Three possibilities in the closed end fund debt space.

music selection:  “Come On Eileen” — Dexy’s Midnight Runners

Each Friday, I post three closed end funds invested in debt and debt like securities.  These can serve as the anchor of a income centric portfolio to support early retirement.  I keep 40% of my portfolio in this sector and it is sufficient to cover my early retirement budget.  I have another 60% available for trading and growth to ensure I stay ahead of inflation.

KKR Income Opportunities Fund (KIO) is a closed end fund that seeks a high level of current income with a secondary objective of capital appreciation through investment in loans and fixed-income instruments of U.S. and non-U.S. issuers.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 8.06%
  • Yield – 9.32%
  • Effective leverage – 29.57%
  • Expense ratio – 2.60%
  • Learn more

Barings Global Short Duration High Yield Fund (BGH) is a closed end fund that seeks a high level of current income with capital preservation through investment in high yield bonds, loans and other income-producing securities. It pays an income only distribution on a monthly basis.

  • Discount to NAV – 8.37%
  • Yield – 9.49%
  • Effective leverage – 26.38%
  • Expense ratio – 2.37%
  • Learn more

NexPoint Strategic Opportunities Fund (NHF) is a closed end fund that seeks current income with capital appreciation through investment in floating and fixed rate loans, bonds, debt obligations, mortgage backed and asset backed securities, collateralized debt obligations and equities.  It pays an income only distribution on a monthly basis.

  • Discount to NAV – 15.81%
  • Yield – 10.86%
  • Effective leverage – 14.77%
  • Expense ratio – 2.21%
  • Learn more

Devour your prey raptors!

Friday Fixed Income

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4 thoughts on “Friday Fixed Income

  • June 5, 2018 at 3:43 pm

    I’d be interested in hearing what you think about EXD cutting it’s dividend by 50%. Do you have any helpful tips on how to analyze CEFs or long term viability of these funds?

    • June 5, 2018 at 4:24 pm

      I didn’t realize EXD had announced a distribution reduction. That fund uses a “managed distribution”. When the distribution type is “income only” the payout tends to be more stable. The fund manager adjusts in a managed distribution to ensure the payouts do not erode NAV. Retaining cash this way can result in capital gains. But that isn’t what I invest in CEFs for. So I prefer “income only”.

      The only real way to get your head around the risk of these funds is to go to the issuer’s webpage and review the holdings in their portfolio. Ideally, they list their interest rates and weighted average duration of the notes. That way, you can estimate your interest rate risk.

      For EXD, they have a mixture of municipal bonds and options investments. The munis look to be high quality and their earnings should be very stable. Most likely, the low volatility environment caused options earnings to fall and forced the reduction in distribution. It might return when volatility returns to something resembling historical norms. The last 3 years or so have been a difficult time for options sellers.

  • June 6, 2018 at 2:28 am

    The 2008-2009 drawdowns were brutal for the CEFs with histories that long, like AGC, AVK, FHY, and NHF. Brutal as in much bigger losses than the S&P 500 – leveraged losses. Plus no capital gains recovery afterwards. IDK, but… I question how well these investments will hold up in a recession.

    • June 6, 2018 at 7:48 pm

      You make a fair point. I have no plans of ever selling. I am holding for the income stream, not the NAV.


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