5, 2018 at 9:31 pm

      You have to realize that with that fee, part of what you are paying for is the margin loan. Most CEFs use 30-40% leverage and that has a non-zero cost.

      Performance of CEFs as a whole is all over the place. I’m focusing in on a narrow slice, CEFs that hold debt instruments. These will always perform more like bonds than equity. That is, I expect performance to be non-correlated in all markets. And to collect high yields into perpetuity.

  • January 6, 2018 at 1:00 pm

    Very interesting indeed. At the moment I am still enjoying the option plays to much (and UVXY puts give such healthy returns …) but perhaps at a certain moment I might want a more passive approach. Will definitely look into CEF’s at that moment!

    Little blogging tip. WordPress supports categories (and tags) for posts so it is easy to find all related posts together. It is a standard plug in that should work in all themes. I have it at the right on my blog and it makes it super easy for readers to find all related content …

  • January 10, 2018 at 6:16 am

    I’m looking forward to reading your comments on CEFs. I am a big “fan” of CEFs for part of my portfolio.

    Here is another name for you to consider: JH Tax Advantaged Dividend Income, ticker HTD. It is invested 50/50 in stocks (mostly utilities) and preferred stocks (mostly financial). It doesn’t typically sell for much of a discount, but with utilities declining it now has a slight discount.

    I like it because of the way they manage the monthly distributions. They never overshoot on the distributions, so UNII is always positive and the NAV and distributions can appreciate over time. IMHO this is the right way to manage the payout as opposed to CEFs that pay too much and end up self-liquidating.

    I agree with you that CEFs are particularly beneficial for fixed income. I really like national municipal bond CEFs as most of my money is in a taxable brokerage account.


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